-----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, Pr01JMpdosxMzwpvulbhPsL1cit4Vr/a04Rahv3WPVfg1NLUkxxU5+X279420YWF zJ7cXni9dk3A/mpg/WoRng== 0000898430-94-000338.txt : 19940512 0000898430-94-000338.hdr.sgml : 19940512 ACCESSION NUMBER: 0000898430-94-000338 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19940511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROHR INC CENTRAL INDEX KEY: 0000084801 STANDARD INDUSTRIAL CLASSIFICATION: 3728 IRS NUMBER: 951607455 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-53113 FILM NUMBER: 94527312 BUSINESS ADDRESS: STREET 1: FOOT OF H STREET CITY: CHULA VISTA STATE: CA ZIP: 91910 BUSINESS PHONE: 6196914111 MAIL ADDRESS: STREET 1: PO BOX 878 CITY: CHULA VISTA STATE: CA ZIP: 91912 FORMER COMPANY: FORMER CONFORMED NAME: ROHR INDUSTRIES INC DATE OF NAME CHANGE: 19911219 FORMER COMPANY: FORMER CONFORMED NAME: ROHR CORP DATE OF NAME CHANGE: 19711220 FORMER COMPANY: FORMER CONFORMED NAME: ROHR AIRCRAFT CORP DATE OF NAME CHANGE: 19710317 S-3/A 1 FORM S-3, AMENDMENT #2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1994 REGISTRATION NO. 33-53113 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- ROHR, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-1607455 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 850 LAGOON DRIVE CHULA VISTA, CALIFORNIA 91910 (619) 691-4111 (ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- R. W. MADSEN VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY ROHR, INC. 850 LAGOON DRIVE CHULA VISTA, CALIFORNIA 91910 (619) 691-2025 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) COPIES TO: RHONDA S. WAGNER, ESQ. THOMAS C. SADLER, ESQ. GIBSON, DUNN & CRUTCHER LATHAM & WATKINS 750 B STREET, SUITE 3300 633 WEST FIFTH STREET, SUITE 4000 SAN DIEGO, CALIFORNIA 92101 LOS ANGELES, CALIFORNIA 90071-2007 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of the Registration Statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE The Prospectus relating to the Senior Notes being registered hereby (the "Senior Notes Prospectus") is set forth following this page. The Prospectus to be used in connection with a concurrent offering by Rohr, Inc. of Convertible Subordinated Notes follows the Senior Notes Prospectus. ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION APRIL 19, 1994 PROSPECTUS $100,000,000 ROHR, INC. [LOGO OF ROHR] % SENIOR NOTES DUE 2003 The % Senior Notes due 2003 (the "Senior Notes") are being issued by Rohr, Inc. ("Rohr" or the "Company") and will mature on , 2003. Interest on the Senior Notes is payable semiannually, on and of each year, commencing , 1994. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on and after , 1999, at the redemption prices specified herein, plus accrued interest. The Senior Notes do not provide for any sinking fund. Upon a Change of Control (as defined), the holders of the Senior Notes will have the right, subject to certain restrictions and conditions, to require the Company to purchase all or any part of the Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. In connection with the offering of the Senior Notes (the "Offering"), the Company is concurrently offering, pursuant to a separate prospectus (together with the Offering, the "Offerings"), $50 million aggregate principal amount (assuming no exercise of the Underwriter's over-allotment option) of its % Convertible Subordinated Notes due 2004 (the "Convertible Subordinated Notes" and, together with the Senior Notes, the "Securities"). See "Description of Concurrent Financing." The Senior Notes will be general unsecured obligations of the Company, senior in right of payment to all existing and future subordinated indebtedness of the Company and pari passu in right of payment with all other existing and future senior indebtedness of the Company. The Senior Notes will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. As of January 30, 1994, after giving effect to the Offerings and the anticipated use of the proceeds therefrom, the Company would have had approximately $157.8 million of pari passu indebtedness (excluding the Senior Notes), and $315.0 million of subordinated indebtedness, outstanding (assuming no exercise of the Underwriter's over-allotment option). In addition, there would have been approximately $32.7 million of indebtedness and other liabilities of the Company's subsidiaries at such date. AN INVESTMENT IN THE SENIOR NOTES INVOLVES A SIGNIFICANT DEGREE OF RISK. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SENIOR NOTES. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT COMPANY(2) Per Note..................................... % % % Total........................................ $ $ $
- -------------------------------------------------------------------------------- (1) Plus accrued interest, if any, from , 1994 to the date of delivery. (2) Before deducting expenses payable by the Company, estimated at $ . The Senior Notes are offered subject to receipt and acceptance by the Underwriter, to prior sale and to the Underwriter's right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of the Senior Notes will be made at the office of Salomon Brothers Inc, Seven World Trade Center, New York, New York or through the facilities of The Depository Trust Company, on or about , 1994. _____________________ SALOMON BROTHERS INC - -------------------------------------------------------- The date of this Prospectus is , 1994. INSERT PICTURES 2 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ---------------- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed with the Securities and Exchange Commission (the "Commission") by Rohr pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated herein by reference and made a part hereof: (1) The Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1993; (2) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended October 31, 1993 and January 30, 1994; and (3) The Company's Current Report on Form 8-K, dated May 2, 1994. Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the Offering made hereby shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such document. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER OF SENIOR NOTES, TO WHOM THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). SUCH REQUESTS SHOULD BE DIRECTED TO: ROHR, INC., ATTN.: SHAREHOLDER SERVICES, P.O. BOX 878, CHULA VISTA, CALIFORNIA 91912- 0878, (619) 691-2808. AVAILABLE INFORMATION The Company has filed a Registration Statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement") with the Commission under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Securities. This Prospectus does not contain all of the information set forth in such Registration Statement, certain portions of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the securities offered hereby, reference is made to the Registration Statement. The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected, without charge, and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and the following regional offices of the Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W. Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and other information can also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and The Pacific Stock Exchange Incorporated, 301 Pine Street, San Francisco, California 94104. 3 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements (including the notes thereto) appearing elsewhere or incorporated by reference in this Prospectus. Investors should carefully consider the information set forth under the heading "Risk Factors." Market discussions and references to aircraft production exclude consideration of markets in the former U.S.S.R. THE COMPANY Rohr, Inc. ("Rohr" or the "Company") designs, develops, manufactures, sells and supports complete nacelle and pylon systems for large aircraft engines. The Company has over 50 years of experience in the aerospace industry and is the leading independent supplier of nacelle and pylon systems to the world's major commercial airframe and engine manufacturers ("OEMs"). Rohr manages projects from the early design stage through production and systems integration to lifetime customer support. In addition, the Company has the right to provide customer and product support directly to approximately 145 airlines around the world, including on-site field services and the sale of spare parts. Nacelles are aerodynamic structures which surround jet engines. A nacelle system generally includes the nose cowl or inlet, fan cowl, nozzle systems, thrust reverser and engine build-up ("EBU"). Pylons (sometimes referred to as struts) are the structures that attach the jet engines to the aircraft. Nacelle and pylon systems are highly engineered, critical to fuel efficiency and integral to all of the key interfaces between the jet engine and the airframe. The Company believes that it is competitively well-positioned in its core business. Management estimates that the Company supplied approximately 45% of the nacelle systems and 25% of the pylons for all large commercial aircraft produced worldwide in 1993, including products represented on the Boeing 737, 747, 757 and 767, the Airbus A300, A310, A320, A321, A330 and A340, and the McDonnell Douglas MD-80 and MD-11. The Company attributes its strong market position to its leading technologies, its focus on a specific product line and its competitive cost structure. Management believes that this market position is protected by (i) Rohr's long-term contracts, including some "life-of- program" agreements, (ii) the substantial costs required for the airframe or engine OEMs to change supply sources, (iii) the significant up-front design, development, tooling and certification costs which must be borne before production on a program may begin and (iv) a strong reluctance by airlines to support different nacelle systems manufactured by more than one supplier. Rohr's management intends to maintain the Company's leading market position by supplying its customers with high-quality, technically-advanced products at competitive prices while improving profitability and returns to investors. Management plans to accomplish this goal by (i) focusing on its core product line and on customer satisfaction, (ii) continuing to reduce costs and improve productivity, (iii) capitalizing on past investments in product lines and fixed assets and (iv) implementing a financing plan to improve the Company's capital structure and liquidity. Focus on Core Business: Over the past year, the Company has increased its focus on its core business within the commercial aerospace industry--the design and manufacture of nacelle and pylon systems for large commercial aircraft. The Company intends to focus exclusively on these products and to be the low cost producer in this segment. The Company is currently in negotiations to sell two non-core businesses, its business jet product line and its overhaul and repair business. These two businesses generated approximately $35 million of revenue in fiscal 1993. 4 In April 1993, Robert H. Rau was recruited from outside the Company and appointed President and Chief Executive Officer. Under his leadership, new management has placed increased emphasis on enhancing its customers' satisfaction. Management believes these efforts have contributed to the strong relationships that the Company currently has with customers. Cost Improvement Program: New management has taken aggressive actions to increase competitiveness, improve earnings, maximize cash flow and reduce debt. From April 30, 1993 (the end of the third quarter of fiscal 1993) to January 30, 1994 (the end of the second quarter of fiscal 1994), total employment was reduced over 30% from 7,450 employees to 5,154. The ratio of indirect employees to direct employees has improved from 1-to-2.0 to 1-to-2.6 over this same time frame. Management has targeted a ratio of 1-to-2.8 by July 31, 1994. Management has established a total overhead expense budget equal to 29% of sales for fiscal 1994, which compares to a high of 41% of sales in fiscal 1989 and 32% of sales for the 12 months ended January 30, 1994. Total overhead peaked at $477 million in fiscal 1991, was reduced to $327 million for the 12 months ended January 30, 1994, and is budgeted for $267 million in fiscal 1994. Coincident with these overhead reductions, the Company has increased its effort to streamline its operations and reduce material costs. To reduce excess capacity and to increase overall production efficiencies through higher utilization of its remaining facilities, the Company has closed and sold the Auburn, Washington plant, is closing the Hagerstown, Maryland plant and has deferred completion of a new facility in Arkadelphia, Arkansas. Modest Future Investment Requirements: During the five-year period ended July 31, 1993, the Company invested significantly in the design, development, tooling, certification and other start-up costs associated with new aircraft programs. Although the Company intends to aggressively pursue all important new nacelle programs, management anticipates that few program introductions will be made by airframe and engine manufacturers during the next five years. Management believes that this slow down in new product introductions will enable the Company to focus on efficiencies in existing programs, protect its current market share and generate increased cash flow without the investments required for new product development. In addition, capital expenditures (including expenditures funded by industrial revenue bonds and capital leases) averaged $45 million per year over the past five fiscal years. During that period, the Company spent $109 million for upgraded production and office facilities. No new facilities will be required over the next five years. Management anticipates that capital expenditures will total approximately $7 million in fiscal 1994 and that capital expenditures over the subsequent four years will average less than $20 million per year. Financing Plan: The Company has adopted a financing plan to enhance its liquidity, extend the maturity of its bank credit facility and improve its financial flexibility. The financing plan is comprised of three components: (i) amendments to a three-year revolving credit agreement (the "Revolving Credit Agreement"), providing an initial commitment of $110 million, (ii) amendments to certain other financing agreement and (iii) the offering of $100 million of Senior Notes and the offering of $50 million of Convertible Subordinated Notes (assuming no exercise of the Underwriter's over-allotment option). 5 RECENT FINANCIAL PERFORMANCE The Company believes that its performance for the three most recent fiscal quarters represents meaningful evidence of the Company's financial turnaround. For the nine-month period ended January 30, 1994, the Company recorded an operating profit margin of 6.0%, net income margin of 1.1% and EBITDA of $62.7 million. During the same nine-month period, the Company generated $78.1 million in cash from operating activities and reduced total financings (debt plus off- balance sheet financings) by $94.4 million from $681.4 million at May 2, 1993 to $587.0 million at January 30, 1994. SELECTED UNAUDITED QUARTERLY FINANCIAL INFORMATION
FISCAL YEAR ENDED JULY 31, 1994 FISCAL YEAR ENDED JULY 31, 1993 ----------------- ---------------------------------------- SECOND FIRST FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Operating Income (Loss). $ 14,594 $ 17,064 $ 12,710 $(23,367) $ (7,534) $ 16,503 Operating Margin........ 6.1% 7.0% 5.0% (7.9)% (2.2)% 5.8% EBITDA(1)............... $ 20,642 $ 22,709 $ 19,314 $ 7,959 (2) $ (1,330) $ 22,947 Capital Expenditures.... 1,474 1,475 4,647 4,011 6,993 11,885 Cash Provided by (Used In) Operating Activi- ties................... 27,284 17,644 33,168 81,071 (19,814) (15,757) Total Financings(3)..... $586,982 $618,380 $643,855 $681,412 $740,490 $601,987 Employee Data: Direct Employees....... 3,727 4,081 4,334 4,994 5,823 6,047 Indirect Employees..... 1,427 1,705 2,130 2,456 2,678 2,795 -------- -------- -------- -------- -------- -------- Total Employees...... 5,154 5,786 6,464 7,450 8,501 8,842
- -------- (1) EBITDA represents earnings before the cumulative effect of the accounting changes, interest and other income, interest expense, taxes on income (benefit), depreciation, amortization and the impact of the special provisions referred to in note (2) below. EBITDA is presented here to provide additional information about the Company's ability to meet its future debt service, capital expenditure, and working capital requirements and should not be construed as a substitute for or a better indicator of results of operations or liquidity than net income or cash flow from operating activities computed in accordance with generally accepted accounting principles. (2) EBITDA is adjusted for the impact of the net provision of $25.0 million for plant closure, inventory obsolescence and other asset valuation, other costs related to the planned consolidation process and various items of litigation. (3) Includes off-balance sheet financings. See "Capitalization." ---------------- The Company's principal executive offices are located at 850 Lagoon Drive, Chula Vista, California. The Company's mailing address is P. O. Box 878, Chula Vista, California 91912-0878, and its telephone number is (619) 691-4111. 6 THE OFFERING Issue....................... $100,000,000 principal amount of % Senior Notes due 2003. Maturity.................... , 2003. Interest Payment Dates...... and of each year, commencing , 1994. Optional Redemption......... The Senior Notes are redeemable, at the Company's option, in whole or from time to time in part, on and after , 1999, at the redemption prices specified herein, plus accrued interest. See "Description of Senior Notes--Optional Redemption." Ranking..................... The Senior Notes will be general unsecured obligations of the Company ranking senior in right of payment to all existing and future subordinated indebtedness of the Company and pari passu in right of payment with the Company's other existing and future senior indebtedness. The Senior Notes will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. As of January 30, 1994, after giving effect to the Offerings and the anticipated use of proceeds therefrom, the Company would have had approximately $157.8 million of pari passu indebtedness (excluding the Senior Notes) and $315 million of subordinated indebtedness outstanding (assuming no exercise of the Underwriter's over-allotment option). In addition, there would have been approximately $32.7 million of indebtedness and other liabilities of the Company's subsidiaries at such date. Change of Control........... In the event of a Change of Control, the Company will be required, subject to certain conditions and limitations, to offer to purchase all Senior Notes then outstanding at a purchase price equal to 101% of the aggregate principal amount of the Senior Notes plus accrued and unpaid interest to the date of purchase. There can be no assurance that the Company will have sufficient cash to pay the Change of Control purchase price in the event that a Change of Control occurs. See "Description of Senior Notes--Change of Control." Sale of Assets.............. The Company may be required, subject to certain conditions and limitations, to offer to purchase certain of the Senior Notes at 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, in the event of an Asset Sale (as defined). See "Description of Senior Notes--Certain Covenants--Limitation on Sale of Assets." Certain Covenants........... The Indenture will contain certain covenants, which, among other things, will limit the Company's ability to incur additional indebtedness, pay dividends, make certain other distributions and create liens, sell assets, enter into certain transactions 7 with affiliates or merge, consolidate or transfer substantially all of its assets. The provisions of the Indenture would not necessarily afford holders of the Senior Notes protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction that may adversely affect the holders of Senior Notes. See "Description of Senior Notes--Certain Covenants." Use of Proceeds............. Proceeds from the sale of the Senior Notes will be used to repay all outstanding amounts under the Company's Revolving Credit Agreement to the extent necessary after application of the net proceeds of the offering of Convertible Subordinated Notes, and for general corporate purposes. See "Use of Proceeds." Risk Factors................ An investment in the Senior Notes involves a significant degree of risk. For a discussion of certain material factors to be considered by potential investors, see "Risk Factors." Concurrent Offering......... The Company is concurrently offering, pursuant to a separate prospectus, $50 million in aggregate principal amount of Convertible Subordinated Notes (assuming no exercise of the Underwriter's over-allotment option). See "Description of Concurrent Financing." The sale of the Senior Notes will be conditioned on the simultaneous sale of the Convertible Subordinated Notes. 8 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA The following table sets forth a summary of selected financial and operating data of the Company for each of the periods indicated in the five-year period ended July 31, 1993, which were derived, except as otherwise noted, from the audited Consolidated Financial Statements of the Company. The table also sets forth selected financial and operating data for the six-month periods ended January 30, 1994, and January 31, 1993, which were derived from unaudited interim Consolidated Financial Statements of the Company.
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ------------------- --------------------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993(A) 1992 1991 1990 1989 -------- --------- ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Sales......................... $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677 Operating Income (Loss)....... 31,658 8,969 (1,688)(b) 45,558(c) 100,578 31,605 75,044 Income (Loss) Before Taxes and Cumulative Effect of Accounting Changes........... 7,977 (13,801) (49,571) (17,815) 46,877 (9,001) 46,080 Income (Loss) Before Cumulative Effect of Accounting Changes........... 7,735 (8,515) (30,581) 1,455 30,517 39 33,480 Net Income (Loss)............. 7,735 (232,465)(d) (254,531)(d) 1,455 30,517 39 33,480 Net Income (Loss) Per Share: Income (Loss) Before Cumulative Effect of Accounting Changes.......... $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 $ 0.00 $ 1.90 Net Income (Loss)(d)......... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 $ 0.00 $ 1.90 BALANCE SHEET DATA AT PERIOD END: Working Capital............... $358,453 $ 447,476 $ 350,321 $ 700,774 $ 712,520 $ 640,461 $ 549,799 Property, Plant and Equipment, Net.......................... 230,849 245,948 239,045 270,283 237,434 234,166 204,911 Total Assets.................. 967,566 1,130,164 1,017,786 1,363,958 1,411,498 1,329,308 1,166,828 Total Debt(e)................. 483,425 628,243 531,608 572,594 636,070 551,227 426,390 Total Shareholders' Equity.... 190,229 217,336 182,243 448,866 441,401 413,713 412,387 OTHER DATA: EBITDA(f)..................... $ 43,351 $ 21,617 $ 48,890 $ 123,413 $ 128,299 $ 58,645 $ 99,880 Capital Expenditures(g)....... 2,949 18,878 27,536 62,933 32,383 28,923 39,005 Ratio of Earnings to Fixed Charges(h)................... 1.31x 0.40x 0.01x 0.72x 1.81x 0.83x 2.27x EBITDA to Interest Expense(f). 1.79x 0.93x 1.00x 1.84x 2.34x 1.09x 3.13x PRO FORMA DATA TO REFLECT ACCOUNTING CHANGES (UNAUDITED)(I): Pro Forma Net Income (Loss)(i).................... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680) Pro Forma Net Income (Loss) per Share.................... 0.43 (0.48) (1.71) (2.05) (1.31) (3.29) (0.49) Pro Forma EBITDA(f)(j)........ 43,351 21,617 48,890 62,269 41,727 (36,182) 31,549 ADJUSTED DATA TO REFLECT OFFERINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES (UNAUDITED)(K): Net Income (Loss)............. $ 4,412 $ (36,495) Net Income (Loss) per Share... 0.24 (2.04) Ratio of Earnings to Fixed Charges(h)(l)................ 1.07x 0.01x EBITDA to Interest Expense(f). 1.48x 0.85x
9 - -------- (a) Fiscal 1993 results reflect the Company's adoption, in the third quarter, of changes to certain elements in the application of accounting principles relating to long-term programs and contracts, including the expensing of general and administrative costs that were previously carried in inventory for amortization over future deliveries. The amounts also reflect the Company's adoption of SFAS No. 106, "Employers' Accounting for Post- Retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes." The accounting changes described above were effective August 1, 1992. As a result, periods prior to August 1, 1992 are not comparable. (b) Includes the impact of net provisions of $25.0 million for plant closure, inventory obsolescence and other asset valuations, other costs related to the planned consolidation process and various items of litigation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Fiscal 1993 Compared to Fiscal 1992." The impact of the accounting change on fiscal 1993 was a reduction to operating profit of $39.9 million. (c) Includes the impact of special provisions of approximately $50.0 million for the termination of the Lockheed C-5 spare pylon program, the Valsan 727 re-engining program, an investigation by government agencies concerning production of parts and a provision for the closing of the Auburn plant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Fiscal 1992 Compared to Fiscal 1991." (d) In the third quarter of fiscal 1993, the Company changed certain of its accounting principles as described in note (a) above. These changes required the Company to calculate the effect of the change in accounting principles on retained earnings as of the first day in the fiscal year of change. (e) Excludes off-balance sheet financing. See "Capitalization." (f) EBITDA is defined as earnings before the cumulative effect of the accounting changes, interest and other income, interest expense and taxes on income (benefit) and depreciation, amortization and the impact of the special provisions referred to in notes (b) and (c) above. EBITDA is presented here to provide additional information about the Company's ability to meet its future debt service, capital expenditure, and working capital requirements and should not be construed as substitute for or a better indicator of results of operations or liquidity than net income or cash flow from operating activities computed in accordance with generally accepted accounting principles. (g) Includes capitalized interest; excludes additions to property, plant and equipment financed by industrial revenue bonds and capital leases. (h) For purposes of determining the ratio of earnings to fixed charges, the term "earnings" represents income (loss) before cumulative effect of accounting changes, plus income tax (benefit) and fixed charges excluding capitalized interest. The term "fixed charges" represents interest expense, capitalized interest, amortization of debt issue expense and the portion of operating lease rental expense considered to be representative of an interest factor. Historical earnings were insufficient to cover fixed charges by $14,886 for the six months ended January 31, 1993 and $51,184 for fiscal 1993, $19,312 for fiscal 1992 and $9,604 for fiscal 1990. (i) The Pro Forma Data to Reflect Accounting Changes (Unaudited) assumes the changes in the application of accounting principles for long-term programs and contracts adopted by the Company effective August 1, 1992, are applied retroactively. The pro forma amounts presented also reflect the retroactive application of SFAS No. 109, "Accounting for Income Taxes" to the periods presented--periods which predate both the Company's adoption of SFAS No. 109 and the release of that standard. Tax benefits arising pursuant to SFAS No. 109, "Accounting for Income Taxes", are allocated ratably over the pro forma restated periods. The pro forma restated effect of the Company's adoption of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions" are not material and are not presented. The pro forma financial data should not be considered indicative of actual results that would have been achieved had the accounting changes adopted by the Company effective August 1, 1992 been in effect for the periods indicated and do not purport to indicate results of operations as of any future date or for any future period. The following information should be read in conjunction with "Selected Consolidated Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the "Consolidated Financial Statements of Rohr, Inc. and Subsidiaries" and the Notes thereto, included elsewhere in this Prospectus. 10
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ----------------- ---------------------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 1990 1989 -------- -------- ---------- ---------- ---------- ---------- ---------- PRO FORMA INCOME STATE- MENT DATA (UNAUDITED): Sales.................. $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677 Cost and Expenses...... 439,719 594,568 1,133,040 1,242,240 1,321,792 1,092,150 996,313 General and Adminis- trative Expenses(a)... 13,446 22,467 43,800 53,002 49,288 49,784 41,651 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Income (Loss)................ 31,658 8,969 (1,688)(b) (15,586)(c) 14,006 (63,222) 6,713 Interest Net........... 23,681 22,770 47,883 63,373 53,701 40,606 28,964 -------- -------- ---------- ---------- ---------- ---------- ---------- Income (Loss) before Taxes................. 7,977 (13,801) (49,571) (78,959) (39,695) (103,828) (22,251) Taxes (Benefit) on Income................ 242 (5,286) (18,990) (42,688) (16,797) (45,359) (13,571) -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss).... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680) ======== ======== ========== ========== ========== ========== ==========
- -------- (j) The calculation of pro forma EBITDA is shown below (unaudited):
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ----------------- --------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 1990 1989 -------- -------- ------- -------- -------- -------- ------- Operating Income, as Reported............... $31,658 $ 8,969 $(1,688)(b) $ 45,558 (c) $100,578 $ 31,605 $75,044 Less Changes in the Ap- plication of Account- ing Principles for Long-Term Programs and Contracts............. -- -- -- 61,144 86,572 94,827 68,331 ------- ------- ------- -------- -------- -------- ------- Pro Forma Operating In- come (Loss)............ 31,658 8,969 (1,688) (15,586) 14,006 (63,222) 6,713 Add Depreciation and Amortization........... 11,693 12,648 25,578 27,855 27,721 27,040 24,836 ------- ------- ------- -------- -------- -------- ------- Pro Forma Earnings...... 43,351 21,617 23,890 12,269 41,727 (36,182) 31,549 Add Special Provisions.. -- -- 25,000 50,000 -- -- -- ------- ------- ------- -------- -------- -------- ------- Pro Forma EBITDA........ $43,351 $21,617 $48,890 $ 62,269 $ 41,727 $(36,182) $31,549 ======= ======= ======= ======== ======== ======== =======
- -------- (k) The unaudited adjusted data to reflect the Offerings assumes the financial data has been adjusted for the effect of the Offerings and the corresponding repayment of the outstanding balance under the Revolving Credit Agreement and short-term bank debt as of the first day of each fiscal period, and assumes no exercise of the Underwriter's over-allotment option. (l) Ratio of earnings to fixed charges as adjusted to reflect the Offerings, reflects the issuance of Senior Notes and the Convertible Subordinated Notes (assuming no exercise of the underwriter's over-allotment option) and the application of proceeds therefrom, as if the Offerings had been consummated as of the first day of each fiscal period. On such basis, earnings were insufficient to cover the pro forma fixed charges by $60,769 for fiscal 1993. 11 RISK FACTORS An investment in the Securities involves a significant degree of risk. A prospective investor should consider carefully all of the information contained in this Prospectus before deciding whether to purchase the Securities and, in particular, should consider the following: HIGH LEVERAGE; DEBT SERVICE REQUIREMENTS The Company is highly leveraged. At January 30, 1994, after giving pro forma effect to the sale of the Securities and the repayment of certain indebtedness with a portion of the estimated net proceeds of the Offerings, the Company would have had consolidated total financings of approximately $687.0 million (including $583.4 million of indebtedness and $103.6 million of off-balance sheet sale-leaseback and accounts receivable financings and assuming no exercise of the Underwriter's over-allotment option) and $123.1 million of cash. See "Capitalization" and "Use of Proceeds." At January 30, 1994, the Company's shareholders' equity was approximately $190.2 million, which does not reflect certain anticipated charges to shareholders' equity in connection with the Company's underfunded pension plans. In addition, at January 30, 1994, the Company had a $102.6 million net deferred tax asset recorded in accordance with SFAS No. 109, "Accounting for Income Taxes." See "--Deferred Tax Assets" and"-- Underfunded Pension Plans." The Company has reported net income for each of the last three fiscal quarters. On a pro forma basis, however, after giving effect to the accounting changes adopted by the Company effective August 1, 1992, the Company would have reported losses for each of the last five fiscal years and its pro forma earnings would have been insufficient to cover fixed charges for each of such fiscal years. See "Selected Consolidated Financial and Operating Data." The Company's ability to make interest payments on the Securities and its other financing obligations depends upon its future financial performance, including earnings and cash flow from operations. On an adjusted basis, after giving effect to the issuance of the Securities and the application of the proceeds therefrom (assuming no exercise of the Underwriter's over-allotment option), earnings (pre-tax income plus fixed charges) would have been $60.8 million less than the adjusted fixed charges (which represent interest expense, capitalized interest, amortization of debt issue expense and the portion of operating lease rental expense considered to be representative of an interest factor) in fiscal 1993. For the six months ended January 30, 1994, however, adjusted earnings would have been $2.2 million greater than adjusted fixed charges. Available cash flow to service debt could be adversely affected by certain pension funding requirements. See "--Underfunded Pension Plans." The degree to which the Company is leveraged could have important consequences to holders of the Securities, including the following: (1) the Company's ability to obtain additional financing in the future for working capital, capital expenditures or general corporate purposes may be impaired; (2) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of interest on its indebtedness; and (3) the Company's leverage may make it more vulnerable to future economic downturns and may limit its ability to withstand competitive pressures. Based upon current levels of operations and anticipated future business, the Company believes that cash flow from operations together with available cash, borrowings under the Revolving Credit Agreement and other sources of liquidity, will be adequate to meet the Company's anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments. There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels. If the Company is unable to generate sufficient cash flow from operations in the future, it may be required to refinance all or a portion of its existing debt or to obtain additional financing. There can be no assurance that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." UNDERFUNDED PENSION PLANS The Company has substantial obligations related to its defined benefit pension plans (the "Pension Plans"). As of July 31, 1993, the Company's actuaries have determined that the Pension Plans were 12 underfunded by $65.6 million on an ongoing plan basis. The underfunding resulted from a combination of factors, including benefit increases, increased levels of early retirement, less than actuarially-assumed returns on plan assets and a reduction in the discount rate used to calculate the present value of future liabilities of the Pension Plans for financial reporting purposes. The Company is currently assessing certain additional decisions and actions affecting the Pension Plans. It is anticipated that the unfunded liabilities with respect to the Pension Plans will be increased by approximately $75 million on an ongoing basis due to an anticipated reduction in the discount rate used to calculate the present value of future liabilities under the Pension Plans from 8.5% to 7.5% and to a higher-than-previously-expected level of early retirements. As a result of the anticipated increase in the unfunded liabilities, the Company expects to take a direct charge to shareholders' equity estimated at $45 million and to increase its deferred tax account by approximately $30 million. In addition, the Company and its actuaries are evaluating the extent to which the downsizing of personnel may necessitate the expensing of certain unamortized pension benefit past service costs related to the terminated employees. This would not increase the underfunded status of the Pension Plans, but would result in an additional charge to earnings for financial statement purposes. The Company expects that the evaluation of the above described items and the recognition of the financial impact will be completed by the end of the third quarter of fiscal 1994. Concurrent with the consummation of the Offerings, the financial covenants in several of the Company's principal financing agreements will be amended to accommodate the anticipated impact of these matters on its reported financial results. See "Description of Certain Financings." IRS regulations will require the Company to increase its contribution to the Pension Plans. Consistent with these IRS requirements, it is the Company's current intention to have the Pension Plans fully funded within approximately five years. The Company's minimum cash contributions to its Pension Plans, based on current IRS regulations, are therefore expected to increase from the current level of approximately $17 million in fiscal 1994 to an average of approximately $35 million per year in fiscal years 1995, 1996 and 1997 and to decline thereafter. The Company expects to have sufficient liquidity to make these contributions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." In addition, minimum cash contributions for these years may increase as a result of legislation which has been introduced in Congress. The prospects for the passage of such legislation are uncertain. The calculation of the amount of underfunding of the Pension Plans for financial reporting and IRS minimum funding purposes assumes continued employment with projections for retirements, mortality, resignations and discharges and also includes assumptions relating to the discount rate, plan asset values and other matters. The Company and its actuaries review these assumptions on a regular basis. If it were to become necessary to make additional reductions in the discount rate, or to make certain other changes in the existing assumptions, the Pension Plans' liabilities and underfunded status might be increased. Such changes could adversely affect the Company because of the increase in recorded liabilities, decreases in shareholders' equity and increases in IRS minimum funding requirements. INDUSTRY CYCLES; CURRENT BUSINESS OUTLOOK The commercial aerospace industry is a cyclical business and the demand by commercial airlines for new aircraft is highly dependent upon a variety of factors, which historically have been related to the stability and health of the United States and world economies. The industry typically lags behind the general economic cycle because it can take up to two years to manufacture an aircraft. Although the United States economy entered a period of slow growth and recession in 1989 and 1990, the aerospace industry made record deliveries of large commercial aircraft, by revenue, during these years. In fact, aircraft deliveries continued to grow through 1991 and only decreased slightly in 1992. In 1990 through 1992, United States scheduled airlines suffered record operating losses of more than $2 billion per year. Non-United States scheduled airlines also reported significantly reduced profits during this period. As a result of the losses incurred by the airlines, the high levels of debt incurred to 13 purchase new aircraft and the excess capacity within the commercial airline sector, airlines and leasing companies deferred existing orders for new aircraft to an unprecedented extent and, to a lesser degree, canceled such orders. All of the Company's major customers received numerous requests for deferrals and cancellations from the airlines and leasing companies and slowed their aircraft delivery rates. In response to the deferrals and cancellations from their customers, airframe and engine manufacturers reacted by rescheduling future production levels, laying off workers and passing production slow-downs on to their suppliers, including the Company. The large number of aircraft delivered over the last several years has created an excess capacity in the air carrier system, as evidenced by the fact that a substantial number of new and used aircraft are currently inactive. Reactivated aircraft could replace or postpone new aircraft deliveries in the future. The Company expects that orders from and deliveries of large commercial aircraft will continue to be affected through calendar 1995 by the adverse United States and world economic conditions which have existed in recent periods. It appears, however, that the health of the airline industry is improving. In calendar 1993, United States scheduled airlines reported operating income of approximately $1 billion. There can be no assurance that the improved operating health of the commercial airlines will continue or that deliveries of large commercial aircraft will not continue to be affected beyond calendar 1995. In connection with the current contraction in the commercial aircraft industry, subcontractors such as Rohr have been experiencing pressures from their customers to reduce prices. The Company, in turn, is exerting similar pressure on its own suppliers to reduce prices and thus enable the Company to manufacture products at lower costs. There can be no assurance that such reductions in prices by Rohr's suppliers will be achieved. See "Business-- Markets." RECOVERY OF PROGRAM INVESTMENTS The development of a new aircraft, or a variation of an existing aircraft, requires significant investments for pre-production costs such as design and engineering, tooling, testing and certification. Competitive pressures forced suppliers such as the Company to bear a significant amount of the cost and investment risk associated with the large number of new programs under development in the 1980s. During this period, the Company also experienced substantial production inventory increases as it began to produce and deliver products under new programs. In response to these competitive market pressures, the Company agreed on several of its significant contracts to finance a substantial portion of its pre-production costs, with such costs to be recovered ratably as a specified number of units, including spare equivalents, are sold. As a result of these agreements, the Company's inventory included $199.4 million of capitalized pre- production costs at January 30, 1994. See "Notes to the Consolidated Financial Statements--Note 4." On some of these contracts, the prime contractor has agreed to pay the Company for a portion of its pre-production costs if a specified number of units is not sold by an agreed upon date or if the contract is terminated before the specified number of units is delivered. However, on other programs, the Company agreed, based upon its market analysis, to amortize its pre-production costs over a specified number of units without receiving such reimbursement protections from its customer if the specified number of units is not sold. Based on its analysis of the demand for specific products, the Company has also agreed on certain programs to a unit price which may not be profitable, even after recovery of pre-production costs, if fewer units are sold than the Company assumed for pricing purposes. If the Company's market analysis with respect to these programs is incorrect, the Company could incur substantial losses with respect to these programs. See "Business--Contracts," "Business--Program Funding" and "Notes to the Consolidated Financial Statements--Notes 1.c and 4." DEFERRED TAX ASSET SFAS No. 109, "Accounting for Income Taxes," requires businesses to recognize possible future tax benefits if it is "more likely than not" that the tax benefits will be realized. Under this standard, on January 30, 1994, the Company had a net deferred tax asset of $102.6 million, consisting of $85.4 14 million for federal tax purposes and $17.2 million for state tax purposes. (This net deferred tax asset is anticipated to increase by an additional $30 million in the third quarter of the current fiscal year as a result of an increase in the Company's underfunded pension liabilities.) Based on current tax rates, the Company must generate approximately $286 million of future taxable income (net of $240 million of taxable income that the Company will report as a result of the automatic reversal of existing taxable temporary differences between asset and liability values for financial reporting and income tax purposes) prior to the expiration of the Company's net operating loss carryforwards ("NOLs") in 2003 through 2008 for full realization of the net deferred tax asset. After the anticipated third quarter increase in the net deferred tax asset, the amount of future taxable income the Company must generate will be approximately $360 million. As with its other assets, the Company will regularly re-evaluate the value of its net deferred tax asset. If the Company were to determine that full realization of this asset is no longer "more likely than not," it would be required to reduce the value of the asset by establishing a valuation allowance. Such an allowance would reduce the Company's earnings in the relevant period and, if it causes a loss in such period, would reduce shareholders' equity. In addition, reductions in state or federal tax rates, or limitations on the use of NOLs, as well as adjustments resulting from any audit of the Company's tax returns, could reduce the value of the Company's net deferred tax asset, again affecting earnings and shareholders' equity. See "--Underfunded Pension Plans," "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Income Taxes" and "Notes to the Consolidated Financial Statements--Note 6." RESTRICTIVE COVENANTS The Company's major financing agreements, as amended effective upon the completion of the Offerings, require it to maintain specified financial covenants, including a minimum Consolidated Tangible Net Worth (as defined in such agreements to include the Company's net deferred tax asset), a minimum ratio of Consolidated Net Income Available for Fixed Charges to Fixed Charges (as defined in such agreements) and a maximum ratio of Debt (as defined in such agreements to include the Company's underfunded pension liabilities) to Consolidated Tangible Net Worth (each as defined in such agreements). Covenants in these agreements also impose additional requirements on the Company, including restrictions on its ability to create liens, enter into leases, engage in mergers, consolidations and acquisitions, sell assets, repay debt prior to its maturity, incur additional debt, amend other debt agreements, declare and pay dividends, acquire company securities, and change the nature of its business. A failure by the Company to maintain such financial ratios or to comply with the restrictions contained in its Revolving Credit Agreement or other financing agreements could result in a default thereunder, which in turn could cause such indebtedness (and by reason of cross-default provisions, other indebtedness) to become immediately due and payable, and would prevent the Company from drawing any further amounts under its Revolving Credit Agreement. As a result, any such default could have a material adverse effect on the Company and its ability to make principal and interest payments on the Securities. See "Description of Certain Financings" and "Description of Senior Notes." ENVIRONMENTAL MATTERS As an international aerospace manufacturing corporation, the Company is subject to foreign, federal, state and local laws and regulations that limit the discharge of pollutants into the air, soil and water and establish standards for the treatment, storage and disposal of hazardous wastes. As a result, the Company is involved from time to time in administrative and judicial proceedings and inquiries related to environmental matters. These include several currently pending matters. The Company does not believe that its environmental risks are materially different from those of comparable manufacturing companies. Nevertheless, the Company cannot provide assurances that environmental issues will not adversely affect the Company's operations and financial condition in the future. Environmental risks are generally excluded from coverage under the Company's current insurance policies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Legal and Environmental Matters." 15 LIMITED CUSTOMER BASE The Company conducts substantial business with each of the three major commercial airframe manufacturers: The Boeing Company ("Boeing"), Airbus Industrie ("Airbus") and McDonnell Douglas Corporation ("McDonnell Douglas"). In addition, the Company conducts business with each of the major commercial jet engine manufacturers: General Electric Company ("General Electric"), Rolls- Royce, plc ("Rolls-Royce"), United Technologies Corporation ("Pratt & Whitney"), CFM International, Inc. (a corporation jointly owned by General Electric and Societe Nationale d'Etude et de Construction de Moteurs d'Aviation; "CFM International"), and International Aero Engines AG (a corporation owned by Rolls-Royce, Pratt & Whitney, Fiat Aviazione, SpA, Japanese Aero Engines Corporation and MTU Motoren-und Turbinen-Union Munchen GmbH; "International Aero Engines"). Commercial products sold by the Company to jet engine manufacturers are installed ultimately on aircraft produced by one of the three major commercial airframe manufacturers. The Company's financial condition and operations could be materially adversely affected if one or more of its major customers were to reduce operations materially, shift a significant amount of work from the Company or cease conducting operations. See "Business." COMPETITION The Company's principal competition is Boeing (which, in addition to being a customer, also manufactures nacelle systems and pylons for its own aircraft), other significant aerospace companies who have development and production experience with respect to portions of the nacelle system and the companies to whom the Company has subcontracted various components and who could (and have) bid on contracts in competition with the Company. See "Business-- Subcontractors." Military aerospace contractors are also potential competitors, as excess capacity created by reductions in defense spending could cause some of these contractors to look to expand in commercial markets. Because of recent reductions in demand in the aircraft manufacturing industry, excess production capacity exists in the market for a number of the Company's principal products. While the Company has a significant share of the market for commercial aircraft nacelles and pylons, there can be no assurance that the Company can maintain its share of the market at existing levels. See "Business-- Market Share and Competition." REDUCED GOVERNMENT SALES Government (military and space) sales accounted for approximately 12% of the Company's total sales in the six months ended January 30, 1994, and 13% in the fiscal year ended July 31, 1993. The Company expects that the percentage of Company revenues attributable to government sales will continue to decline in future years. The production rate for the Titan rocket motor casing program, which accounted for 5.9% of revenues in fiscal 1993, is expected to decline substantially in response to market demand. In addition, another company's alternative technology casing approach may allow it to become a leading competitor in the market for this product in the future. The Company's military sales are primarily associated with older programs which are being phased out of production. RANKING OF THE SENIOR NOTES The Senior Notes will be general unsecured obligations of the Company ranking senior in right of payment to all existing and future subordinated indebtedness of the Company and pari passu in right of payment with the Company's other existing and future senior indebtedness. The Senior Notes will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. As of January 30, 1994, after giving effect to the Offerings and the anticipated use of the proceeds therefrom, the Company would have had approximately $157.8 million of pari passu indebtedness (excluding the Senior Notes) and $315 million of subordinated indebtedness outstanding (assuming no exercise of the Underwriter's over-allotment option). None of the pari passu indebtedness which was outstanding at January 30, 1994 was secured by assets of the Company. In addition, there would have been approximately $32.7 million of indebtedness and other liabilities of the Company's subsidiaries 16 (excluding certain subsidiary indebtedness guaranteed by Rohr which is included in the amount of pari passu indebtedness) and $103.6 million of off-balance sheet sale-leaseback and accounts receivable financings outstanding. The Company will have the ability to incur additional pari passu indebtedness, including pursuant to its Revolving Credit Agreement under which no borrowings are expected to be outstanding upon the completion of the Offerings. In the event of any bankruptcy, liquidation or reorganization of the Company, the assets of the Company will be available to pay the obligations under the Senior Notes and any other unsecured pari passu indebtedness only after all secured indebtedness of the Company and any other secured or priority claims, including secured claims relating to the Company's underfunded pension liabilities, as described below, have been paid in full. See "--Underfunded Pension Plans" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." After such payments, there may not be sufficient assets remaining to pay amounts outstanding under the Senior Notes, other unsecured pari passu indebtedness and the Company's other unsecured and unsubordinated liabilities. In addition, the assets of the Company's subsidiaries will be available to creditors of the Company only after such subsidiaries obligations are satisfied in full. Certain rights of the Pension Benefit Guaranty Corporation (the "PBGC") could also affect the Company in connection with any such bankruptcy, liquidation or reorganization. In general, the PBGC (an agency of the federal government) guarantees certain benefits provided under defined benefit plans, such as the Company's Pension Plans. If a plan is terminated (by either the sponsor or the PBGC) and the sponsor of such plan does not pay the guaranteed benefits, the PBGC will pay those benefits and then seek recovery of all unfunded benefits from any company which contributes to such a plan and certain of its affiliates. If the PBGC has a right to such a recovery, it also has a statutory lien on all assets of such companies, up to a maximum of 30% of the net worth of all companies liable for such amounts. Any claim in excess of the PBGC's secured claim would be a general unsecured claim. The actuarial assumptions used by the PBGC in assessing funding liabilities reflect a termination of the plan rather than continued funding by the plan sponsor. This may result in a substantially greater liability for benefits under the Company's Pension Plans than is reflected in actuarial valuations for such plans prepared on an ongoing basis. ABSENCE OF PUBLIC MARKET FOR THE SECURITIES The Securities comprise new issues of securities for which there is currently no public market. If the Securities are traded after their initial issuance, they may trade at a discount from their initial offering price as a result of prevailing interest rates, the market for similar securities, the performance of the Company and other factors. The Company does not intend to apply for the listing of the Senior Notes on any securities exchange. Salomon Brothers Inc (the "Underwriter") has informed the Company that its current intent is to make a market in the Senior Notes. The Underwriter is not obligated to do so, however, and any such market making may be discontinued at any time without notice. The Company, therefore, cannot provide assurances as to whether an active trading market will develop or will be maintained for the Securities. See "Underwriting." FINANCING PLAN The Company has adopted a financing plan to enhance its liquidity, extend the maturity of its Revolving Credit Agreement and improve its financial flexibility. To meet these objectives, the Company is offering the Senior Notes and the Convertible Subordinated Notes and, effective upon the completion of the Offerings, amending its Revolving Credit Agreement and certain of its other principal financing agreements. Upon completion of the Offerings, the Company's existing unsecured Revolving Credit Agreement will be amended to provide for an extended three-year term. As part of this amendment, the principal financial covenants in the Revolving Credit Agreement will be modified to provide the Company with greater financial flexibility and to eliminate the previous requirement that the Company sell additional subordinated debt. For a summary of the principal covenants to be contained in the amended Revolving Credit Agreement, see "Description of Certain Financings--Revolving Credit Agreement." 17 The Company will also amend, effective upon the completion of the Offerings, the financial covenants in the agreements governing its existing 9.35% and 9.33% Senior Notes in substantially the same manner as the financial covenants in the Revolving Credit Agreement. For a summary of the principal covenants contained in such agreements, see "Description of Certain Financings--9.35% Senior Notes due 2000 and 9.33% Senior Notes due 2002." USE OF PROCEEDS The Company intends to use all of the net proceeds of the Convertible Subordinated Notes offering and, to the extent necessary, a portion of the net proceeds of the Senior Notes offering to repay, on the date of issuance of the Securities, all of the amounts outstanding under the Company's Revolving Credit Agreement. This repayment will not reduce the lenders' three-year commitment under that agreement. The Revolving Credit Agreement will have an initial availability of $110 million. As of May 1, 1994, the Company had $50 million borrowed under its Revolving Credit Agreement. The Company intends to use the remaining net proceeds for general corporate purposes. For additional information concerning the term, interest rate and other provisions of the Revolving Credit Agreement, see "Description of Certain Financings--Revolving Credit Agreement." 18 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company and its subsidiaries as of January 30, 1994, and as adjusted to give effect to (i) the sale of the Senior Notes, (ii) the sale of the Convertible Subordinated Notes and (iii) the repayment of amounts outstanding under the Revolving Credit Agreement. This table should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Prospectus.
JANUARY 30, 1994 ------------------- AS ACTUAL(1) ADJUSTED --------- -------- (DOLLARS IN THOUSANDS) Cash and Short-Term Investments.......................... $ 28,768 $123,068 ======== ======== Debt: Revolving Credit Agreement(2).......................... $ 50,000 $ -- 9.35% Senior Notes due 2000............................ 75,000 75,000 9.33% Senior Notes due 2002............................ 62,000 62,000 Senior Notes due 2003.................................. -- 100,000 Capital leases......................................... 11,102 11,102 Convertible Subordinated Notes due 2004................ -- 50,000(3) 9.25% Subordinated Debentures due 2017................. 150,000 150,000 7.00% Convertible Subordinated Debentures due 2012..... 115,000 115,000 Other debt............................................. 20,323 20,323 -------- -------- Total Debt(4)........................................ 483,425 583,425(3) Shareholders' Equity: Preferred Stock, $1 par value, 10,000,000 shares authorized, no shares issued.......................... -- -- Common Stock, $1 par value, 50,000,000 shares autho- rized, 18,017,930 shares issued(5).................... 18,018 18,018 Additional paid-in capital............................. 102,541 102,541 Retained earnings...................................... 82,976 82,976 Minimum pension liability adjustment(6)................ (13,306) (13,306) -------- -------- Total Shareholders' Equity........................... 190,229 190,229 -------- -------- Total Capitalization................................. $673,654 $773,654 ======== ========
- -------- (1) See "Notes to the Consolidated Financial Statements--Notes 7 and 10" for additional information concerning indebtedness and shareholders' equity. (2) Borrowings under the Revolving Credit Agreement were $50 million as of May 1, 1994. All outstanding amounts under the Revolving Credit Agreement will be repaid with a portion of the net proceeds of the Offerings. See "Use of Proceeds." (3) Assuming the Underwriter does not exercise any part of its over-allotment option. (4) The Company's total financings include indebtedness, shown in the table above, and off-balance sheet financings consisting of a $60 million accounts receivable sales facility, which is reported as a reduction to accounts receivable, and certain sale-leaseback transactions, accounted for as operating leases, with an outstanding balance of $50.5 million as of January 30, 1994. At January 31, 1994, the Company had deposited approximately $7 million of cash into a reserve fund to support the accounts receivable facility. See "Description of Certain Financings." The Company's total financings were $587 million at January 30, 1994, and $687 million as adjusted for the Offerings. (5) Excludes 2,674,418 shares reserved for issuance upon conversion of the 7.00% Convertible Subordinated Debentures due 2012, 3,058,175 shares reserved for issuance upon exercise of outstanding or issuable stock options, and 600,000 shares reserved for issuance upon exercise of outstanding warrants. (6) See "Notes to the Consolidated Financial Statements--Note 9a" and "Risk Factors--Underfunded Pension Plan." 19 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The following table sets forth the selected financial and operating data of the Company for each of the periods indicated in the five-year period ended July 31, 1993, which were derived, except as otherwise noted, from the audited Consolidated Financial Statements of the Company. The table also sets forth selected financial and operating data for the six-month periods ended January 30, 1994, and January 31, 1993, which were derived from unaudited interim Consolidated Financial Statements of the Company.
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, -------------------- ------------------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993(A) 1992 1991 1990 1989 -------- ---------- ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Sales.................. $484,823 $ 626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677 Cost and Expenses...... 439,719 594,568 1,133,040 1,223,931 1,275,269 1,038,501 969,240 General and Adminis- trative Expenses(b)... 13,446 22,467 43,800 10,167 9,239 8,606 393 -------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Income (Loss)................ 31,658 8,969 (1,688)(c) 45,558(d) 100,578 31,605 75,044 Interest--Net.......... 23,681 22,770 47,883 63,373 53,701 40,606 28,964 -------- ---------- ---------- ---------- ---------- ---------- ---------- Income (Loss) Before Taxes and Cumulative Effect of Accounting Changes............... 7,977 (13,801) (49,571) (17,815) 46,877 (9,001) 46,080 Taxes (Benefit) on In- come.................. 242 (5,286) (18,990) (19,270) 16,360 (9,040) 12,600 -------- ---------- ---------- ---------- ---------- ---------- ---------- Income (Loss) Before Cumulative Effect of Accounting Changes.... 7,735 (8,515) (30,581) 1,455 30,517 39 33,480 Cumulative Effect Through July 31, 1992 of Accounting Changes--Net of Taxes(e).............. -- (223,950) (223,950) -- -- -- -- -------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss)...... $ 7,735 $ (232,465) $ (254,531) $ 1,455 $ 30,517 $ 39 $ 33,480 ======== ========== ========== ========== ========== ========== ========== Net Income (Loss) Per Share: Income (Loss) Before Cumulative Effect of Accounting Changes.. $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 $ 0.00 $ 1.90 Cumulative Effect Through July 31, 1992 of Accounting Changes--Net of Taxes............... -- (12.52) (12.50) -- -- -- -- -------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss).... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 $ 0.00 $ 1.90 ======== ========== ========== ========== ========== ========== ========== BALANCE SHEET DATA AT PERIOD END: Working Capital........ $358,453 $ 447,476 $ 350,321 $ 700,774 $ 712,520 $ 640,461 $ 549,799 Property, Plant and Equipment, Net........ 230,849 245,948 239,045 270,283 237,434 234,166 204,911 Total Assets........... 967,566 1,130,164 1,017,786 1,363,958 1,411,498 1,329,308 1,166,828 Total Debt(f).......... 483,425 628,243 531,608 572,594 636,070 551,227 426,390 Total Shareholders' Equity................ 190,229 217,336 182,243 448,866 441,401 413,713 412,387 OTHER DATA: EBITDA(g).............. $ 43,351 $ 21,617 $ 48,890 $ 123,413 $ 128,299 $ 58,645 $ 99,880 Depreciation and Amor- tization.............. 11,693 12,648 25,578 27,855 27,721 27,040 24,836 Net Cash Provided by (Used in) Operating Activities.. 44,928 (35,571) 78,668 110,342 (62,770) (155,644) (106,747) Capital Expenditures(h)....... 2,949 18,878 27,536 62,933 32,383 28,923 39,005 Ratio of Earnings to Fixed Charges(i)...... 1.31x 0.40x 0.01x 0.72x 1.81x 0.83x 2.27x EBITDA to Interest Expense(g)............ 1.79x 0.93x 1.00x 1.84x 2.34x 1.09x 3.13x
20
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ------------------ ----------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993(A) 1992 1991 1990 1989 -------- -------- -------- -------- -------- -------- ------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) PRO FORMA DATA TO REFLECT ACCOUNTING CHANGES: (UNAUDITED)(j): Pro Forma Net Income (Loss)(j).................. $ 7,735 $(8,515) $(30,581) $(36,271) $(22,898) $(58,469) $(8,680) Pro Forma Net Income (Loss) per Share.................. $ 0.43 $ (0.48) $ (1.71) $ (2.05) $ (1.31) $ (3.29) $ (0.49) Pro Forma EBITDA(g)(k)...... $43,351 $21,617 $ 48,890 $ 62,269 $ 41,727 $(36,182) $31,549 Pro Forma EBITDA to Inter- est Expense................ 1.79x 0.93x 1.00x 0.93x 0.76x (l) 0.99x ADJUSTED DATA TO REFLECT OFFERINGS BEFORE CUMULA- TIVE EFFECT OF ACCOUNTING CHANGES: (UNAUDITED)(m) Net Income (Loss)(m)........ $ 4,412 $(36,495) Net Income (Loss) per Share...................... $ 0.24 $ (2.04) Ratio of Earnings to Fixed Charges(n)................. 1.07x 0.01x EBITDA to Interest Expense(g)................. 1.48x 0.85x
- -------- (a) Fiscal 1993 results reflect the Company's adoption, in the third quarter, of changes to certain elements in the application of accounting principles relating to long-term programs and contracts, including the expensing of general and administrative costs that were previously carried in inventory for amortization over future deliveries. The amounts also reflect the Company's adoption of SFAS No. 106, "Employers Accounting for Post- Retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes." The accounting changes described above were effective August 1, 1992. As a result, periods prior to August 1, 1992 are not comparable. (b) Fiscal 1993 results reflect the Company's changed accounting policy to expense general and administrative expenses as incurred; these expenses were previously inventoried. (c) Includes the impact of net provisions of $25.0 million for plant closure, inventory obsolescence and other asset valuations, other costs related to the planned consolidation process and various items of litigation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Fiscal 1993 Compared to Fiscal 1992." The impact of the accounting change on fiscal 1993 was a reduction to operating profit of $39.9 million. (d) Includes the impact of special provisions of approximately $50.0 million for the termination of the Lockheed C-5 spare pylon program, the Valsan 727 re-engining program, an investigation by government agencies concerning production of parts and a provision for the closing of the Auburn plant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Fiscal 1992 Compared to Fiscal 1991." (e) In the third quarter of fiscal 1993, the Company changed certain of its accounting principles as described in note (a) above. These changes required the Company to calculate the effect of the change in accounting principles on retained earnings as of the first day in the fiscal year of change. (f) Excludes off-balance sheet financing. See "Capitalization." (g) EBITDA is defined as earnings before the cumulative effect of the accounting changes, interest and other income, interest expense and taxes on income (benefit) and depreciation, amortization and the impact of the special provisions referred to in notes (b) and (c) above. EBITDA is presented here to provide additional information about the Company's ability to meet its future debt service, capital expenditure, and working capital requirements and should not be construed as substitute for or a better indicator of results of operations or liquidity than net income or cash flow from operating activities computed in accordance with generally accepted accounting principles. (h) Includes capitalized interest; excludes additions to property, plant and equipment financed by industrial revenue bonds and capital leases. (i) For purposes of determining the ratio of earnings to fixed charges, the term "earnings" represents income (loss) before cumulative effect of accounting changes, plus income tax (benefit) and fixed charges excluding capitalized interest. The term "fixed charges" represents interest expense, capitalized interest, amortization of debt issue expense and the portion of operating lease rental expense considered to be representative of an interest factor. Historical earnings were insufficient to cover fixed charges by $14,886 for the six months ended January 31, 1993 and $51,184 for fiscal 1993, $19,312 for fiscal 1992 and $9,604 for fiscal 1990. 21 (j) The Pro Forma Data to Reflect Accounting Changes (Unaudited), assumes the changes in the application of accounting principles for long-term programs and contracts adopted by the Company effective August 1, 1992, are applied retroactively. The pro forma amounts presented also reflect the retroactive application of SFAS No. 109, "Accounting for Income Taxes" to the periods presented--periods which predate both the Company's adoption of SFAS No. 109 and the release of that standard. Tax benefits arising pursuant to SFAS No. 109, "Accounting for Income Taxes," are allocated ratably over the pro forma restated periods. The pro forma restated effect of the Company's adoption of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions" are not material and are not presented. The pro forma financial data should not be considered indicative of actual results that would have been achieved had the accounting changes adopted by the Company effective August 1, 1992 been in effect for the periods indicated and do not purport to indicate result of operations as of any future date or for any future period. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", and the "Consolidated Financial Statements of Rohr, Inc. and Subsidiaries" and the Notes thereto, included elsewhere in this Prospectus.
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ------------------ ---------------------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 1990 1989 -------- -------- ---------- ---------- ---------- ---------- ---------- PRO FORMA INCOME STATEMENT DATA (UNAUDITED): Sales.................. $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677 Cost and Expenses...... 439,719 594,568 1,133,040 1,242,240 1,321,792 1,092,150 996,313 General and Administrative Expenses.............. 13,446 22,467 43,800 53,002 49,288 49,784 41,651 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Income (loss)................ 31,658 8,969 (1,688)(c) (15,586)(d) 14,006 (63,222) 6,713 Interest Net........... 23,681 22,770 47,883 63,373 53,701 40,606 28,964 -------- -------- ---------- ---------- ---------- ---------- ---------- Income (Loss) Before Taxes................. 7,977 (13,801) (49,571) (78,959) (39,695) (103,828) (22,251) Tax (Benefit) on Income................ 242 (5,286) (18,990) (42,688) (16,797) (45,359) (13,571) -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss)...... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680) ======== ======== ========== ========== ========== ========== ========== Pro Forma Ratio of Earnings to Fixed Charges............... 1.31x 0.40x 0.01x (l) 0.30x (l) 0.33x
(k) The calculation of pro forma EBITDA is shown below (unaudited):
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ----------------- --------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- -------- ------- Operating Income, as Re- ported................. $31,658 $ 8,969 $ (1,688)(c) $ 45,558(d) $100,578 $ 31,605 $75,044 Less Changes in the Ap- plication of Account- ing Principles for Long-Term Programs and Contracts............. -- -- -- 61,144 86,572 94,827 68,331 ------- ------- -------- -------- -------- -------- ------- Pro forma Operating In- come (Loss)............ 31,658 8,969 (1,688) (15,586) 14,006 (63,222) 6,713 Add Depreciation and Am- ortization............. 11,693 12,648 25,578 27,855 27,721 27,040 24,836 ------- ------- -------- -------- -------- -------- ------- Pro Forma Earnings...... 43,351 21,617 23,890 12,269 41,727 (36,182) 31,549 Add Special Provisions.. -- -- 25,000 50,000 -- -- -- ------- ------- -------- -------- -------- -------- ------- Pro Forma EBITDA........ $43,351 $21,617 $ 48,890 $ 62,269 $ 41,727 $(36,182) $31,549 ======= ======= ======== ======== ======== ======== =======
(l) Negative numbers as losses were incurred. (m) The unaudited adjusted data to reflect the Offerings assumes the financial data has been adjusted for the effect of the Offerings and the corresponding repayment of the outstanding balance under the Revolving Credit Agreement and short-term bank debt as of the first day of each fiscal period and assumes no exercise of the Underwriter's over-allotment option. (n) Ratio of earnings to fixed charges as adjusted to reflect the Offerings, reflect the issuance of the Senior Notes and the Convertible Subordinated Notes (assuming no exercise of the Underwriter's over-allotment option), and the application of the proceeds therefrom, as if the Offerings had been consummated as of the first day of each fiscal period. On such basis, earnings were insufficient to cover the pro forma fixed charges by $60,769 for fiscal 1993. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis presents management's assessment of material developments affecting the Company's results of operations, liquidity and capital resources for the three years ended July 31, 1993 and the six months ended January 30, 1994. These discussions should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto. Comparisons between periods may not be meaningful because of significant changes the Company made in certain of its accounting policies, effective August 1, 1992, as discussed in "--Accounting Changes," and the substantial provisions taken in the third quarters of fiscal 1992 and 1993. On certain long-term programs under which the Company sells spares directly to the airlines, the Company accounts for profit and loss under the program method of accounting. Under the program method of accounting, the quantity of units in the profit center includes existing and anticipated contracts and is predicated upon market forecasts, which have inherent uncertainties. Included within the program quantity are spares anticipated to be sold concurrent with production units which, as a percentage of total deliveries, increase as a program matures and historically have been sold at higher prices than production units. As spares and production units are both included in the program quantity, higher margins are reported in the early program years based upon anticipated production and spare orders in the future. Programs for which the Company uses the program method of accounting and for which spares are significant are as follows: V2500, CF6-80C, CFM56-5, A340 and MD-90. Market forecasts continue to support the reasonableness of the projected spares included in program quantities. See "Notes to Consolidated Financial Statements--Note 1b." COMPANY OUTLOOK As a result of the slow down in the commercial aerospace industry and reductions in the Company's military and space programs (see "Risk Factors-- Industry Cycles; Current Business Outlook" and "Business--Markets"), the Company's revenues decreased approximately 8% from fiscal 1991 to fiscal 1992 and approximately 8% from fiscal 1992 to fiscal 1993. Revenues for the first six months of fiscal 1994 were approximately 23% less than for the comparable period in fiscal 1993. In response to these conditions, management has taken aggressive actions to increase competitiveness, improve earnings, maximize cash flow and reduce debt. The Company has reduced its workforce from a peak of approximately 12,100 at July 31, 1989, to approximately 6,500 at July 31, 1993, and 5,154 at January 30, 1994. The Company's new management has also focused on reducing the ratio of indirect employees to direct employees. From April 30, 1993 to January 30, 1994, this ratio improved from 1-to-2.0 to 1-to-2.6. Management has targeted a ratio of 1-to-2.8 by July 31, 1994. Management has also established a total overhead expense budget equal to 29% of sales for fiscal 1994, which compares to a high of 41% of sales in fiscal 1989 and 32% of sales for the 12 months ended January 30, 1994. To reduce excess capacity and to increase overall production efficiencies through higher utilization of its remaining facilities, the Company has closed and sold its Auburn, Washington plant, is closing its Hagerstown, Maryland plant and has deferred completion of a new facility in Arkadelphia, Arkansas. The Company also has reduced capital expenditures from an average of $45 million per year over the last five fiscal years to a planned expenditure of $7 million in fiscal 1994. Average expenditures over the next four years are not expected to exceed $20 million per year. The Company has also increased its focus on its core business within the commercial aerospace industry--the design and manufacture of nacelle and pylon systems for large commercial aircraft. The Company intends to focus exclusively on these products and to be the low cost producer in this 23 segment. The Company is currently in negotiations to sell two non-core businesses, its business jet product line and its overhaul and repair business. These two businesses generated approximately $35 million of revenue in fiscal 1993. RESULTS OF OPERATIONS First Six Months Fiscal 1994 Compared to First Six Months Fiscal 1993 Total sales for the first six months of fiscal year 1994 were $484.8 million, down $141.2 million or 22.6% from the first six months of fiscal year 1993. Commercial sales during the first six months of fiscal year 1994 were down compared to the same period of fiscal year 1993 due primarily to reductions in deliveries. Government sales for the comparative period declined due primarily to a reduction in the delivery rate on the Titan program. Commercial sales aggregated 88% and government sales 12% of the Company's total sales in the first six months of fiscal year 1994. Operating income increased to $31.7 million for the first six months of fiscal year 1994, up from $9.0 million for the same period of fiscal year 1993. A significant contributor was reduced general and administrative expenses which declined $9.1 million from $22.5 million for the first six months of fiscal 1993 to $13.4 million for the first six months of fiscal 1994. The decline was primarily the result of work force reductions and other ongoing cost cutting efforts. Fiscal 1994 results were adversely impacted by a reduction in sales volume on several programs. Fiscal 1993 results were impacted by losses on tooling and design efforts and cost problems related to certain programs, a loss on the 727 re-engining program, and $5 million for additional provisions related to various litigation uncertainties. Operating income in the first six months of fiscal year 1994 was also impacted by a less favorable follow-on contract on the Titan program. Net interest expense was $23.7 million for the first six months of fiscal year 1994 compared to $22.8 million for the same period last year. While total financings have declined, interest rates paid by the Company have increased primarily due to the replacement of certain variable rate financings with long- term fixed rate financing. Earnings for the first six months of fiscal year 1994 were a positive $7.7 million or 43 cents per share compared to a loss of $8.5 million or 48 cents per share (before the cumulative effect of the accounting change) for the same period last year. The Omnibus Budget Reconciliation Act, adopted in August 1993, increased federal tax rates, thus causing the deferred tax asset shown on the balance sheet to increase and taxes on income to decrease for the first six-months of fiscal year 1994. This resulted in a one time increase in net income of $2.8 million and earnings per share of 16 cents. The first six-months of fiscal year 1993 were additionally impacted by a loss of $223.9 million, net of taxes, or $12.52 per share, due to the cumulative effect for the changes in the application of accounting principles through July 31, 1992, adopted on a retroactive basis in the third quarter of fiscal year 1993. Additional Items The Company is still experiencing softness in orders by airlines for spare components, which caused the Company to revise its spares delivery forecast in the near term on certain programs. See "--Fiscal 1993 Compared with Fiscal 1992." The Company has notified its customer on the V2500 program that it has exercised its contractual right to terminate the contract in 1995 so the Company will not be required to accept orders under the current contract terms after mid-year 1995. The Company is discussing possible alternative contractual arrangements with its customer under which it would continue with the program. In addition, anticipated spares deliveries for the V2500 program have been revised downward in the near term and the Company now expects to incur the total loss previously booked on this program. 24 The Company and its actuary are evaluating the extent to which the downsizing of personnel may necessitate the expensing of unamortized pension benefit past service costs related to the termination of employees. This evaluation and the recognition of its financial impact is expected to be complete by the end of the third quarter of fiscal 1994. See "Risk Factors--Underfunded Pension Plans." Fiscal 1993 Compared with Fiscal 1992 Sales declined from $1,279.7 million in fiscal 1992 to $1,175.2 million in fiscal 1993. Commercial sales benefited from deliveries on the Airbus A340 program, and start-up of the MD-90 program. However, commercial sales in fiscal 1993 were negatively impacted by reductions in the delivery rate of large commercial aircraft. See "Risk Factors--Industry Cycles; Current Business Outlook" and "Business--Markets." Government sales for the comparable period declined due to events in the previous year, including the termination of the C-5 spare pylon program and completion of F-14 production deliveries. Commercial sales aggregated 87% and government sales 13% of total sales. Total general and administrative expenditures declined $9.2 million from $53.0 million in fiscal 1992 to $43.8 million in fiscal 1993. The decline was primarily the result of work force reductions, postponement of annual wage increases, and other ongoing cost cutting efforts. General and administrative expenses in fiscal 1993 were charged as a period expense. General and administrative expenditures for fiscal 1992 were, in part, inventoried and relieved through cost of sales as units were delivered. This change was made as part of the change in application of accounting principles discussed in "-- Accounting Changes." The Company reported an operating loss of $1.7 million for fiscal 1993 compared to an operating profit of $45.6 million for fiscal 1992. Fiscal 1993 operating income was negatively impacted by $39.9 million due to the change in application of accounting principles relating to long-term programs and contracts. See "--Accounting Changes." These changes will also continue to impact results negatively in the near term, but are expected to positively impact operating results in the long-term. Results for the year were also adversely affected by net provisions aggregating $25.0 million for plant closure, inventory obsolescence and other asset valuations, other costs related to the planned consolidation process, and various items of litigation. In addition, results reflect a reduction in anticipated sale of spare parts on the V2500, CF6-80C, CFM56-5 and A340 programs. The Company generally attributes recent reductions in spares sales to the surplus aircraft in the current market place. As a result of such surplus, aircraft deliveries have declined and the initial spares sold to support newly delivered aircraft have also declined. In addition, airlines are maintaining lower spares levels; the existence of surplus aircraft has reduced the need for spares supplies sufficient to keep an airline's entire fleet in operation. Also, improved production quality appears to have reduced spares requirements. In addition, fiscal 1993 results reflected increased costs associated with assembly labor performance and subcontractor changes on the PW300 program and certain out-of-production spare programs. Operating results in fiscal 1992 were adversely impacted by a number of special provisions approximating $50 million. Paramount was a provision for potential losses arising as a result of the government's termination for default of the C-5 spare pylon program. See "Notes to the Consolidated Financial Statements-- Note 8." Operating results for fiscal 1992 were also impacted by provisions relating to the Company's investment in the Valsan 727 re-engining program, which was negatively impacted by delayed implementation of U.S. noise regulations, and by provisions for closure of the Company's Auburn facility and future settlement of possible criminal and civil proceedings concerning certain government programs. In fiscal year 1992, operating results were also impacted by cost problems on certain "out-of production" spares programs. In fiscal 1993, the Company achieved better labor performance than in fiscal 1992. This is attributed, in part, to the generally higher seniority level of the Company's work force as a result of the Company's recent downsizing activities. 25 Estimates of anticipated spare part sales were reduced on the McDonnell Douglas MD-90 program resulting in a decline of projected operating income from this program in future years. Negotiation of a new long-term agreement on the PW4000 program resulted in revised cash flow estimates that delayed recovery of the Company's investment on that program. Net interest expense was $47.9 million for the year ended July 31, 1993, as compared to $63.4 million for the same period the previous year. The 1992 period included a charge of $18.3 million during the third quarter of fiscal 1992 for interest cost attributed to the IRS audit adjustment to the Company's 1984 and 1985 federal tax returns. The 1993 period also includes interest expenses for income tax liabilities. Net of the interest for income tax liabilities, interest expense in 1993 was lower than in fiscal 1992 due to lower average borrowings and lower interest rates. Net loss was $254.5 million for the year ended July 31, 1993, as compared to income of $1.5 million for fiscal 1992, primarily as a result of the $224.0 million charge for the cumulative effect of the accounting changes described under "--Accounting Changes," the effect of the accounting change in 1993 of $39.9 million ($24.6 million after tax) and the $25.0 million ($15.4 million after tax) special provision. The net loss for the year ended July 31, 1993 is net of tax benefits totaling $158.0 million. These tax benefits offset existing deferred tax liabilities at July 31, 1992 and resulted in a net deferred tax asset of $103.0 million at July 31, 1993. Fiscal 1992 Compared With Fiscal 1991 Commercial sales declined during fiscal 1992 compared to fiscal 1991 due to a reduction in deliveries on certain programs reflecting changing economic conditions and a reduction in sales resulting from a subcontractor delivering directly to the customer. Government sales declined due to the termination of the C-5 spare pylon program and the completion of F-14 production deliveries. Commercial sales aggregated 86% and government sales 14% of total sales compared to 80% and 20% for fiscal 1991. The Company reported an operating profit of $45.6 million for fiscal 1992 compared to an operating profit of $100.6 million for fiscal 1991. Fiscal 1992 operating results were adversely impacted by a number of third quarter special provisions approximating $50.0 million, plus approximately $5.5 million during the third quarter related to the state franchise tax effect of special charges. The special provisions included charges for the termination of the Lockheed C-5 spare pylon program, the Valsan 727 re-engining program, an investigation by government agencies concerning production of parts, and a provision for the closing of the Auburn plant. In addition, commercial programs during fiscal 1992 benefited from some improved pricing and, based on aircraft orders and options placed by airlines, an increase in the program quantity and spare part sales estimates for the General Electric CF6-80C and CFM International CFM56-5 nacelle programs, which were in turn offset by a reduction in sales volume. Government programs during fiscal 1992 continued to be adversely impacted by disruption from redefined acceptance criteria by the government. Also of significance was the completion of the F-14 production program and the benefit from improved cost performance at the Space division. The Company revised its overhead cost rates used in its program cost estimates to reflect a declining production base anticipated in future years. Fiscal 1992 operating results included an estimate of recovery on the KC-135 program for constructive change claims related to government redefined acceptance criteria. Fiscal 1991 operating results included an additional estimate of recovery on the Boeing E3/E6 program and an initial estimate of recovery on the Lockheed C-5 production and spare pylon programs related to government redefined acceptance criteria, as well as an estimate of recovery on the PW4000 program related to tooling and design change activity. 26 Operating results were limited by the inability to achieve profitable results on several major programs. Among these were the V2500, MD-11 pylon and PW4000 programs, which have been impacted by delays and increased labor cost estimates for bonding and assembly operations plus tooling and design support services. An A320 order by United Airlines improved the market outlook for the V2500 program, although spares sales were still below original expectations delaying recovery of the Company's program investment. Negotiations on the PW4000 contract and the resolution of major design changes for the MD-11 program improved the financial status during the fourth quarter of fiscal 1992 of these major programs. Program estimates on the Airbus A340 nacelle program continued to be negatively influenced by delays in delivery of the initial program quantity, a reduction in anticipated spare part sales, increased start-up costs and higher than planned bonding and assembly costs. These revised estimates indicate a less than planned return in the future on investment for this program. Interest expense was increased $18.3 million during the third quarter of fiscal 1992 to reflect the interest cost of federal income tax adjustments. These tax adjustments have offset previously expected tax deductions, and the related interest income accrual. Interest on indebtedness was lower than for fiscal 1991 due to lower average borrowings and lower rates. An income tax benefit was recorded during fiscal 1992 as a result of the pretax loss. The benefit was higher than the amount computed at statutory tax rates due to additional benefits from tax planning items and, most importantly, utilization of tax reserves in connection with the federal income tax interest adjustment discussed above. The effective income tax rate, which is expressed as a ratio of tax expense to pretax income, was substantially higher in fiscal 1992 compared to fiscal 1991 because benefits from utilization of tax reserves and tax planning items increase the rate when there is a pretax loss. LIQUIDITY AND CAPITAL RESOURCES For the first six months of fiscal year 1994, net cash provided by operating activities totaled $44.9 million compared with a use of cash of $35.6 million for the same period of the prior year. Net cash provided by operating activities was $78.7 million in fiscal 1993 and $110.3 million in fiscal 1992. In recent periods, net cash provided by operating activities included one-time receipts by the Company for design and tooling efforts and similar non- recurring tasks. Net cash from operating activities also included accelerated payments for delivered production hardware in the first six months of fiscal 1994, and the receipt of certain amounts that had been deferred pending aircraft certification in fiscal 1993 and 1992. Net cash provided by operations is subject to significant variations from period to period. The Company's total financings (balance sheet debt plus off-balance sheet financings) aggregated $587 million at January 30, 1994, down $56.9 million from July 31, 1993. Total indebtedness as reflected on the Company's balance sheet decreased by $48.2 million from $531.6 million on July 31, 1993 to $483.4 million on January 30, 1994. During the first six months of fiscal year 1994, the Company repaid its $35 million medium term note and made the annual $12.5 million principal payment on its 9.35% senior notes. The Company's liquidity has improved over the last year, primarily as a result of cash flow generated from operating activities. However, as a result of its credit rating and the financial community's concerns about the aerospace industry, the Company has generally been unable to utilize uncommitted and certain other credit facilities which historically have been available to it. A bank that provided a letter of credit in support of certain Company obligations recently extended the letter of credit for an additional year. The Company is seeking the renewal of or replacement of another letter of credit which is scheduled to expire in July 1994. If the Company does not obtain a renewal or substitute letter of credit, it will be required to fund approximately $17 million of obligations currently supported by the letter of credit. 27 On January 30, 1994, the Company had $50 million of borrowings under its committed Revolving Credit Agreement, no change from borrowings of $50 million on July 31, 1993. Upon completion of the Offerings, the Revolving Credit Agreement will be amended to provide for a three-year commitment and will contain revised financial covenants which were negotiated to permit the Offerings contemplated by this Prospectus and the expected increases in underfunded pension liabilities (which are discussed in greater detail below). See "Risk Factors--Underfunded Pension Plans" and "Description of Certain Financings." The Company is a party to a $60 million accounts receivable facility under which it sells receivables from specified customers on an on-going basis. As a result of the slow-down in the aerospace industry, the amount of outstanding receivables from these customers has fallen below levels which existed at the start of the facility. As a result, the Company has deposited cash collateral from time to time as required to support the facility and has withdrawn such cash when it is no longer required to be deposited. At January 30, 1994, the Company had $7 million of cash collateral on deposit. The Company is also a party to certain equipment leases and has granted the lessors a security interest in selected customer receivables to secure $10 million of obligations. If the parties who lease this equipment to the Company do not assign approximately one-half of their beneficial interests in the leased equipment to other parties by January 1995, the equipment lessors may require the Company to prepay up to $10 million of its equipment lease obligations. The Company's existing debt level reflects the substantial investments made by the Company in the late 1980s and early 1990s to design and begin production on several major long-term programs. Except for the MD-90, the Company has substantially completed the large investments required by these programs and most are now well into production. The industry is expected to introduce relatively few new programs in the next several years and, accordingly, the Company believes that its financing requirements for new programs have been reduced as compared to prior periods. At July 31, 1993, the underfunded status (excess of projected benefit obligations over plan assets) of the Company's defined benefit plans had increased to $65.6 million. This underfunded status resulted from a combination of factors including benefit increases, increased levels of early retirements, less than the actuarially-assumed returns on plan assets and a reduction in the discount rate used to calculate the present value of future pension plan liabilities for financial reporting purposes. Considering current interest rate levels, the Company anticipates reducing its discount rate to 7.5% for its fiscal year 1994 valuation from the 8.5% used for its 1993 valuation, which will substantially increase the Company's accrued pension benefit obligation. In addition, the Company has continued to experience a higher level of early retirements than actuarially anticipated which is also expected to significantly increase the accrued pension benefit obligation. The Company anticipates that the expected increases in the underfunded pension liabilities will approximate $75 million and will result in a charge to shareholders' equity estimated at $45 million and an estimated $30 million increase to the Company's deferred tax asset account. The Company and its actuary are also evaluating the extent to which the downsizing of personnel may necessitate the expensing of unamortized pension benefit past service costs related to terminated employees. This matter does not affect the underfunded status of the plans but would result in a charge to earnings. The evaluation of all of these items and the recognition of the related financial impact is expected to be completed by the end of the third quarter of fiscal 1994. See "Risk Factors-- Underfunded Pension Plans." The Company's required minimum annual contribution to its defined benefit plan, which is directly impacted by the plans' funded status, has increased from $15.3 million for calendar year 1992 to $19.0 million for calendar year 1993. The Company expects that IRS regulations will require it to increase its annual cash contributions to the Pension Plans for several years. These regulations are designed to 28 substantially eliminate pension plan underfunding within five years. The Company expects to have sufficient liquidity to make these increased contributions. The Company's principal financing agreements have covenants pertaining to indebtedness (which is defined to include the underfunded pension liabilities), to shareholders' equity (which would be affected by any charge to equity caused by an increase in underfunded pension liabilities), and to the ratio of net income to fixed charges (which would be affected by any increase in pension expense). However, the Company and the lenders under these agreements have agreed on revised financial covenants to accommodate the financial effect of the pension issues described above. The revised financial covenants will become effective upon the sale of the Securities. On January 21, 1994, the Company announced that it had signed letters of intent to sell its business jet product line and certain assets of a wholly owned subsidiary, Rohr Aero Services, Inc. The revenue generated from these operations has approximated $35 million in each of the last two fiscal years. In preparation for the sale of the assets of Rohr Aero Services, Inc., the Company adjusted carrying values of assets downward by $0.7 million during the second quarter of fiscal 1994. In the aggregate, a net gain is anticipated upon sale of these assets. In March 1994, the purchaser of these two lines of business placed a $7.8 million deposit in escrow. One-half of this deposit is nonrefundable under certain circumstances. The Company recently sold its Auburn, Washington plant (which was closed in fiscal year 1993) and is seeking to sell its Hagerstown, Maryland manufacturing facility which is excess to projected capacity needs. The Company's net inventory decreased to $412.2 million at January 30, 1994 from $439.7 million at July 31, 1993. Excess-over-average and production inventory declined reflecting the increased maturity of newer programs, the reduced sales volume and the efforts of management to control inventory levels through shorter lead times and just-in-time contracts. These reductions were partially offset by an increase in pre-production inventory, primarily in the MD-90 and A340 programs and in a new application of the V2500 program. The changes in the application of accounting principles adopted by the Company in fiscal 1993 substantially decreased net inventory from its level at July 31, 1992. See "--Accounting Changes" and "Notes to the Consolidated Financial Statements--Note 2." The Company's receivables decreased from $133.2 million on July 31, 1992 to $94.1 million at both July 31, 1993, and January 30, 1994, due to several large receipts by the Company for tooling, design changes and similar non-recurring tasks, as well as the receipt of certain amounts deferred pending aircraft certification. This decrease was net of a $45 million reduction in the receivables sales arrangement which, by itself, would have increased receivables by $45 million. See "Notes to the Consolidated Financial Statements--Note 3." Capital expenditures (including expenditures funded by industrial revenue bonds and capital leases) averaged $45 million per year over the past five fiscal years. Capital expenditures for property, plant and equipment totaled $2.9 million for the first six months of fiscal year 1994, down from $18.9 million in the first six months of fiscal year 1993. Capital expenditures in the first six months of fiscal year 1993 were higher due in large part to expenditures for new office and manufacturing facilities. In addition, the Company has substantially curtailed its previously planned capital expenditures for the balance of fiscal year 1994 in line with other cost cutting efforts and anticipates such expenditures will not exceed an average of $20 million per year over the subsequent four years. Given its substantial recent investments, the Company believes that the amount it plans to spend on capital expenditures over the next several years will be sufficient to meet the Company's production requirements. The Company's firm backlog, which includes the sales price of all undelivered units covered by customers' orders for which the Company has production authorization, was approximately $1.3 billion at January 30, 1994 compared to $1.4 billion at July 31, 1993. Approximately $0.4 billion of the $1.3 billion backlog is expected to be delivered in the remainder of fiscal year 1994. (Sales during any period 29 include sales which were not part of backlog at the end of the prior period.) Customer orders in firm backlog are subject to rescheduling and/or termination for customer convenience; however, in certain cases the Company is entitled to an adjustment in contract amounts. The Company has an additional $2.7 billion in anticipated backlog, which represents the sales price of units which the Company expects that its customers will order under existing contracts and the Company will deliver within seven years. The Company believes that, after the completion of the Offerings, its principal sources of liquidity over the next several years will be cash flow from operations, available cash, borrowings under the Revolving Credit Agreement and the pending asset sales. Based upon current levels of operations and anticipated future business, the Company believes that these sources will be adequate to meet its anticipated requirements for working capital, capital expenditures and debt service during that period. ENVIRONMENTAL MATTERS The Company has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), and under certain analogous state laws for the cleanup of contamination resulting from past disposal of hazardous substances at several sites to which the Company, among others, sent such substances in the past. CERCLA requires the cleanup of sites from which there has been a release or threatened release of hazardous substances, and authorizes the Environmental Protection Agency ("EPA") to take any necessary response actions at such sites, including ordering PRPs to cleanup or contribute to the cleanup of a Superfund site. Courts have interpreted CERCLA to impose strict, joint and several liability upon all persons liable for response cost. In June 1987, the U.S. District Court of Los Angeles, in U.S. et al, vs. Stringfellow, granted partial summary judgment against the Company and 14 other defendants on the issue of liability under CERCLA. On November 30, 1993, the special master released his "Findings of Fact, Conclusions of Law and Reporting Recommendations of the Special Master Regarding the State Share Fact Finding Hearing," allocating liability between the State of California and other parties. See "Legal and Environmental Proceedings--Stringfellow." The most recent estimate the Company has made of its liability, assuming the court order allocating substantial liability to the State of California is upheld, assuming the 1989 EPA estimate of total cleanup costs is not exceeded (although the EPA cautioned the actual costs could have a variation of 30% less or 50% higher than its estimate), and assuming tentative allocations among the Company and all other users of the site will approximate the final allocation of aggregate user liability, shows a Company expenditure ranging from $5 to $8 million over and above sums spent to date. This amount is within the sums accrued on the books of the Company for potential offsite environmental liability. However, the Company estimates further assume that the EPA selects a final remedial action of moderate technology and cost, rather than one of several more radical ones previously suggested, but apparently discarded at this point, by the EPA. The decision on the final remedial action is still being studied and may be made in 1994 or later. Expenditures by the Company for cleanup of this site during fiscal 1993 were not material, although cleanup costs for Stringfellow are expected to be approximately $1 million during fiscal 1994. From inception to July 31, 1993, the Company has expended approximately $2.5 million on cleanup costs for this site. Amounts within the above estimated $5 to $8 million range of future liability are expected to be paid for remedial work over the next several years under agreements and consent decrees entered into between the EPA, the Company and numerous other PRPs. Applicable law provides for continuing liability for future remedial work beyond these agreements and consent decrees, although the Company believes its reserves are adequate for its portion of such liability if all of the above assumptions are correct. The Company also has claims against its comprehensive general liability insurers for insurance reimbursement, for past and future costs, none of which has yet been recorded in the financial records of the Company except for sums actually paid in certain insurance settlements and certain legal fees which the insurers have been reimbursing. Based on the foregoing analysis, the Company believes that costs of remedial actions for the Stringfellow site will not have a material effect on the Company's financial condition, liquidity or results of operation. 30 The Company is also involved in several other proceedings and investigations related to waste disposal sites and other environmental matters. The Company has made claims against its insurance carriers for certain of these items, and has received claims acknowledgment letters reserving the rights of such carriers. As in the case of the Stringfellow site, the insurers have alleged or may allege defenses to coverage, although no litigation has been commenced. It is difficult to estimate the ultimate level of environmental expenditures for these various other environmental matters due to a number of uncertainties at this early stage, including the complexity of the related laws and their interpretation, alternative cleanup technologies and methods, insurance and other recoveries, and in some cases the extent or uncertainty of the Company's involvement. See "Legal and Environmental Proceedings" for a more detailed discussion of the range of the Company's potential liability. During the year ended July 31, 1993, the Company expended, for the environmental items described above and also for other environmental matters (including environmental protection activities in the normal operation of its plants), a total of approximately $6 million. These expenditures covered various environmental elements, including hazardous waste treatment and disposal costs, environmental permits, environmental consultants, fines or donations (which were not material, either individually or in the aggregate) and environmental remediation (including Stringfellow), no significant part of which was capitalized. Assuming the usage of all of these various environmental elements remains substantially the same for fiscal 1994 as in fiscal 1993, which the Company anticipates, costs for these elements in fiscal year 1994 should be comparable to the expenditures for fiscal 1993, except for the indicated higher sum expected to be paid for Stringfellow remediation in fiscal 1994. Based upon presently available information, the Company believes that aggregate costs in relation to all environmental matters of the Company will not have a material adverse effect on the Company's financial condition, liquidity, results of operations or capital expenditures. ACCOUNTING CHANGES In the third quarter of fiscal 1993, the Company changed certain elements of its application of accounting principles relating to long-term programs and contracts, effective August 1, 1992. As a result of these changes, certain costs previously carried in inventory for amortization over future deliveries are now being expensed. These costs include certain pre-certification costs, consisting primarily of tooling and design expenses in excess of negotiated contractual values, that are now expensed as identified. In addition, general and administrative costs that were previously capitalized are now being expensed as incurred. Following a thorough review of its accounting policies, the Company concluded there was a need, particularly in light of the current aerospace environment, to have financial results more closely reflect near-term program economics (cash flow and internal rate of return). As a result, these changes generally reduce the number of production units and spares used in the calculation of overall profit margins. While the previous methods of applying the Company's accounting principles were in accordance with generally accepted accounting principles (GAAP), the changed policies are preferable. The application of these policies produces program and contract estimates that are based on shorter delivery periods, allowing a better matching of revenues and expenses. The cumulative effect of these changes for the periods through July 31, 1992 was a charge of $219.7 million, net of income tax benefits of $136.3 million. The effect of these changes on the year ended July 31, 1993 was to increase the net loss before the cumulative effect of the changes in accounting principles by $24.6 million ($1.37 per average common share), net of income tax benefits of $15.3 million. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," pro forma amounts are shown for net loss and net loss per average share of common stock for all prior periods presented. The pro forma amounts presented in the Consolidated Statements of Operations reflect the retroactive application of these accounting changes, net of income tax benefits (which were allocated ratably over the pro forma restated periods) for each period presented. Primarily as a result of these changes, excess-over-average inventory decreased from $323.7 million at July 31, 1992 to $75.4 million at July 31, 1993. Pre-production inventory also decreased from $258.4 million at July 31, 1992 to $181.0 million at July 31, 1993, primarily as a result of the accounting changes. See "Notes to the Consolidated Financial Statements--Note 4." 31 In the third quarter of fiscal 1993, the Company also adopted, effective August 1, 1992, SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other than Pensions." The accumulated post-retirement benefit obligation for active employees and retirees was recorded using the immediate recognition transition option. See "Notes to the Consolidated Financial Statements--Note 9b." This standard requires companies to accrue the expected cost of providing health care benefits to retired employees and their dependents during the employees' service periods. The Company previously charged the cost of providing these benefits on a pay-as-you-go basis. The cumulative effect of this change for the periods through July 31, 1992, was a charge of $4.3 million, net of income tax benefits of $2.7 million. The effect of the change on the year ended July 31, 1993 was not material. In the third quarter of fiscal 1993, the Company also adopted, effective August 1, 1992, SFAS No. 109, "Accounting for Income Taxes." See "Notes to the Consolidated Financial Statements--Note 6." The cumulative effect of this change for periods through July 31, 1992, was not material by itself. However, under this standard, the Company recorded a substantial net deferred tax asset as a result of the other changes in accounting principles and certain other charges recorded in the year ended July 31, 1993. See "Notes to the Consolidated Financial Statements--Note 6." The combined effect of adopting the new accounting changes for the year ended July 31, 1993 was a charge to net income of $24.6 million ($1.37 per average common share). The cumulative effect through July 31, 1992 of adopting the new accounting changes was a one-time charge of $224.0 million, net of income taxes ($12.50 per average common share), with a corresponding reduction in shareholders' equity. As a result of adopting the accounting changes, combined with the results of operations for the year ended July 31, 1993, the Company reported a loss of $254.5 million ($14.21 per average common share). The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) No. 112, Employers' Accounting for Post-Employment Benefits. The new standard is effective for fiscal years beginning after December 15, 1993 and requires employers to recognize the obligation to provide post-employment benefits to former or inactive employees, their beneficiaries, and covered dependents, when certain conditions are met. The Company does not expect there to be a material adverse effect on its financial position or results of operations in the year of adoption. INCOME TAXES First Six Months of Fiscal 1994 The Company provided $3.1 million for income taxes during the first six months of fiscal year 1994, offset by a tax benefit of $2.8 million due to the change in federal tax rates under the Omnibus Budget Reconciliation Act of 1993. The Company's deferred tax asset of $102.6 million remained substantially unchanged from the amount at July 31, 1993 but is expected to increase by approximately $30 million due to increased pension liability by the end of fiscal year 1994. See "Risk Factors--Underfunded Pension Plans," "Risk Factors--Deferred Tax Asset" and "--Liquidity and Capital Resources." Based on currently available information, the Company believes that sufficient future taxable income will be generated to fully utilize the increased deferred tax asset. The Company's ability to utilize its deferred tax asset is discussed in greater detail below. The IRS has audited the Company's tax returns through fiscal 1985. In fiscal 1993, the IRS issued a Revenue Agent's Report challenging the Company's adoption in 1984 of the completed contract method of accounting ("CCMA"), the Company's tax deduction for funding liabilities related to a Voluntary Employee Benefit Association ("VEBA") and certain other matters. The Company filed a protest with the Appeals Office of the IRS and, subsequent to the end of the second quarter of fiscal 1994, the IRS conceded that the Company was entitled to use CCMA. The Company is negotiating a resolution of the remaining adjustment issues with the IRS. The Company believes that the resolution 32 of these remaining issues will not have a material adverse effect on the Company and its financial position, even if the IRS were to prevail with respect to all of such issues. Fiscal 1993 In the third quarter of fiscal 1993, the Company adopted, effective August 1, 1992, SFAS No. 109, "Accounting for Income Taxes." This standard requires the recognition of future tax benefits, predicated upon current tax law, attributable to tax credit carryforwards, temporary differences, and NOLs that will result in deductible amounts in the future. The value of the tax asset is effectively reduced through the establishment of a valuation allowance if, based on the weight of available evidence, it is "more likely than not" that some or all of the deferred tax asset will not be realized. When tax effected at July 31, 1993 tax rates, the Company's deductible temporary differences, tax credit carryforwards and NOLs result in a deferred tax asset of $103.0 million, consisting of $85.3 million for federal tax purposes and $17.7 million for state tax purposes. Based on tax rates in effect on July 31, 1993, the Company must generate approximately $271 million of future taxable income (net of $233 million of taxable income that the Company will report as a result of the automatic reversal of existing taxable temporary differences between asset and liability values for financial reporting and income tax purposes) prior to the expiration of the Company's NOLs in 2003 through 2008 for full realization of the net deferred tax asset. The Company believes it will be able to generate, on average, at least $27 million in net income for each of the next 10 years, in order to fully utilize the deferred tax asset (assuming all temporary differences between asset and liability values for financial reporting and income tax purposes reverse during that period). This level of net income would be $57.6 million in excess of reported fiscal 1993 net loss of $30.6 million before the effect of the accounting changes. The ultimate realization of the Company's deferred tax asset is dependent upon the generation of sufficient future taxable income during the available federal and state NOL carryforward periods. Although the Company has reported taxable losses during recent fiscal years primarily as a result of the significant non-recurring events described below, management expects that a sufficient level of taxable income will result in years subsequent to fiscal 1993 and prior to the expiration of the NOLs to realize the deferred tax asset recorded at July 31, 1993. The Company's long-term contracts and programs require long range sales and profit forecasts, but also provide the Company opportunities to generate future taxable income necessary to realize the deferred tax asset recorded. Following is a summary of the positive evidence which leads the Company to believe that a valuation allowance is not necessary, as it is more likely than not that the deferred tax assets will be realized: . During fiscal years 1990 through 1993, there were a number of highly unusual and unpredictable events and other industry factors that caused the Company to have poor financial results. These items are generally described below. The aerospace industry was experiencing unprecedented growth in the late 1980s and through 1991. The Company was required to deliver its products more rapidly and was involved in several new product development efforts for a number of engine nacelles and pylons. The Company added a significant number of engineers to handle design changes for new products under development, and experienced even greater engineering demands due mostly to difficulties in changing the PW4000 nacelle from the Airbus A300/A310 configuration to the new MD- 11 configuration and in developing the MD-11 pylon. The Company's rapid expansion of its work force, introduction of new programs and start-up of satellite facilities were extremely disruptive and cost consuming. As the Company worked to produce initial units under new programs, a substantial portion of work was being performed by relatively inexperienced employees. Additionally, there were significant start-up costs in relocating production among facilities. The Company also experienced difficulties on its government programs as a result of disagreements over redefined acceptance criteria. 33 . The conditions leading to an expanding work force, transfers to satellite plants and heavy use of engineers on new programs have drastically changed. Currently, the Company and the industry are in a downturn with orders being delayed and/or cancelled. The Company has been downsizing and will continue to do so in response to the market. Management has implemented and will continue to make significant cost reductions in response to the industry downturn in order to enhance overall profitability. Additionally, the Company should be able to utilize its resources in a more balanced and stable manner. Engineering needs have been drastically reduced as most of the programs that were in the development stage throughout the late 1980s and early 1990s have been introduced to the market. Significant design costs for new product development are not anticipated over the next several years. . The Company's direct sales of spare parts to the airlines are expected to increase as nacelle programs on which the Company sells spare parts directly to the airlines mature. Generally, the Company earns a higher margin on the direct sales of spare parts to airlines than it does on the sales of spare parts to prime contractors (for resale to the airlines). Prices for direct spare part sales are higher than prices for spare parts sold to prime contracts, in part, because of additional costs related to the technical and customer support activities provided to the airlines. . The Company's assets present significant opportunities to accelerate taxable income into the NOL carryforward period. Tax planning strategies such as leveraged lease transactions, the sale-leaseback of certain property, the revision of depreciation methods for tax purposes and reductions in foreign sales corporation commissions could generate taxable income of approximately $16 million, $32 million, $28 million and $35 million, respectively. The following table shows the taxable income that will need to be generated over the next 20 years in order to realize the deferred tax asset:
5-YEAR TIME INTERVAL --------------------------------------- 1994-98 1999-2003 2004-08 2009 & BEYOND ------- --------- ------- ------------- (DOLLAR AMOUNTS IN MILLIONS) NOLs................................... $ 0 $27 $159 $ 0 Tax credits............................ 0 14 8 0 Future deductible temporary differ- ences................................. 0 0 0 296 --- --- ---- ---- Total.............................. $ 0 $41 $167 $296 === === ==== ====
Future deductible temporary differences begin to reverse in fiscal 1994. Taxable income needed to realize the portion of the deferred tax asset related to future deductible temporary differences will need to be generated before the end of the 15-year period following the reversal of those temporary differences. The availability of the Company's NOLs may be limited under the Tax Reform Act of 1986 as a result of changes that may occur in the ownership of the Company's stock in the future, principally relating to a change in control. Management has considered this factor in reaching its conclusion that it is "more likely than not" that future taxable income will be sufficient to realize fully the deferred tax asset reflected on the Balance Sheet. 34 BUSINESS GENERAL The Company designs, develops, manufactures, sells and supports complete nacelle and pylon systems for large aircraft engines. The Company has over 50 years of experience in the aerospace industry and is the leading independent supplier of nacelle and pylon systems to the world's major commercial airframe and engine manufactures ("OEMs"). Rohr manages projects from the early design stage through production and systems integration to lifetime customer support. In addition, the Company has the right to provide customer and product support directly to approximately 145 airlines around the world, including on-site field services and the sale of spare parts. Nacelles are aerodynamic structures which surround and attach jet engines to aircraft. A nacelle system generally includes the nose cowl or inlet, fan cowl, nozzle systems, thrust reverser and engine build-up. Pylons (sometimes referred to as struts) are structures that attach the jet engines to the aircraft. Nacelle and pylon systems are highly engineered, critical to fuel efficiency and integral to all of the key interfaces between the jet engine and the airframe. The Company believes that it is competitively well-positioned in its core business. Management estimates that the Company supplied, by value, approximately 45% of the nacelle systems and 25% of the pylons for all large commercial aircraft produced worldwide in 1993, including products represented on the Boeing 737, 747, 757 and 767, the Airbus A300, A310, A320, A321, A330 and A340, and the McDonnell Douglas MD-80, and MD-11. The Company attributes its strong market position to its leading technologies, its focus on a narrow product line and its competitive cost structure. Management believes that this market position is protected by (i) long-term contracts including some life-of- program agreements, (ii) substantial costs for the airframe or engine OEMs to change supply sources, (iii) significant up-front design, development, tooling and certification costs which must be borne before production on a program may begin and (iv) a strong reluctance by airlines to support different nacelle systems manufactured by more than one supplier in their fleets. MARKETS Commercial Airline Industry Commercial airlines' demand for new aircraft is highly dependent upon consumer demand for air travel, stability of fuel and ticket prices, replacement of older aircraft (which is influenced by the time required for, and the economics of, compliance with noise and maintenance regulations), the availability of temporarily deactivated aircraft, and the financial capabilities of the airlines and leasing companies to accept ordered aircraft and to exercise aircraft purchase options. Such demands and capabilities historically have been related to the stability and health of the United States and world economies. Since the production of aircraft can take up to two years, production in the aircraft manufacturing industry (including production by subcontractors such as the Company) can lag behind changes in the general economy. In 1990 through 1992, airlines' passenger capacity increased rapidly as the commercial aircraft industry produced record numbers of aircraft, peaking with 830 aircraft in 1991. During this same period, the United States and world economies experienced recession and slow growth, United States scheduled airlines reported operating losses averaging approximately $2 billion per year, while non-United States scheduled airlines reported significantly reduced profits. In 1991, United States and world airline passenger traffic decreased by 1.9% and 2.8%, respectively. This was the first year in the history of the industry that world airline passenger traffic had decreased. As a result of these conditions, orders for new aircraft slowed substantially and some existing orders and options for new commercial aircraft were cancelled or rescheduled to later dates. 35 In 1993, United States scheduled airlines achieved approximately $1 billion of operating profit. In addition, world airline passenger traffic grew by 6.9% in 1992 and 4.5% in 1993. Industry analysts have predicted that worldwide airline passenger traffic will grow approximately 5% to 6% per year over the long-term. The following table sets forth the worldwide revenue passenger miles ("RPMs") and the percentage growth in RPMs, as reported in the March 1993 Boeing Current Market Outlook--World Market Demand and Airplane Supply Requirements, and the number of commercial aircraft (over 100 passengers), as reflected in Boeing World Jet Airplane Inventory Year-End 1992 (after adjustment for deliveries of aircraft to the military), delivered during each of the last 15 calendar years.
COMMERCIAL AIRCRAFT PERCENT (OVER 100 WORLD RPMS GROWTH PASSENGERS) YEAR (IN BILLIONS) IN RPMS DELIVERED ---- ------------- ------- ----------- 1979................................... 645.4 12.0% 407 1980................................... 652.0 1.0 442 1981................................... 662.4 1.6 431 1982................................... 683.7 3.2 287 1983................................... 714.9 4.6 320 1984................................... 771.2 7.9 265 1985................................... 831.1 7.8 346 1986................................... 888.0 6.8 393 1987................................... 983.9 10.8 418 1988................................... 1061.2 7.9 511 1989................................... 1097.6 3.4 563 1990................................... 1165.7 6.2 671 1991................................... 1133.6 (2.8) 830 1992................................... 1211.8 6.9 785 1993................................... 1298.7(a) 4.5(a) 628(b)
- -------- (a) Estimated by the Company based upon data for the first eight months of fiscal 1993 as reported by The Airline Monitor. (b) Based upon Company estimates. Commercial Aircraft Manufacturing Industry As shown above, aircraft deliveries have been declining. The industry delivered 830 new commercial transport aircraft in 1991, 785 in 1992 and 628 in 1993. In response to the deferral and cancellation of orders from their customers, airframe and engine manufacturers have rescheduled future production levels, laid off workers, shortened employee work periods, and passed production slowdowns on to their suppliers, including the Company. Although aircraft order backlog remains relatively high, excess capacity currently exists in the airline industry due to the high number of deliveries in the early 1990s, unused aircraft which were previously delivered and the weakened condition of the airline industry. In connection with the current contraction in the commercial aircraft industry, subcontractors such as the Company have been experiencing pressures from their customers to reduce prices. The Company, in turn, is exerting similar pressure on its own suppliers to reduce prices and thus enable the Company to manufacture products at lower costs. The Company's commercial airline customers have also reduced their spare parts inventory levels. The Company expects that orders for and deliveries of commercial aircraft will continue to be affected through calendar 1995 by the adverse United States and world economic conditions which existed in recent periods. 36 Government Sales The Company's government business is declining as a result of the completion of older production programs and, in the case of the Titan rocket motor casing program, reduced demand. Government business represented 12% of the Company's sales for the six months ended January 30, 1994, as compared to 13% in fiscal 1993, 14% in fiscal 1992 and 20% in fiscal 1991. CONTRACTS Most of the Company's major commercial contracts establish a firm unit price, subject to cost escalation, over a number of years or, in certain cases, over the life of the related program. Life-of-program agreements generally entitle the Company to work as a subcontractor in the program during the entire period the customer produces its aircraft or engine. While the customer retains the right to terminate these long-term and life-of-program arrangements, there are generally significant costs for doing so. The Company's long-term contracts generally contain escalation clauses for revising prices based on published indices which reflect increases in material and labor costs. Furthermore, in almost all cases, when a customer orders production schedule revisions (outside of a range provided in the contract) or design changes, the contract price is subject to adjustment. These long-term contracts provide the Company with an opportunity to obtain increased profits if the Company can improve production efficiencies over time, and the potential for significant losses if it cannot produce the product for the agreed upon price. The Company's other commercial contracts generally provide a fixed price for a specified number of units which, in many cases, are to be delivered over a specified period of time. Under these contracts, prices are re-negotiated for each new order. As a result, the Company has the opportunity to negotiate price increases for subsequent units ordered if production costs are higher than expected. The Company's customers, however, may seek price reductions from the Company in connection with any new orders they place. On its longer-term contracts, the Company bases initial production prices on estimates of the average cost for a portion of the units which it and its customer believe will be ordered. Generally, production costs on initial units are substantially higher during the early years of a new contract or program, when the efficiencies resulting from learning are not yet fully realized, and decline as the program matures. Learning typically occurs on a program as tasks and production techniques become more efficient through repetition of the same manufacturing operation and as management implements actions to simplify product design and improve tooling and manufacturing techniques. If the customer orders fewer than the expected number of units within a specified time period, certain of the Company's contracts have repricing clauses which increase the prices for units that have already been delivered. However, other contracts do not include such repricing provisions and force the Company to bear certain market risks. The Company analyzed the potential market for the products under such contracts and agreed to prices based on its estimate of the average costs for the units it expected to deliver under the program. Many of the Company's contracts have provided for the recovery of a specified amount of nonrecurring, pre-production costs, consisting primarily of design and tooling costs. In some cases, a significant portion of such pre-production costs have been advanced by the customer. However, in negotiating some contracts, the Company has agreed to defer recovery of pre-production costs and instead to recover a certain amount of such costs with the sale of each production unit over an agreed number of production units plus spare equivalents. In addition, on some of these contracts, based on its analysis of the potential market for the products covered by such contracts, the Company agreed to amortize pre-production costs over a number of units which was larger than the anticipated initial fabrication orders without the protection of a repricing clause or guaranteed quantities of orders. On 37 other commercial contracts, the Company receives advance payments with orders, or other progress or advance payments, which assist the Company in meeting its working capital requirements for inventories. In government contracts, the Company receives progress payments for both pre-production and inventory costs. To reduce its pre-production and inventory requirements and market risks, the Company has subcontracted substantial portions of several of its programs. See "--Subcontractors." In accordance with practices in the aircraft industry, most of the Company's commercial orders and contracts are subject to termination at the convenience of the customer and on many programs the tooling and design prepared by the Company are either owned by the customer or may be purchased by it at a nominal cost. The contracts generally provide, upon termination of firm orders, for reimbursement of costs incurred by the Company, plus a reasonable profit on the work performed. The costs of terminating an entire contract or program can be significantly greater for the customer than the costs of terminating specific firm orders. All of the Company's government contracts are subject to termination at the convenience of the government. In such a situation, the Company is entitled to recover the costs it incurred prior to termination, plus a reasonable profit on the work performed. If a government contract is terminated for default, the government's remedies against the Company are similar to those for breach of a commercial contract. PRODUCTS General The Company designs and manufactures nacelle systems, nacelle components, pylons, non-rotating components for jet engines, and other components for commercial, military and business aircraft. A nacelle system generally includes the nose cowl or inlet, fan cowl, nozzle systems, thrust reverser and EBU. The nacelle houses electrical, mechanical, fluid and pneumatic systems together with various panels, firewalls and supporting structures; the aircraft engine (which is provided by the customer); and engine equipment such as electrical generators, starters, fuel pumps and oil coolers (which are purchased or customer-furnished). The Company also performs EBU by assembling nacelle systems and the related electrical, mechanical, fluid and pneumatic systems onto core aircraft engines. The following page contains a picture of major propulsion system components, including the nacelle system, jet engine and pylon. 38 PROPULSION SYSTEM COMPONENTS 39 During fiscal 1993, sales to the commercial (including business jets) and government (military and space) aerospace industries were approximately 87% and 13% of sales, respectively. Commercial The Company manufactures nacelle systems (including thrust reversers), nacelle components and related parts for commercial aircraft pursuant to the customer's design or to the Company's design based on the customer's specifications. In addition, beginning in approximately 1985, the Company expanded its role and became a systems integrator for nacelle systems on several programs, with responsibility for the integration and management of the design, tooling, manufacture and delivery of the complete nacelle system. Approximately 85% of the existing commercial aircraft fleet contain one or more Company products as part of their nacelle, thrust reverser or pylon systems. The following tables identify all of the large commercial aircraft currently in production or committed to production, list all of the engine options available on such aircraft, and identify with an "X" the components which the Company delivers on each aircraft and engine combination. CURRENT NARROW-BODY AIRCRAFT
NACELLE - ------------------------------------------------------------------------------------- NOSE FAN CORE NOZZLE THRUST AIRCRAFT ENGINE COWL COWL COWL & PLUG EBU REVERSER PYLON - ------------------------------------------------------------------------------------- Boeing 737-3/4/500 CFM56-3 X X . - ------------------------------------------------------------------------------------- Boeing 737-700 CFM56-7 * * . - ------------------------------------------------------------------------------------- Boeing 757 RB211-535 X . X X X ------------------------------------------------------ PW2037 X - ------------------------------------------------------------------------------------- McDonnell Douglas MD-80/-87 JT8D-209/-217 X X . . X X X - ------------------------------------------------------------------------------------- McDonnell Douglas MD-90 V2500 X X . X X X - ------------------------------------------------------------------------------------- Airbus A319 CFM56-5 X X . X X X ------------------------------------------------------ V2500 X X . X X X - ------------------------------------------------------------------------------------- Airbus A320 CFM56-5 X X . X X X ------------------------------------------------------ V2500 X X . X X X - ------------------------------------------------------------------------------------- Airbus A321 CFM56-5 X X . X X X ------------------------------------------------------ V2500 X X . X X X - ------------------------------------------------------------------------------------- British Aerospace BAe 146 ALF502 - ------------------------------------------------------------------------------------- Fokker 100 RR TAY
* The Company is negotiating with Boeing to supply these components under a directed procurement. . This nacelle configuration does not contain this component. 40 CURRENT WIDE-BODY AIRCRAFT
NACELLE - ------------------------------------------------------------------------------ NOSE FAN CORE NOZZLE THRUST AIRCRAFT ENGINE COWL COWL COWL & PLUG EBU REVERSER PYLON - ------------------------------------------------------------------------------ Boeing 747 CF6-80C X X X --------------------------------------------------- PW4000 --------------------------------------------------- RB211-524G X - ------------------------------------------------------------------------------ Boeing 767 CF6-80C X X X --------------------------------------------------- PW4000 --------------------------------------------------- RB211-524H X - ------------------------------------------------------------------------------ Boeing 777 GE90 X --------------------------------------------------- PW4084 --------------------------------------------------- TRENT 800 - ------------------------------------------------------------------------------ Airbus A300 CF6-80C X X X X --------------------------------------------------- PW4000 X X . X X X - ------------------------------------------------------------------------------ Airbus A310 CF6-80C X X X X --------------------------------------------------- PW4000 X X . X X X - ------------------------------------------------------------------------------ Airbus A330 CF6-80E X X X X --------------------------------------------------- PW4168 --------------------------------------------------- TRENT 700 X - ------------------------------------------------------------------------------ Airbus A340 CFM56-5C2 X X . X X X - ------------------------------------------------------------------------------ McDonnell Douglas MD-11 CF6-80C2 X X X X X --------------------------------------------------- PW4000 X X . X X X X
. This nacelle configuration does not contain this component. 41 Principal Programs - ------------------ The following descriptions provide more information on certain of the Company's major programs. For more detailed financial data (including the amounts of pre-production and excess-over average inventories at January 30, 1994) for certain programs, see "Notes to the Consolidated Financial Statements--Note 4." A340 The Company's 1989 contract with CFM International, the manufacturer of the jet engine used on the Airbus A340, is a life-of-program contract. The Company has delivered 182 production units to CFM International through January 30, 1994. The Company's contract establishes prices for the entire contract period, subject to adjustment based on labor and material cost changes in the industry, for each nacelle delivered. If the Company does not recover a contractually specified amount of its nonrecurring costs by June 1997, CFM International will reimburse it for the unamortized portion of such costs (and, correspondingly, the Company will reimburse its subcontractors for the unamortized portions of their investments, to contractually specified amounts, in nonrecurring tooling and design). Although the contract provides for the recovery of recurring costs over 600 units, CFM International only guaranteed the recovery of such costs for the first 200 units. Accordingly, if the Company sells fewer than 600 units, it would not have manufactured enough units to bring its costs down to anticipated levels and in such case would not recover all of its recurring manufacturing costs. This is the only nacelle installed on the A340 aircraft. The Company acts as the systems integrator on this program and has subcontracted most of the A340 nacelle production to third parties. Generally, the Company's subcontractors have assumed the market risk associated with the failure to sell sufficient units to permit full recovery of all of their manufacturing costs if less than 600 units are delivered. The Company performs engine build-up for the CFM International engine used with this nacelle at its factory in Toulouse, France. The Company has the right to sell A340 nacelle spare parts directly to the airlines. CF6-80C Under the contract for the CF6-80C nacelle program entered in 1982 with General Electric, the Company supplies the nacelle system, excluding the thrust reverser, nozzle and plug, for installation with the General Electric CF6-80C engine on the Airbus A300 and A310 and the McDonnell Douglas MD-11. In total, the Company has delivered 1,499 production units through January 30, 1994. This is a life-of-program agreement, although General Electric retains the right to seek bids on the design and production of significantly modified CF6-80C components. In addition, since 1983, the Company has sold CF6-80C nacelle components directly to Boeing (under a license agreement with General Electric) for installation with General Electric engines on Boeing 747 and 767 aircraft. The Company's contract with Boeing runs through 1995; Boeing has an option to renew the contract at that time. The sales prices to General Electric and Boeing are established for the life of the program, subject to adjustment based on material and labor cost changes in the industry. The Company has the right to sell CF6-80C spare parts directly to the airlines. Although the Company subcontracts some portion of this contract, most of the production effort is performed by the Company. CFM56 The Company acts as a systems integrator to provide the nacelle system to Airbus for the CFM International engine installed on the A320 and A321 aircraft and to be installed on the future A319 aircraft. Since entering the contract in 1984, the Company has delivered 626 production CFM56 nacelles through January 30, 1994. As on other programs in which the Company acts as systems integrator, the Company subcontracts a major portion of the CFM56 nacelle system effort to third parties. The Company also manufactures the inlet barrels for the nacelle. It also performs engine build-up for this engine and nacelle combination at its factory in Toulouse, France and intends to perform 42 engine build-up for a version of this engine and nacelle combination at its factory in Hamburg, Germany. The Company's sales prices to Airbus are determined for a combined total of 2,000 units, subject to adjustment based on labor and material cost changes in the industry. The Company has the right to sell CFM56 nacelle system spare parts directly to airlines. MD-11 Under its 1988 contract with McDonnell Douglas for the MD-11 pylon, the Company supplies the wing and tail pylons that attach the General Electric CF6- 80C and Pratt & Whitney PW4000 nacelles onto the McDonnell Douglas MD-11 jumbo jet. In total, the Company has delivered 364 production units through January 30, 1994. The contract entitles the Company to supply the first 900 pylons (i.e. 300 shipsets) required by McDonnell Douglas. The contract establishes prices for the units to be delivered, subject to adjustment based on labor and material cost changes in the industry. On the basis of its market analysis of demand for the MD-11 aircraft, the Company accepted certain market risks with respect to the engineering, development and flight test costs on the MD-11 pylon program. The Company subcontracts the wing pylon structure and aerodynamic pylon fairings. The Company's subcontractor assumed the market risk associated with the pre-production costs for the subcontracted work. The Company produces the tail pylon structure, installs all electrical, hydraulic and pneumatic systems on the wing and tail pylons and provides pylon product support (including the sale of spare parts) directly to the airlines who purchase the MD-11. MD-90 The Company acts as a systems integrator for the nacelle used with the International Aero Engines V2500 engine on the McDonnell Douglas MD-90, an aircraft currently undergoing flight certification. The Company has delivered only the initial certification units on this program. The first production units are scheduled for delivery in mid-1994. As with other programs on which it acts as a systems integrator, the Company subcontracts a substantial portion of the MD-90 nacelle effort to third parties, retaining production of the nozzle and other parts and engine build-up services. The Company's 1990 contract with International Aero Engines specifies that the Company shall be the sole source for the first 750 MD-90 nacelles. The Company's contract establishes prices, subject to adjustments based on labor and material cost changes in the industry, for MD-90 nacelles through the year 2010. This is the only engine and nacelle combination used on the MD-90. Based upon its analysis of the market for the MD-90, the Company accepted certain market risks in the contract for this nacelle. As a result, if the Company sells fewer MD-90 nacelles than it assumed for pricing purposes, it would not receive sufficient payments from International Aero Engines to offset its pre-production costs and would not receive retroactive price increases to compensate it for production costs on delivered units that are higher than expected average production costs over the life of the program. The Company's subcontractors on the MD-90 nacelle have assumed those market risks associated with pre-production and higher-than- average initial production costs on the components they manufacture. The Company has the right to sell MD-90 nacelle spare parts directly to the airlines. PW4000 Under the PW4000 nacelle program, the Company produces substantially the entire nacelle system, including thrust reverser (except for the tail fan cowl for the MD-11, which is subcontracted). An existing contract was amended in 1985 to include this program, and the Company has delivered 556 production units to its customer, Pratt & Whitney, through January 30, 1994. The Company is currently developing design changes intended to result in cost savings on this program. The PW4000 nacelle is installed on the Airbus A300 and A310 and the McDonnell Douglas MD-11. The Company has the right to produce PW4000 nacelles through 2002 and has negotiated prices, subject to adjustment based on cost changes in the industry, through the 1,117th unit (or through the year 2002, 43 if sooner). The contract provides for an equitable price adjustment if 500 units are not delivered after January 1993 and prior to December 31, 2002. The Company sells PW4000 spare parts to Pratt & Whitney, which remarkets them to the airlines. RB211-535 Since entering a production contract with Rolls-Royce in 1978, the Company has delivered approximately 708 production units of the RB211-535 nacelle through January 30, 1994. The Company manufactures substantially all of the components under this program, which includes the fan cowl, nozzle and plug and thrust reverser for installation on Boeing 757 aircraft. Under the contract, the Company has the right to produce the nacelle through the earlier of January 2001 or the delivery of 1,000 units. The Company's contract gives it the right to compete to produce variations of RB211-535 nacelle components for installation on other aircraft. It is possible that the RB211-535 engine and nacelle may be installed as replacement equipment on the Tupolov 204 to improve its performance and efficiency. The Company's contract with Rolls-Royce establishes prices for the entire contract period, subject to adjustment based on labor and material cost changes in the industry. The Company has the right to sell RB211-535 nacelle spare parts directly to the airlines. V2500 The Company also acts as a systems integrator on the nacelle it provides for the International Aero Engines V2500 engine. It subcontracts a major portion of the V2500 nacelle effort to third parties. The Company manufactures the thrust reverser inner fixed structure and the nozzle and plug, and performs engine build-up for this engine and nacelle combination at its factories in Toulouse, France and Hamburg, Germany. This engine and nacelle combination is installed on the Airbus A320 and A321 aircraft. Since entering the contract in 1985, the Company has delivered 327 production V2500 nacelles to International Aero Engines through January 30, 1994. The Company's sales prices to International Aero Engines are established for the entire contract period, subject to adjustment based on labor and material cost changes in the industry. Based upon its analysis of the market for this engine and nacelle combination, the Company accepted certain market risks in the contract for this nacelle. As a result, if the Company sells fewer V2500 nacelles than it assumed for pricing purposes, it may not receive sufficient payments from International Aero Engines to offset its pre-production costs (primarily tooling and design). In addition, the Company would have delivered units at prices below the expected average production costs over the life of the program and may not receive retroactive price increases on the delivered units to reflect their actual costs. The Company's subcontractors on the V2500 nacelle have assumed those market risks associated with pre-production and higher-than-average initial production costs for the components they manufacture. The contract, which was entered into in March of 1985, provides that it may be terminated by either party upon two years' written notice, but not earlier than ten years from the contract date. In accordance with that provision, the Company has notified International Aero Engines that it will not continue the program under the current contractual terms for orders received after mid-year 1995. The Company and International Aero Engines are discussing possible alternative contractual arrangements under which the Company would continue on this program. The Company has the right to sell V2500 nacelle spare parts directly to the airlines. Government (Military and Space) For military aircraft, the Company manufactures nacelles for the Lockheed Corporation ("Lockheed") C-130 propjet transport aircraft and nacelle components for re-engining of existing Boeing KC-135 military aerial refueling tankers. For the U.S. space program, the Company is delivering solid fuel rocket motor nozzles and insulated casings for boosters which are used on the Titan Space Launch Vehicle. 44 Spare Parts The Company sells spare parts for both commercial and military aircraft, including those for aircraft in use but no longer in production. Such sales were approximately $227 million in fiscal 1991, $192 million in fiscal 1992, $169 million in fiscal 1993 and $66 million in the first six months of fiscal 1994. The Company generally attributes recent reductions in spares sales to the surplus aircraft in the current marketplace. As a result of such surplus, aircraft deliveries have declined and the initial spares sold to support newly delivered aircraft have also declined. In addition, airlines are maintaining lower spares levels; the existence of surplus aircraft has reduced the need for spares supplies sufficient to keep an airline's entire fleet in operation. Also, improved production quality appears to have reduced spares requirements. Historically, the Company has sold spare parts for commercial programs to airframe or engine manufacturers which then resold them to the end user. However, in recent years, under certain programs, the Company has acquired the right from its customers to sell spare parts directly to airlines (although on certain programs royalty payments to its customers are required). The contracts that grant these rights to the Company generally require that the Company provide technical and product support directly to the airlines. Thus, the Company has the right to provide customer and product support directly to approximately 145 airlines worldwide. The Company's direct sales of spare parts to the airlines are expected to increase in the future as nacelle programs on which the Company sells spare parts directly to the airlines mature and as the aircraft using those nacelles age. Generally, the Company earns a higher margin on the direct sale of spare parts to airlines than it does on the sale of spare parts to prime contractors (for resale to the airlines). Prices for direct spare part sales are higher than prices for spare parts sold to prime contractors, in part, because of additional costs related to the technical and customer support activities provided to the airlines. The Company's direct sales of spare parts as a percentage of total sales of spare parts were 48.7%, 36.6%, 27.4% and 18.8% in the first half of fiscal 1994 and in fiscal 1993, 1992 and 1991, respectively. PROGRAM FUNDING The highly competitive nature of the aerospace market has required the Company to commit substantial financial resources, largely for working capital, to participate with its customers on certain long-term programs. Those working capital requirements consist primarily of nonrecurring pre-production costs such as design and tooling, recurring costs for inventories and accounts receivable. In some cases, a significant portion of the pre-production costs have been advanced by the customer. However, in negotiating some contracts, the Company has agreed to defer recovery of pre-production costs and instead to recover a certain amount of such costs with the sale of each production unit over an agreed number of production units plus spares equivalents. On some commercial contracts, the Company receives advance payments with orders, or other progress or advance payments, which assist the Company in meeting its working capital requirements for inventories. In government contracts, the Company receives progress payments for both pre-production and inventory costs. To reduce both its pre-production funding requirements and the build-up of program inventories, the Company has entered into agreements with subcontractors to provide a portion of the program funding needs and has subcontracted to these entities substantial portions of many of its programs. See "--Subcontractors." Advances and progress payments have varied in the past and are subject to change in the future based on changes in both commercial and government procurement practices and governmental regulations. Any future change could affect the Company's need for program funding. Accounts receivable balances vary in accordance with various payment terms and other factors including the periodic receipt of large payments from customers for reimbursement of nonrecurring costs or for amounts which had been deferred pending aircraft certification. 45 Given the large number of major commercial aircraft programs introduced since 1985, and the present industry environment, the Company expects few new programs to be introduced within the next several years and, accordingly, the Company believes that its financing requirements for new programs have been reduced as compared to prior periods. The Company's primary sources of program funding have been funds generated from operations and borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." MANUFACTURING The Company's products are manufactured and assembled at its facilities in the United States and Europe by an experienced workforce. The Company considers its facilities and equipment generally to be in good operating condition and adequate for the purpose for which they are being used. In addition, it has a substantial number of raw material suppliers and numerous subcontractors to produce components, and in some cases, major assemblies. The Company has state-of-the-art capabilities, and one of the largest capacities in the aircraft industry, for metal and composite bonding of lightweight honeycomb panels used in its nacelles, pylons and thrust reversers. In its bonding process, the Company uses autoclaves (industrial ovens), which are up to 20 feet in diameter and 35 feet long, to cure adhesives and composites under controlled pressures up to 20 atmospheres and temperatures up to 850 degrees Fahrenheit. The Company also employs other heavy equipment, such as fluid forming presses which use highly pressurized oil to form sheet metal against single-sided dies at pressures up to 20,000 pounds per square inch and other traditional hydraulic forming equipment, to create the highly specialized parts used in its products. The Company uses state-of-the-art superplastic forming to heat metal until it is pliable and then to form it under gas pressure into a complex part; utilizes advanced laser cutting in a variety of applications; and has established modern assembly operations in its satellite plants. The Company's European final assembly sites, which are located adjacent to the Company's major European customer, Airbus, allow the Company to respond quickly to this customer's needs. The Company believes that these European sites provide it with advantages in obtaining certain contracts with Airbus because they allow the Company to perform a portion of the required work in Europe. PRINCIPAL CUSTOMERS Rohr conducts substantial business with each of the three major commercial airframe manufacturers: Boeing, Airbus and McDonnell Douglas. In addition, Rohr conducts business with each of the major commercial jet engine manufacturers: General Electric, Rolls-Royce, Pratt & Whitney, CFM International (a corporation jointly owned by General Electric and Societe Nationale d'Etude et de Construction de Moteurs d'Aviation) and International Aero Engines (a corporation owned by Rolls-Royce, Pratt & Whitney, Fiat Aviazione, SpA, Japanese Aero Engines Corporation and MTU Motoren und Turbinen Union Munchen GmbH). With respect to government (military and spares) sales, the Company's major customers include Boeing, Lockheed, United Technologies Corporation (Chemical Systems Division) and the United States government. 46 The Company's direct sales to its major customers, including related program spares, expressed as a percentage of total sales, during the following periods are summarized below:
YEAR ENDED SIX MONTHS ENDED JULY 31, ----------------------- ---------------- JANUARY 30, JANUARY 31, 1994 1993 1993 1992 1991 ----------- ----------- ---- ---- ---- Pratt & Whitney....................... 17% 19% 17% 15% 16% General Electric...................... 16 12 14 12 12 International Aero Engines............ 15 8 9 7 4 CFM International..................... 9 8 8 2 -- McDonnell Douglas..................... 8 13 11 18 14 Boeing................................ 8 11 11 15 14 Rolls-Royce........................... 8 6 8 7 8 Lockheed.............................. 4 2 3 3 3 Airbus Industrie...................... 2 8 6 8 12 U.S. Government*...................... 1 1 1 2 4 Grumman............................... 0 0 0 1 6 Other................................. 12 12 12 10 7 --- --- --- --- --- 100% 100% 100% 100% 100%
- -------- * Total sales to the U.S. Government (including direct sales and indirect sales through prime contractors) accounted for 12%, 11%, 13%, 14% and 20% for the first six months in fiscal 1994 and 1993, and in fiscal 1993, 1992 and 1991, respectively. The Company's percentage of total sales by customer varies from period to period based upon the mix of products delivered in such periods. Commercial products sold by the Company to jet engine manufacturers are ultimately installed on aircraft produced by one of the three major commercial airframe manufacturers. Sales to foreign customers accounted for 23%, 25%, 25%, 22% and 21% for the first six months of fiscal 1994 and 1993, and for fiscal 1993, 1992 and 1991, respectively. BACKLOG The Company's backlog is significant to its business because the production of most Company products involves a long lead time from order to shipment date. Firm backlog represents the sales price of all undelivered units for which the Company has fabrication authority. Firm backlog includes units ordered by a customer although the Company and the customer have not yet agreed upon a sales price. In such cases, the Company records in backlog an amount it believes (based upon all available information) is a reasonable price estimate. The Company also reports anticipated backlog, which represents the sales price of units which the Company expects (based upon all available information) that its customers will order under existing contracts and the Company will deliver within the next seven years. The Company's firm backlog at January 30, 1994, was approximately $1.3 billion, compared to $1.4 billion at July 31, 1993. Of such backlog, approximately $0.4 billion is scheduled for delivery on or before July 31, 1994, with the balance to be delivered in subsequent periods. A portion of the Company's expected sales from January 30, 1994, through July 31, 1994, is not included in firm backlog. Anticipated backlog approximated $2.7 billion at January 30, 1994 compared to $2.6 billion at July 31, 1993. All of the Company's firm and anticipated backlog is subject to termination or rescheduling at the customer's convenience. The Company's contracts generally provide for reimbursement of costs incurred, plus a reasonable profit on such costs, with respect to any firm orders that are terminated. Historically, it has been rare for a customer to cancel units in firm backlog because of its obligations to the Company with respect to such units and its obligations to suppliers of components other than nacelles and pylons, who frequently are producing concurrently components for use with the units ordered from the Company. 47 MARKET SHARE AND COMPETITION The Company believes that, based upon its estimates of market values, it supplied approximately 45% of the nacelle, thrust reverser and engine build-up products (approximately 70% excluding products produced by Boeing for its own aircraft), and over 25% of the jet engine pylons (approximately 90% excluding pylons produced by Boeing and a partner of Airbus for Boeing and Airbus aircraft, respectively), delivered to the commercial aircraft market in 1993. The Company's share of these market segments includes the value of products produced by the Company's subcontractors and is subject to fluctuation each year depending upon the mix of aircraft models delivered to customers. Approximately 85% of the existing commercial aircraft fleet contain one or more Company products on their nacelle, thrust reverser or pylon systems. The Company sells products and services to the three major commercial airframe manufacturers, to the five major jet engine manufacturers and, in the case of spare parts and certain product support services, to a substantial number of airlines. The Company's commercial products represented 87% of its business in the fiscal year ended July 31, 1993. Market discussions and references to aircraft production exclude consideration of the markets in the former U.S.S.R. Over the next several years, the Company expects its key subcontractors to produce components and, in some cases, major assemblies, representing approximately one-third of the value of the products and services to be delivered by the Company during such period. See "Subcontractors." The Company's principal competition is Boeing (which in addition to being a Company customer also manufactures nacelle systems and pylons for its own aircraft), other significant aerospace corporations who have development and production experience with respect to portions of the nacelle system and the companies to whom the Company has subcontracted various components and who could (and have) bid on contracts in competition with the Company. See "-- Subcontractors." Military aerospace contractors are also potential competitors, as excess capacity created by reductions in defense spending could cause some of these contractors to look to expand in commercial markets. The Company believes that its capabilities and technology, which range from research and development through component design and testing, flight certification assistance, component production and integration and airframe production line assistance, contribute significantly to its market position. The Company also believes that its contractual rights to participate on programs for long periods of time or, in some cases, over the life of programs also contribute to the maintenance of its market position. See "--Contracts." Even with respect to its shorter term contracts, the Company is very likely to continue working as a subcontractor for the prime contractors well beyond the end of the existing shorter term contracts. The Company has long standing relationships with all of its significant customers. The Company's continued participation on existing programs provides cost advantages to the prime contractors because it avoids the cost of disassembling, moving, reassembling and recalibrating the customized tooling used to manufacture aerospace products which would be necessary if a program were transferred to a new subcontractor at the end of a short-term contract. In addition, the delays inherent in such transfer are likely to disrupt the prime contractor's own production schedule as the flow of deliveries from the subcontractor is interrupted during the transfer. It is also generally more expensive for a new subcontractor to begin producing products in the middle of an existing program than it is for the Company to continue producing the required products. A new subcontractor's employees must learn program specific tasks with which the Company's employees will already be familiar. See "Contracts." As a result of all of these factors, it is very unusual for a prime contractor to shift a major aerospace subcontract from one manufacturer to another at the end of a short-term contract. Competitive factors include price, quality of product, design and development capability, ability to consistently achieve scheduled delivery dates, manufacturing capabilities and capacity, technical 48 expertise of employees, the desire or lack thereof of airframe and engine manufacturers to produce certain components in-house, and the willingness, and increasingly the ability, of the Company and other nacelle manufacturers to accept financial and other risks in connection with new programs. RESEARCH AND DEVELOPMENT The Company's research and development activities are designed to improve its existing products and manufacturing processes, to enhance the competitiveness of its new products, and to broaden the Company's aerospace product base. Most of its product development is funded through regular production contracts. The Company developed the world's first all composite nacelle and its large cascade thrust reverser technology under such contracts. The Company also performs self-funded research and development through which it developed proprietary products which control noise and prevent ice formation on nacelles. The Company seeks research and development contracts from the U.S. government and from commercial customers in targeted areas of interest such as composite materials and advanced low-cost processing and joining of new materials. From time to time, the Company also enters into joint research and development programs with its customers, such as its existing laminar flow nacelle study, which seeks to significantly reduce the aerodynamic drag of nacelles and thereby reduce fuel consumption. PATENTS AND PROPRIETARY INFORMATION The Company has obtained patents and developed proprietary information which it believes provide it with a competitive advantage. For example, the Company holds patents on the DynaRohr family of honeycomb sound attenuation structures, the state-of-the-art RohrSwirl system which prevents ice formation on the leading edges of nacelles and bonding processes for titanium and other metals. In addition, the Company has developed proprietary information covering such matters as nacelle design, sound attenuation, bonding of metallic and advanced composite structures, material specifications and manufacturing processes. The Company protects this information through invention agreements and confidentiality agreements with its employees and other third parties. Although the Company believes that its patents and proprietary information allow it to produce superior products, it also believes that the loss of any such patent or disclosure of any item of proprietary information would not have a material adverse effect on the Company. RAW MATERIALS AND SUPPLIERS The principal raw materials used by the Company are sheet, plate, rod, bar, tubing, and extrusions made of aluminum, steel, Inconel and titanium; electrical wire; rubber; adhesives; and advanced composite products. The principal purchased components are aircraft engine equipment, custom machined parts, sheet metal details, and castings and forgings. All of these items are procured from commercial sources. Supplies of raw materials and purchased parts historically have been adequate to meet the requirements of the Company. However, from time to time, shortages have been encountered, particularly during high industry production and demand. While the Company endeavors to assure the availability of multiple sources of supply, there are many instances in which, either because of a customer requirement or the complexity of the item, the Company may rely on a single source. The failure of any of these single source suppliers or subcontractors to meet the Company's needs could seriously delay production on a program. The Company monitors the delivery performance, product quality and financial health of its critical suppliers, including all of its single source suppliers. Over the last ten years, which includes the period from 1987 through 1991 when the Company's sales grew rapidly, there have been occasions of periodic, short-term delays from suppliers, but none of these delays has had a material adverse effect on the Company or its ability to deliver products to its customers. 49 SUBCONTRACTORS Both to reduce the burden and risk of program investments, and also in some cases to participate in foreign programs, the Company has subcontracted the design, development and production of substantial portions of several of its major contracts to other foreign and domestic corporations. In return, those companies provided a portion of the investment and assumed a portion of the risk associated with various of the Company's contracts. See "--Products-- Commercial," "--Market Share and Competition" and "--Program Funding." The Company's performance and ultimate profitability on these programs is dependent on the performance of its subcontractors, including the timeliness and quality of their work, as well as the ability of the Company to monitor and manage its subcontractors. EMPLOYEES At January 30, 1994, the Company had approximately 5,150 full-time employees, of whom approximately 1,710 were represented by the International Association of Machinists and Aerospace Workers, and approximately 190 were represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America. Collective bargaining agreements between the Company and these labor unions expire on February 11, 1996 and October 29, 1995, respectively. The Company considers its relationship with its employees generally to be satisfactory. PROPERTIES All owned and leased properties of the Company are generally well maintained, in good operating condition, and adequate and sufficient for the Company's business. The Company's properties are substantially utilized; however, due to the downturn in the aerospace industry, the Company has excess manufacturing capacity. All significant leases (except for leases associated with industrial revenue bond financings) are renewable at the Company's option on substantially similar terms, except for increases of rent which must be negotiated in some cases. See "Notes to the Consolidated Financial Statements--Note 8." 50 The following table sets forth the location, principal use, approximate size and acreage of the Company's major production facilities. Those which are owned by the Company and it subsidiaries are owned free of material encumbrances, except as noted below:
OWNED LEASED ----------------------- ----------------------- APPROXIMATE APPROXIMATE TYPE OF SQUARE FEET APPROXIMATE SQUARE FEET APPROXIMATE FACILITY(1) OF FACILITY ACREAGE OF FACILITY ACREAGE ----------- ----------- ----------- ----------- ----------- Alabama Fairhope(2)(3)........ A,B 123,000 70.6 -- -- Foley(2).............. A,B 341,000 163.7 -- -- Arkansas Arkadelphia(4)........ A,B 225,000 65.2 -- -- Heber Springs(2)...... A,B 161,000 70.5 -- -- Sheridan(2)........... A,B 155,000 79.4 -- -- California Chula Vista........... A,B,C,D 2,789,000 98.5 215,000 78.4 Moreno Valley......... A,B,C 244,000 37.5 -- -- Riverside............. A,B,C,D 1,150,000 75.3 152,000 15.1 France Toulouse/St. Martin... A,B 132,000 7.0 18,000 3.2 Toulouse/Gramont(2)... A,B 170,000 23.0 -- -- Germany Hamburg............... A,B 28,000 5.3 -- -- Maryland Hagerstown(3)(5)...... A,B 423,000 56.8 6,200 -- Texas San Marcos............ A,B 169,000 55.0 -- -- Washington Auburn(6)............. A,B 87,000 23.8 -- -- --------- ----- ------- ---- Approximate Totals.... 6,197,000 831.6 391,200 96.7 ========= ===== ======= ====
- -------- (1) The letters indicated for each location describe the principal activities conducted at that location: A-Office; B-Manufacturing; C-Warehouse; and D- Research and Testing. (2) Subject to a capital lease. (3) The Company is in the process of selling or seeking to sell this facility. (4) The completion of construction of this facility has been deferred. (5) The Company has announced that it will close this facility. (6) The Company has sold this facility. 51 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The names, ages and positions of the directors and officers of the Company are set forth below:
NAME AGE POSITION - ---- --- -------- James J. Kerley............. 71 Chairman of the Board Robert H. Rau............... 57 President, Chief Executive Officer and Director Wallace Barnes.............. 68 Director Wallace W. Booth............ 71 Director Prof. Eugene E. Covert...... 68 Director Wayne M. Hoffman............ 71 Director Dr. D. Larry Moore.......... 57 Director Robert M. Price............. 63 Director Dr. William P. Sommers...... 60 Director Dr. Jack D. Steele.......... 69 Director John R. Johnson............. 56 Senior Vice President, Programs and Support Graydon A. Wetzler.......... 52 Senior Vice President, Operations Richard W. Madsen........... 55 Vice President, General Counsel and Secretary Alvin L. Majors............. 53 Vice President and Controller Ronald M. Miller............ 49 Vice President and Treasurer
MR. KERLEY became Chairman of the Board, Chief Executive Officer and Chief Financial Officer on January 7, 1993. On April 19, 1993, he relinquished the title of Chief Executive Officer and on October 31, 1993, he relinquished the title of Chief Financial Officer when he ceased being an employee of the Company. He chairs the Finance Committee of the Company's Board of Directors, is a member of its Nomination and Management Succession Committee, and, as the non-employee Chairman of the Board, serves on all other committees of the Board as an ad-hoc, non-voting, member. He retired as Vice Chairman of Emerson Electric Company, St. Louis, Missouri, at the end of 1985, and from its Board of Directors in February 1987, positions he had held since September 1981. He also served as the Chief Financial Officer at Emerson Electric Company from September 1981 to March 1984 and as the Chief Financial Officer of Monsanto Company from September 1971 to August 1981. He has served on the Board of Directors of approximately 25 publicly held companies during his career and currently serves as a director of Sterling Chemicals, Inc.; Kellwood Company; ESCO Electronics Corporation, Borg Warner Automotive, Inc. and DTI Industries, Inc. He has been a director of Rohr since October 1980, and previously served as a director from June 1976 to February 1980. MR. RAU was elected President and Chief Executive Officer of the Company in April 1993. Prior to joining the Company, Mr. Rau was an Executive Vice President of Parker Hannifin Corporation and for the past ten years served as President of the Parker Bertea Aerospace segment of Parker Hannifin. Parker Bertea designs and produces a broad line of hydraulic, fuel and pneumatic systems and components for commercial, military and general aviation aircraft. He joined Parker Hannifin in 1969, and held positions in finance, program management and general management. Mr. Rau has extensive experience in the aerospace industry. In addition, Mr. Rau is a member of the Board of Governors of the Aerospace Industries Association. He was appointed a director of the Company in April 1993. MR. BARNES has been the Chairman of Barnes Group Inc. since March 1977, was Chief Executive Officer from 1977 to 1991, and served as President of that company from 1964 to 1977. Barnes Group, headquartered in Bristol, Connecticut, is a publicly traded Fortune 500 company with three groups involved in automotive maintenance and repair parts, precision springs and custom metal parts, and aerospace components for gas turbine engines. He was appointed a director of the Company in February 1989. He is also a director of Aetna Life & Casualty Co., Loctite Corporation, Rogers Corp., and BGI. He serves on the Audit and Ethics Committee of the Company's Board of Directors, its Compensation and Benefits Committee and its Technology Committee. 52 MR. BOOTH retired as Chairman of the Board of Ducommun Incorporated, Los Angeles, California, in December 1988. From June 1978 until July 1988 he served as Chairman of the Board, President and Chief Executive Officer and a director of that company. Mr. Booth has been a director of Rohr since February 1982. He is also a director of Litton Industries, Inc.; First Interstate Bank of California; and Navistar International Corporation. He is a Trustee of the University of Chicago. Mr. Booth is also a director of the Children's Bureau Foundation of Southern California. He serves on the Compensation and Benefits Committee of the Company's Board of Directors and its Finance Committee. PROFESSOR COVERT has been a Professor in the Department of Aeronautics and Astronautics of the Massachusetts Institute of Technology, Cambridge, Massachusetts, since 1968, and from 1985 to 1990, he served as Department Head. Professor Covert is also a consultant to a number of major corporations as well as to agencies of the United States and foreign governments. He is a director of Allied-Signal Corp. and Physical Sciences, Inc., and a member of the American Institute of Aeronautics and Astronautics. He has been a director of Rohr since December 1986, and serves on the Audit and Ethics Committee of the Company's Board of Directors and its Technology Committee. MR. HOFFMAN is the former Chairman of Tiger International, Inc., and Flying Tiger Line, Los Angeles, California, having served in those positions beginning in September 1967 until his retirement in March 1986. Between March 1978 and August 1985, he also served as Chief Executive Officer and from August 1973 to August 1985, he served as President of Tiger International, Inc. He is also a director of SunAmerica, Inc., and trustee of Aerospace Corporation. He has been a director of Rohr since December 1982, and serves on the Audit and Ethics Committee of the Company's Board of Directors and its Nomination and Management Succession Committee. DR. MOORE has been the President and Chief Operating Officer of Honeywell, Inc., a provider of electronic automation and control systems located in Minneapolis, Minnesota, since April 1993. From December 1990, until assuming his current position, he served as Executive Vice President and Chief Operating Officer of that company. Dr. Moore has been employed by Honeywell, Inc., since December 1986 having also served as President of its Space Aviation Division. Dr. Moore was appointed a director of the Company on December 7, 1991. He is also a director of Honeywell, Inc.; the General Aviation Manufacturing Association; the Aerospace Industries Association; the National Association of Manufacturers; and Abbott Northwestern Hospital in Minneapolis, Minnesota. He serves on the Finance Committee of the Company's Board of Directors and its Nomination and Management Succession Committee. MR. PRICE has been a business consultant to a number of major American corporations since January 1990, when he retired as Chairman of Control Data Corporation (now renamed Ceridian), Minneapolis, Minnesota. He was named President and Chief Operating Officer of Control Data Corporation in 1980, and Chairman and Chief Executive Officer in 1986, continuing as President until 1988. He is also a director of International Multifoods, Premark International, and Public Service Co. of New Mexico. Additionally, he is a Chairman of the Alpha Center for Public and Private Initiatives and serves on the boards of the Minnesota Opera, the Minneapolis United Way, and the Duke University's Fuqua School of Business Board of Visitors. He was appointed a director of the Company on June 7, 1991. He serves on the Compensation and Benefits Committee of the Company's Board of Directors and its Technology Committee. DR. SOMMERS has served as the President and Chief Executive Officer of SRI International since January 1994. SRI International is one of the world largest contract research firms, employing more than 2,000 professionals engaged in research in areas including engineering, science and technology, business and policy. Prior to joining SRI International, Dr. Sommers was Executive Vice President of Iameter, Inc., a firm specializing in health care quality and cost control. From 1973 until joining Iameter in 1972, he served as a Senior Vice President, director and member of the Office of the Chairman of Booz.Allen & Hamilton, Inc., San Francisco, California, having served in other senior management positions with that firm since 1963. Dr. Sommers has extensive experience as a management 53 consultant to some of the world's largest technology-based manufacturing and service firms. He was appointed a director of the Company on September 9, 1992. He is a member of the board of trustees of the Kemper Mutual Funds and a director of Therapeutic Discovery Corp. He serves on the Finance Committee of the Company's Board of Directors and its Technology Committee. DR. STEELE is the former Chairman, Board Services Division, Korn Ferry International, Los Angeles, California, a position he assumed in June 1987. From 1975 to 1986, he was the Dean, School of Business Administration, University of Southern California, Los Angeles, California. He has held professorships at Texas Tech University, the University of Kansas, Stanford University, and Harvard University. He is an author in the marketing and business fields and a consultant to a number of major American corporations. He is also a director of Glendale Federal Bank; Storage Properties, Inc.; and Public Storage, Inc. He has been a director of Rohr since December 1976, and serves on the Finance Committee of the Company's Board of Directors and its Nomination and Management Succession Committee. MR. JOHNSON has served as Senior Vice President, Programs and Support since March 1, 1993. Prior to that and since April 1982, he has served in other senior management positions. He joined the Company in September 1979. MR. WETZLER has served as Senior Vice President, Operations since January 1994. Prior to that and since April 1986, he has served as Vice President of Technology, Assembly Plant Operations and Information Systems at various times. He has been an employee of the Company since 1979. MR. MADSEN has served as Vice President, General Counsel and Secretary since December 5, 1987. Prior to that and since August 1979, he served as Secretary and Corporate Counsel and has been an employee of the Company since 1974. MR. MAJORS has served as Vice President and Controller (Chief Accounting Officer) since May 1989. Prior to that and since December 1987, he served as the Company's Controller. Prior to that and since 1971, he has served in other senior management positions. He has been an employee of the Company since 1971. MR. MILLER has served as Vice President and Treasurer since May 1989. Prior to that and since December 1987, he served as the Company's Treasurer and has been an employee of the Company since February 1969. 54 LEGAL AND ENVIRONMENTAL PROCEEDINGS C-5 LITIGATION During fiscal year 1992, the U.S. Air Force filed a termination notice for alleged default under the C-5 spare pylon contract, and the Company then commenced the appeal process to convert the termination to one for convenience of the government. Contemporaneously, the Company filed a notice of breach of contract with the government on the C-5 spare pylon contract. The Company also filed a variety of actions before the Armed Services Board of Contract Appeals ("ASBCA") requesting payment of sums owed the Company due to the government's imposition of redefined acceptance criteria under the C-5 pylon program and the KC-135 re-engining program. The Company also recorded special provisions for this matter in prior periods. Following the end of the Company's fiscal 1994 second quarter, the Company and the U.S. Air Force settled all of these disputes. The most significant aspects of this settlement were: (1) The C-5 spare pylon contract will be converted to termination for government convenience, and the Company will retain approximately $27.3 million of unliquidated progress payments previously made by the U.S. Air Force. (2) The Company will retain most of the C-5 spare pylon work-in-process and raw material inventories. (3) The Company will provide a warranty on certain, specified C-5 pylon panels which will end for each panel seven years after the original delivery date for such panel to the Air Force. The original delivery dates for the warranted panels range from 1989 to 1991. The Company has established a reserve for this warranty obligation. U.S. ATTORNEY INVESTIGATION Contemporaneously with the C-5 settlement with the U.S. Air Force discussed above, the Company and the United States Attorney for the Central District of California settled the civil and criminal aspects of an investigation, which had been on-going since 1990, concerning the production of parts, the recording of information which is a part of that production process, and the testing practices utilized by the Company on many programs. The Company cooperated fully in the investigation and does not believe there was any adverse effect on the safety or utilization of its products. The Company recorded special provisions in prior periods reflecting its assessment of the ultimate costs which it believed would be incurred. Under this settlement the Company paid $4 million to the U.S. Attorney's office for the civil claims. In connection with this settlement, a recently unsealed qui tam lawsuit filed by former employees against the Company on behalf of the U.S. Government with respect to certain of the activities that had been under investigation has been dismissed with prejudice. With regard to the criminal aspects of this matter, the Company admitted making eight false statements and paid approximately $3.7 million in fines. In connection with this matter, the Company is also engaged in discussions with government officials who have the discretion to temporarily suspend or to debar the Company from entering into government contracts in the future. The discussions are designed to demonstrate that the Company is a presently-responsible contractor and that it should be entitled to continue to be eligible to receive additional governmental contracts. RECEIVABLES AND INVENTORIES Accounts receivable and inventories include estimated recoveries on constructive change claims the Company has asserted against the United States Navy with respect to the F-14 and E3/E6 programs because of costs the Company incurred as a result of government imposed redefined acceptance criteria. Management believes that the amounts reflected in the financial statements are a reasonable estimate of the amount for which these matters will be settled. The resolution of these 55 matters may take several years. See "Notes to the Consolidated Financial Statements--Note 3." The Company is vigorously pursuing these claims and believes, based on currently available information, that the ultimate resolution will not have a material adverse effect on the financial position or results of operations of the Company. STRINGFELLOW SITE In June 1987, the U.S. District Court of Los Angeles, in U. S. et al. vs. Stringfellow (United States District Court for the Central District of California, Civil Action No. 83-2501 (JMI)), granted partial summary judgment against the Company and 14 other defendants on the issue of liability under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). This suit alleges that the defendants are jointly and severally liable for all damage in connection with the Stringfellow hazardous waste disposal site in Riverside County, California. In June 1989, a federal jury and a special master appointed by the federal court found the State of California also liable for the cleanup costs. On November 30, 1993, the special master released his "Findings of Fact, Conclusions of Law and Reporting Recommendations of the Special Master Regarding the State Share Fact Finding Hearing." In it, he allocated liability between the State of California and other parties. As this hearing did not involve the valuation of future tasks and responsibilities, the order did not specify dollar amounts of liability. The order, phrased in percentages of liability, recommended allocating liability on the CERCLA claims as follows: 65% to the State of California and 10% to the Stringfellow entities, leaving 25% for the generator/counterclaimants (including the Company) and other users of the site (or a maximum of up to 28% depending on the allocation of any Stringfellow entity orphan share). On the state law claims, the special master recommended a 95% share for the State of California, and 5% for the Stringfellow entities, leaving 0% for the generator/counterclaimants. The special master's finding is subject to a final decision and appeal. The Company and other defendants for the Stringfellow site, which include numerous companies with assets and equity significantly larger than the Company, are jointly and severally liable for the cleanup. Notwithstanding this, CERCLA liability is sometimes allocated among hazardous waste generators who used a waste disposal site based on the volume of hazardous substances they disposed at the site. The Company is the second largest generator of wastes by volume disposed at the site, although it and certain other generators have argued the final allocation of cleanup costs among generators should not be determined solely by volume. The largest volume generator of wastes disposed at the Stringfellow site has indicated it is significantly dependent on insurance to fund its share of any cleanup costs, and that it is in litigation with certain of its insurers. The Company and the other generators of wastes disposed at the Stringfellow site, which include numerous companies with assets and equity significantly greater than the Company, are jointly and severally liable for the share of cleanup costs for which the generators, as a group, may ultimately be responsible. The Company intends to continue to vigorously defend this matter and believes, based upon currently available information, that the ultimate resolution will not have a material adverse effect on the financial position or results of operations of the Company. The Company has claims against its comprehensive general liability insurers for reimbursement of its cleanup costs at the site. These claims are the subject of separate litigation, although the insurers nevertheless are paying substantially all of the Company's costs of defense in the CERCLA and State actions against the generators of wastes disposed at the site. Certain of these insurance policies have pollution exclusion clauses which are being argued as a defense and the insurers are alleging various other defenses to coverage. The Company has entered settlements with some of the insurance carriers and is engaged in settlement discussions with certain others. The Company intends to continue to vigorously defend this matter and believes, based upon currently available information, that the ultimate resolution will not have a material adverse effect on the financial position, liquidity or results of operations of the Company. SEC INQUIRY In 1990, the Division of Enforcement of the Securities and Exchange Commission (the "Enforcement Division") began conducting an informal inquiry regarding various Company production 56 programs, program and contract estimates at completion and related accounting practices. Following the filing of a registration statement with the Commission, the Company received on August 17, 1993, and shortly thereafter responded to, a request for documents from the Enforcement Division concerning its decision to change its accounting practices relating to long-term programs and contracts, and its previous practice of capitalizing pre-certification and certain general and administrative costs. There have been no further comments from the Enforcement Division since that date. The Enforcement Division's request for documents indicated that the inquiry "should not be construed as an indication by the Commission or its staff that any violation of the law has occurred; nor should it be considered a reflection on any person, entity, or security." The Company cooperated fully with the Enforcement Division's requests and cannot predict the ultimate result of the inquiry or its impact, if any, on the Company. The Company has been advised by the Division of Corporation Finance of the Commission that because the Company's use of program accounting is based in significant part on practices which it believes are generally followed and/or accepted, rather than on the basis of authoritative literature, the Staff is not in a position presently to object or concur with the Company's utilization of such accounting method. The Staff informed the Company last August that it intends to survey practice and conduct other inquiries regarding generally accepted practices relating to long-term contracts and program accounting. The Company has not received any indication from the Commission of the likely outcome of this survey. By declaring effective the Registration Statement of which this Prospectus is a part, the Commission is not passing upon the adequacy or accuracy of the information contained herein including, without limitation, the appropriateness of the Company's accounting methods and practices. MARYLAND CONSENT ORDER In December 1989, the Maryland Department of the Environment ("MDE") served the Company with a Letter and Consent Order No. CO-90-093. The Consent Order calls for investigation and remediation of chemicals detected in soil and ground water at the Company's bonding facility in Hagerstown, Maryland. The Company and MDE subsequently negotiated a mutually acceptable Consent Order under which the Company has developed a work plan to determine the nature and extent of the pollution at the bonding plant. The Company had acquired the bonding plant from Fairchild Industries, Inc. ("Fairchild"), in September 1987 and Fairchild had agreed to retain responsibility for and to indemnify the Company against any claims and fees in connection with any hazardous materials or pollutants released into the environment at or near the bonding plant or any other property before the closing date of the sale. In October 1990, after initially-unsuccessful negotiations with Fairchild, the Company filed a lawsuit in the United States District Court for the Central District of California requesting, among other things, a declaration that it is entitled to indemnification under the Purchase and Sale Agreement for the costs associated with conducting the work requested by MDE. On March 11, 1993, the Company and Fairchild executed a settlement agreement pursuant to which Fairchild substantially reimbursed the Company for past costs relating to environmental investigations at the bonding plant. The parties agreed to dismiss the lawsuit and agreed on a procedure to perform the work required under the MDE Consent Order. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operation of the Company. PROPOSITION 65 MATTERS On March 23, 1992, a Deputy Attorney General for the State of California advised the Company that it may be subject to suit pursuant to Proposition 65 on the basis of data contained in a health risk assessment ("HRA") of the Company's Chula Vista facility conducted pursuant to the Air Toxics Hot Spots Act, also known as California Assembly Bill AB-2588. Proposition 65 requires manufacturers who expose any person to a chemical resulting in an increased risk of cancer to issue a clear and reasonable warning to such person and imposes substantial penalties for non-compliance. AB-2588 requires manufacturers to inventory their air emissions and to submit an HRA to assess and quantify health risks associated with those emissions. On April 9, 1993, representatives of the Company met with the Deputy 57 Attorney General to discuss this matter and agreed to supply certain requested data to the government. The Company is presently working on the procedures required to produce this data. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operation of the Company. RIO BRAVO SITE In January 1993, the Department of Toxic Substances Control of the State of California Environmental Protection Agency ("DTSC") notified the Company and approximately 25 other individuals and companies that the DTSC expected a payment of approximately $1.1 million within thirty days of its notice. The demand for payment, which is joint and several, was for expenses allegedly incurred by DTSC personnel in the oversight of the cleanup of the Rio Bravo deep injection well disposal site in Shafter, California. The cleanup is currently being conducted by a group of cooperating potentially responsible parties ("PRPs"), including the Company ("the Cooperating PRPs"). The DTSC advised that failure to pay said sum within the specified time limit would result in a referral of the matter to its legal office for collection. The Company was further advised that it could submit objections to this action by contacting DTSC's Cost Recovery Unit. In February 1993, the Cooperating PRP group wrote to DTSC and advised them, among other things, of the Cooperating PRPs' continuing efforts at the site and suggested that DTSC seek recovery of the oversight funds from the non-cooperating PRPs. Since the demand of the DTSC was joint and several, and would arguably cover all generators including the non-cooperating PRPs, none of the $1.1 million demanded by the DTSC has been allocated to the Cooperating PRPs. Some PRPs estimate the potential cost of cleanup to be approximately $7 million and the Company's share (based on estimated, respective volumes of discharge into such site by all generators, all of which cannot now be known with certainty) could approximate $450,000. The Company and other PRPs could face joint and several liability for the entire amount of clean-up costs, regardless of Cooperating PRP or non- cooperating PRP status. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operation of the Company. CHATHAM SITE The Company previously reported that the DTSC informed the Company and approximately 100 other individuals and companies that DTSC considered the recipients to be potentially PRPs liable for cleanup at the Chatham Brothers Barrel Yard Site located in Escondido, California (the "Chatham Site"). By letter dated April 13, 1993, DTSC again notified the Company that it believed the Company was one of a number of companies who were liable for the cleanup of the Chatham Site. After a thorough review of the Company's records and information possessed by DTSC, and interviews of present and former Company employees, the Company remains convinced that it has no relationship whatsoever with the Chatham Site and, therefore, is not liable for the cleanup of that site. In addition, the Company has discussed this matter with a group of PRPs for the Chatham Site and has indicated its lack of involvement with the site. If the Company fails to persuade DTSC that it is not a PRP with regard to the Chatham Site, the Company could face joint and several liability for the amounts involved. The potential cost of cleanup for the Chatham Site is estimated by some PRPs to be approximately $30 million. If suit is filed against the Company, the Company intends to defend vigorously this matter. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operation of the Company. SCAQMD COMPLIANCE The Company's Riverside, California facility is working along with the California Aerospace Group ("CAG") to meet the South Coast Air Quality Management District ("SCAQMD") compliance deadline for adhesive bonding primers. The deadline for compliant primers was originally January 1, 1992. It has been extended and is now set for January 1, 1997. The Company and the CAG continue to work with 58 manufacturers of adhesive bonding primers to see if a compliant primer can be developed and tested, and although no compliant primers currently exist, five potential candidates have been identified for extensive testing. The Company believes the ultimate resolution of the matter will not have a material adverse impact on the financial condition or results of operations of the Company. CASMALIA SITE During the third quarter of fiscal year 1993, Region IX of the United States Environmental Protection Agency ("EPA") named the Company as a first-tier generator of hazardous wastes that were transported to the Casmalia Resources Hazardous Waste Management Facility (the "Casmalia Site") in Casmalia, California. Approximately 80 other companies and individuals have also been identified as first-tier generators. First-tier generators are the top 82 generators by volume of waste disposed of at the Casmalia Site. The size of this group was chosen by the EPA. The EPA has given the first-tier generators a list of work-related elements needing to be addressed in a good faith offer to investigate and remediate the site. The first-tier generators believe a collaborative approach early in the site cleanup and closure process offers all parties an opportunity to help determine a technical course of action at this site before the EPA has made final decisions on the matter. The Company has joined approximately 49 other companies in the Casmalia Resources Site Steering Committee which recently made a good faith offer to the EPA. The Company could be found jointly and severally liable for the total amount of cleanup cost. The Company does not yet know the ability of all other PRPs at this site, which include companies of substantial assets and equity, to fund their allocable share. Some PRPs have made preliminary estimates of cleanup costs at this site of approximately $60 to $70 million and the Company's share (based on estimated, respective volumes of discharge into such site by all generators, all of which cannot now be known with certainty) could approximate $1,750,000. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operation of the Company. CHULA VISTA SITE From time to time, various environmental regulatory agencies request that the Company conduct certain investigations on the nature and extent of pollution, if any, at its various facilities. For example, such a request may follow the spill of a reportable quantity of certain chemicals. At other times, the request follows the removal, replacement or closure of an underground storage tank pursuant to applicable regulations. At present, the Company's Chula Vista facility is conducting certain investigations pursuant to discussions with the San Diego County Department of Health Services, Hazardous Materials Management Division and the San Diego Regional Water Quality Control Board. The Company intends to cooperate fully with the various regulatory agencies. GENERAL In addition to the litigation discussed above, from time to time the Company is a defendant in lawsuits involving claims based on the Company's alleged negligence or strict liability as a manufacturer in the design or manufacture of various products and also claims based upon environmental protection laws. The Company believes that in those types of cases now pending, or in claims known by the Company to be asserted against it whether or not reduced to a legal proceeding, it either has no material liability or any such liability is adequately covered by its reserves or its liability insurance, subject to certain deductible amounts. The Company is aware that various of its insurers may assert, and in some such cases have asserted, that their insurance coverage does not provide protection against punitive damages in any specific lawsuit. While there can be no assurances that the Company will not ultimately be found liable for material punitive damages, the Company does not now believe that it has an exposure to any material liability for punitive damages. 59 DESCRIPTION OF CERTAIN FINANCINGS The following is a summary of certain terms of the Company's principal financing agreements, effective on the Closing Date of the sale of the Securities. REVOLVING CREDIT AGREEMENT Effective upon the completion of the Offerings, the Company's unsecured Revolving Credit Agreement with a group of banks will provide the following loan commitments during the indicated periods:
PERIOD COMMITMENT ------ ------------ Through October 24, 1995..................................... $110 million October 25, 1995 to April 24, 1996........................... $100 million April 25, 1996 to October 24, 1996........................... $ 90 million October 25, 1996 to April 24, 1997........................... $ 80 million
This Revolving Credit Agreement is immediately available for borrowing (or to support the issuance of up to $30 million of letters of credit). Borrowings under this agreement incur interest at an annual rate equal to one of the following at the Company's option: (1) prime rate plus 0% to 2.25%; (2) London Interbank Offered Rate plus 0.75% to 3.25%; (3) or a Domestic Money Market Bid Rate plus 0.875% to 3.375%; or (4) competitive bid. The weighted average interest rate for borrowings under this credit agreement was 5.22% per annum during the second quarter of fiscal 1994. The agreement provides a facility fee payable on a monthly basis, at the rate of 0.35% to 0.75% on each lender's total commitment. The specific interest rate and facility fee payable at any time is based upon the Company's credit rating and various other factors. Effective upon the completion of the Offerings, the Revolving Credit Agreement will require the Company to maintain Consolidated Tangible Net Worth (as defined) of $125 million plus 50% of positive consolidated net income beginning on August 1, 1994. At January 30, 1994, the Company's Consolidated Tangible Net Worth was $184.6 million. Consolidated Tangible Net Worth is expected to decrease in the third quarter of fiscal 1994 in connection with anticipated increases in the Company's underfunded pension liabilities. See "Risk Factors--Underfunded Pension Plans." The agreement will also require the Company to maintain a ratio of Consolidated Net Income Available for Fixed Charges for each period of 365 days to Fixed Charges (each as defined) for such period, after completion of the offering, at least equal to the following:
MINIMUM PERIOD RATIO ------ ------- Through July 31, 1994............................................. 1.40:1 August 1, 1994 through July 31, 1995.............................. 1.55:1 August 1, 1995 through July 31, 1996.............................. 1.90:1 August 1, 1996 and thereafter..................................... 2.00:1
For purposes of this test, Consolidated Net Income Available for Fixed Charges is calculated without regard to the cumulative effect through May 2, 1993, of the accounting changes adopted by the Company effective August 1, 1992, and $38 million of provisions and charges taken by the Company in the third quarter of fiscal 1993. For the 365-day period ended at January 30, 1994, the Company's ratio of Consolidated Net Income Available for Fixed Charges to Fixed Charges was 2.04:1. 60 Effective upon the completion of the Offerings, the Revolving Credit Agreement will also require the Company to maintain a ratio of Debt (as defined) to Consolidated Tangible Net Worth not to exceed the following:
MAXIMUM PERIOD RATIO ------ ------- Through July 31, 1994............................................. 5.60:1 August 1, 1994 through July 31, 1995.............................. 5.00:1 August 1, 1995 through July 31, 1996.............................. 4.10:1 August 1, 1996 and thereafter..................................... 3.20:1
In calculating this ratio, Debt includes the Company's underfunded pension liabilities, but does not include the Company's off-balance sheet financings. See "Capitalization." At January 30, 1994, the Company's ratio of Debt to Consolidated Tangible Net Worth was 2.82:1. Other covenants in the Revolving Credit Agreement prohibit the Company from adding collateral to or otherwise supporting its existing debt, accelerating the maturity of such debt, or revising any covenant or other term of such debt to make it materially more restrictive for the Company or any of its subsidiaries. 9.35% SENIOR NOTES DUE 2000 AND 9.33% SENIOR NOTES DUE 2002 The Company's 9.35% senior notes due 2000 mature on January 29, 2000 and require principal payments of $12.5 million in January of each year until repaid. The Company's 9.33% senior notes due 2002 mature on December 15, 2002 and require principal payments of approximately $8.9 million in December of each year commencing in 1996 until repaid. With respect to each of these issues of senior notes, the Company may make principal prepayments at its option, which may include a premium for yield adjustment. The holders of these notes can require the Company to purchase the remaining principal amount of the respective notes, plus accrued interest and premium for yield adjustment, in the event of certain changes in control or ownership of the Company. A covenant in the agreements governing these two issuances of senior notes prohibits the Company from amending its Revolving Credit Agreement to reduce the amount or availability of the bank's commitment to lend to the Company under such agreement. Other covenants in these senior note agreements are substantially similar to the covenants in the Revolving Credit Agreement. 9.25% SUBORDINATED DEBENTURES The Company's 9.25% subordinated debentures mature in 2017. These debentures are subject to mandatory annual sinking-fund payments of $7.5 million beginning March 1998. The Company may redeem an additional $15 million on each sinking- fund date. The subordinated debentures are redeemable at the Company's option, at 106.5% of the outstanding principal amount at May 2, 1993, declining annually to 100.5% in 2006, plus accrued interest. However, no such redemption may be effected prior to March 1997, directly or indirectly, from borrowed money having an interest cost of less than 9.25% per annum. These debentures will be subordinated to the Senior Notes and pari passu with the Convertible Subordinated Notes. 7% CONVERTIBLE SUBORDINATED DEBENTURES The Company's 7% convertible subordinated debentures mature in 2012. These debentures are convertible prior to maturity, unless previously redeemed, at a conversion price of $43 per share, subject to adjustment under certain conditions. The debentures are redeemable at the option of the Company, in whole or in part, at a redemption price of 102.8% declining annually to 100.7% in 1996, together with accrued interest to the date of redemption. Annual sinking-fund payments of 5% of the aggregate principal amount of the debentures originally issued are to be applied to the redemption of debentures 61 at 100% of principal amount plus accrued interest, commencing October 1998. The Company has the option of delivering repurchased debentures to the sinking-fund in lieu of cash. The mandatory sinking-fund is calculated to retire 70% of the aggregate principal amount of the debentures originally issued prior to maturity. The debentures are subordinated to all existing or future senior debt of the Company and rank on equal terms with the Company's outstanding 9.25% subordinated debentures due 2017. These debentures will be subordinated to the Senior Notes and pari passu with the Convertible Subordinated Notes. ACCOUNTS RECEIVABLE FACILITY The Company is a party to an accounts receivable facility under which it sells all of its accounts receivable from specified customers through a subsidiary to a trust on an on-going basis. Investors purchased beneficial interests in the trust for $60 million, which was paid indirectly to the Company for the accounts receivable initially transferred to the trust. The Company sells additional accounts receivable through its subsidiary to the trust to maintain the investor's beneficial interest at $60 million. The Company's subsidiary holds the residual beneficial interest in the trust. Under the arrangement, the Company acts as an agent for the trust by performing all record keeping and collection functions with respect to the accounts receivable that have been sold. The investors' beneficial interest in the trust is reflected as a decrease in accounts receivable. The cost associated with the sale of accounts receivable under the facility is 7.57% per year (calculated as a percentage of the investors' $60 million beneficial interest) and is reflected as a reduction in sales. As a result of the slow-down in the aerospace industry, the amount of outstanding receivables owned by the trust has fallen below levels which existed at the start of the facility. If the outstanding receivables owned by the trust fall below levels required to support the investors' $60 million beneficial interest in the trust, the Company may deposit certain receivables collections and the proceeds of receivables sales in a reserve fund or may allow receivables collections to reduce the investors' interest in the trust. From time to time the Company has deposited amounts into the reserve fund and has withdrawn such amounts when they are no longer required to be deposited. The Company does not believe any changes in the receivables facility resulting from a decrease in the total amount of receivables sold to the trust or in the outstanding receivables balance will have a material adverse effect on the Company's liquidity or financial condition. SALE-LEASEBACK TRANSACTIONS The Company is also a party to a group of sale-leaseback transactions pursuant to which it sold furniture and certain significant items of the equipment utilized in its manufacturing processes for approximately $52.3 million and leased such furniture and equipment back from the investors who purchased it. The Company has granted the equipment lessors a security interest in all of the Company's accounts receivable from a particular customer and/or cash securing $10 million of obligations. At January 30, 1994, the balance of these accounts receivable was $15.8 million. The security interest will be released at such time as the existing equipment lessors assign approximately one-half of their beneficial interests in the leased equipment. If such assignments do not occur by January 1995, the existing equipment lessors may apply the collateral against the Company's then remaining lease obligations. The Company's leases are treated as operating leases for financial reporting purposes. The costs of the lease transactions average approximately 6.8% annually over the term of the leases (calculated as a percentage of the $52.3 million sales price of the leased furniture and equipment). The agreements governing the equipment lease transactions contain the same consolidated tangible net worth, fixed charge coverage ratio and debt to consolidated tangible net worth ratio covenants as are in the Revolving Credit Agreement. The agreements governing these transactions permit the Company to purchase the investors' interest in the equipment before the investors can repossess upon a default by the Company, subject to certain time limitations. The investors' repossession of any substantial portion of such equipment would have a material adverse effect on the Company's ability to meet its production contract commitments. 62 DESCRIPTION OF SENIOR NOTES The Senior Notes will be issued under an indenture to be dated as of May 15, 1994 (the "Indenture") between the Company and IBJ Schroder Bank & Trust Company, a New York banking corporation, as trustee (the "Trustee"), a form of which has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The terms of the Senior Notes will include those stated in the Indenture and those made a part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA"), as in effect on the date of the Indenture. The Senior Notes will be subject to all such terms, and holders of the Senior Notes are referred to the Indenture and the TIA for a statement of such terms. The following is a summary of important terms of the Senior Notes and does not purport to be complete. Reference should be made to all provisions of the Indenture, including the definitions therein of certain terms and all terms made a part of the Indenture by reference to the TIA. Certain definitions of terms used in the following summary are set forth under "--Certain Definitions" below. As used in this section, the "Company" means Rohr, Inc., but not any of its Subsidiaries, unless the context requires otherwise. GENERAL The Senior Notes will be general unsecured senior obligations of the Company, will mature on , 2003 and will be limited to an aggregate principal amount of $100,000,000. The Senior Notes will be issued in denominations of $1,000 and integral multiples of $1,000 in fully registered form. The Senior Notes are exchangeable and transfers thereof will be registrable without charge therefor, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge in connection therewith. The Senior Notes will accrue interest at a rate of % per annum from , 1994, or from the most recent interest payment date to which interest has been paid or duly provided for, and accrued and unpaid interest will be payable semi-annually on May 15 and November 15 of each year beginning November 15, 1994. Interest will be paid to the Person in whose name each Senior Note is registered at the close of business on the May 1 or November 1 immediately preceding the relevant interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on overdue principal and (to the extent permitted by law) on overdue installments of interest will accrue at a rate equal to % per annum. Initially, the Trustee will act as paying agent and registrar of the Senior Notes. The Company may change any paying agent and registrar without notice. OPTIONAL REDEMPTION The Senior Notes will be subject to redemption at any time on or after , 1999, and prior to maturity at the option of the Company, in whole or in part, for cash on not less than 30 days', nor more than 60 days', prior written notice, mailed by first class mail to each holder at its last address as it appears in the register of the Senior Notes, at the following redemption prices (expressed as percentages of the principal amount), plus accrued and unpaid interest to the date fixed for redemption, if redeemed during the twelve-month period beginning on of each year indicated below:
YEAR REDEMPTION PRICE ---- ---------------- 1999..................................................... % 2000..................................................... % 2001 and thereafter...................................... 100.00%
If less than all of the Senior Notes are to be redeemed, the Trustee will select the Senior Notes to be redeemed by lot or pro rata or by any other method that the Trustee considers fair and appropriate. 63 The Trustee may select for redemption a portion of the principal of any Senior Note that has a denomination larger than $1,000. Senior Notes and portions thereof will be redeemed in the amount of $1,000 or integral multiples of $1,000. The Trustee will make the selection from Senior Notes outstanding and not previously called for redemption. Provisions of the Indenture that apply to Senior Notes called for redemption also apply to portions of Senior Notes called for redemption. If any Senior Note is to be redeemed in part, the notice of redemption will state the portion of the principal amount to be redeemed. Upon surrender of a Senior Note that is redeemed in part only, the Company will execute and the Trustee will authenticate and deliver to the holder a new Senior Note equal in principal amount to the unredeemed portion of the Senior Note surrendered. On and after the redemption date, unless the Company shall default in the payment of the redemption price, interest will cease to accrue on the principal amount of the Senior Notes or portions thereof called for redemption and for which funds have been set apart for payment. CHANGE OF CONTROL Following a Change of Control (as defined below), the Company shall comply with each of the procedures set forth in the Indenture in respect of such event, and pursuant to the Indenture shall make an offer (a "Change of Control Offer") to purchase all Senior Notes then outstanding at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the "Change of Control Offer Payment Date" (as defined below). Notice of a Change of Control shall be mailed by or at the direction of the Company to the holders of Senior Notes as shown on the register of such holders maintained by the registrar not less than 15 days nor more than 30 days after the date of such Change of Control (the "Change of Control Date") at the addresses as shown on the register of holders maintained by the registrar, with a copy to the Trustee and the paying agent. The Change of Control Offer shall remain open until a specified date (the "Change of Control Offer Termination Date") which is at least 20 business days from the date such notice is mailed. During the period specified in such notice, holders of Senior Notes may elect to tender their Senior Notes in whole or in part in integral multiples of $1,000 in exchange for cash. Payment shall be made by the Company in respect of Senior Notes properly tendered as set forth herein on a specified business day (the "Change of Control Offer Payment Date") which shall be no earlier than 3 business days after the applicable Change of Control Offer Termination Date and no later than 60 days after the applicable Change of Control Date. "Change of Control" means the occurrence of one or more of the following events (whether or not approved by the Board of Directors of the Company): (a) an event or series of events by which any Person or other entity or group of Persons or other entities acting in concert as determined in accordance with Section 13(d) of the Exchange Act, whether or not applicable (a "Group of Persons"), shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases, merger or otherwise (i) be or become, directly or indirectly, the beneficial owner (within the meaning of Rule 13d-3 and 13d-5 under the Exchange Act, whether or not applicable) of 50% or more of the combined voting power of the then outstanding Voting Stock of the Company or (ii) have or has the ability to elect, directly or indirectly, a majority of the members of the Board of Directors of the Company or other equivalent governing body thereof, (b) the stockholders of the Company shall approve any Plan of Liquidation of the Company (whether or not otherwise in compliance with the provisions of the Indenture), (c) individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors of the Company (together with any new directors whose election or appointment by the Board of Directors of the Company or whose nomination for election by the Company's stockholders was approved by a vote of at least a majority of the members of the Board of Directors of the Company then still in office who either were members of the Board of Directors of the Company at the beginning of such period or whose election, appointment or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board 64 of Directors of the Company then in office, or (d) the direct or indirect sale, lease, exchange or other transfer, in one transaction or a series of related transactions, of all or substantially all of the property or assets of the Company to any Person or Group of Persons (whether or not otherwise in compliance with the provisions of the Indenture). If an offer is made to redeem Senior Notes as a result of a Change of Control, the Company will be required to comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. None of the provisions relating to a purchase upon a Change of Control is waivable by the Board of Directors of the Company or the Trustee. In the event that the Company were required to purchase outstanding Senior Notes pursuant to a Change of Control Offer, the Company expects that it would need to seek third-party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing. The occurrence of a Change of Control would constitute an event of default under the Revolving Credit Agreement and the agreements governing the Company's 9.33% Senior Notes and 9.35% Senior Notes, and would permit the holders of that Indebtedness to declare all amounts outstanding thereunder to be immediately due and payable. In addition, in the event of any Change of Control, the Company may not, and may not permit any of its Subsidiaries to, purchase, redeem or otherwise acquire any Indebtedness subordinated or junior to the Senior Notes pursuant to any analogous provisions relating to such Indebtedness prior to the payment in full in cash or Cash Equivalents of all Senior Notes, together with accrued and unpaid interest thereon, with respect to which the Change of Control Offer was accepted. However, in the event of a Change of Control, the Company would be required to make an offer to purchase all Convertible Subordinated Notes then outstanding at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of such purchase. On January 30, 1994, after giving pro forma effect to the Offerings and the use of proceeds therefrom, there would have been $157.8 million outstanding of Pari Passu Indebtedness (excluding the Senior Notes). See "Capitalization." The Company could, in the future, enter into certain transactions, including certain recapitalizations of the Company, that would not constitute a Change of Control with respect to the Senior Notes, but would increase the amount of Indebtedness outstanding at such time. Failure by the Company to purchase the Senior Notes when required constitutes an Event of Default with respect to the Senior Notes. See "--Events of Default." The Change of Control provision of the Senior Notes may in certain circumstances make more difficult or discourage a takeover of the Company and thus the removal of incumbent management. The Change of Control provision is not, however, the result of management's knowledge of any specific effort to obtain control of the Company by means of a merger, tender offer, solicitation or otherwise, or part of a plan by management to adopt a series of anti- takeover provisions. CERTAIN COVENANTS The Indenture will contain, among others, the covenants set forth below. There can be no assurance that these covenants would afford the holders of the Senior Notes any protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction that may adversely affect the holders of the Senior Notes. Limitation on Indebtedness The Company shall not, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) other than Permitted Indebtedness, unless (a) no Default or Event of Default shall have occurred and be continuing at the time of the proposed incurrence thereof or shall occur as a result of 65 such proposed incurrence thereof and (b) after giving effect to such proposed incurrence, the Company's Consolidated Fixed Charge Coverage Ratio would be greater than 2.0-to-1.0 on or prior to July 31, 1996, and 2.25-to-1.0 on or after August 1, 1996. Limitation on Subsidiary Indebtedness and Preferred Stock The Company shall not permit any Subsidiary to, directly or indirectly, incur any Indebtedness or issue any Preferred Stock other than, without duplication: (a) Indebtedness or Preferred Stock issued to and held by the Company or a Wholly Owned Subsidiary of the Company, provided that (i) such Indebtedness is not subordinated to any other Indebtedness of such Subsidiary and (ii) any subsequent issuance or transfer of Capital Stock of a Wholly Owned Subsidiary of the Company (the "Obligee Subsidiary") to whom a Subsidiary of the Company is indebted (the "Obligor Subsidiary") that results in such Obligee Subsidiary ceasing to be a Wholly Owned Subsidiary of the Company or any subsequent transfer of such Indebtedness or Preferred Stock of such Obligor Subsidiary by such Obligee Subsidiary (other than to the Company or another Wholly Owned Subsidiary of the Company) shall be deemed in each case to be the incurrence of such Indebtedness or the issuance of such Preferred Stock by each Obligor Subsidiary owing to or issued to, as the case may be, such Obligee Subsidiary to the extent outstanding as of such date; (b) Indebtedness or Preferred Stock of a Subsidiary of the Company which represents the assumption by such Subsidiary of Indebtedness or Preferred Stock of another Subsidiary of the Company in connection with a merger of such Subsidiaries; (c) Indebtedness or Preferred Stock of any Person (other than a Person that has acquired, directly or indirectly, assets from the Company other than in the ordinary course of business) existing at the time such corporation becomes a Subsidiary of the Company, provided that (i) such Indebtedness or Preferred Stock was not incurred or issued as a result of or in connection with or in anticipation of such Person becoming a Subsidiary of the Company, (ii) immediately after giving effect to such Person becoming a Subsidiary of the Company (as if such Indebtedness and Preferred Stock were incurred and issued on the first day of the Reference Period) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under "--Limitation on Indebtedness" above (assuming a market rate of interest with respect thereto) and (iii) the total of the aggregate principal amount of Indebtedness and the aggregate liquidation value of Preferred Stock of such Person outstanding on the date it becomes a Subsidiary of the Company, plus the total of the aggregate principal amount of Indebtedness and the aggregate liquidation value of Preferred Stock of such other Persons incurred under this clause (c) (but only to the extent such debt or Preferred Stock remains outstanding on the date of determination) does not exceed 10% of the Consolidated Net Worth of the Company; (d) Indebtedness and Preferred Stock of any Subsidiary of the Company, provided that (i) immediately after giving effect thereto (as if the incurrence or issuance thereof occurred on the first day of the Reference Period) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under "--Limitation on Indebtedness" above (assuming a market rate of interest with respect thereto), and (ii) the total of the aggregate principal amount of the Indebtedness and the aggregate liquidation value of Preferred Stock proposed to be issued and incurred by such Subsidiary plus the total of the aggregate principal amount of Indebtedness and the aggregate liquidation value of Preferred Stock incurred and issued by all Subsidiaries of the Company under this clause (d) does not exceed, when added to Indebtedness of the Company incurred under clause (f) of the definition of "Permitted Indebtedness," 10% of Consolidated Net Worth; (e) Permitted Indebtedness incurred by any Subsidiary of the Company under clauses (a) and (g) of the definition of "Permitted Indebtedness"; (f) Indebtedness or Preferred Stock that is Permitted Refinancing Indebtedness incurred or issued to Refinance any Indebtedness or Preferred Stock incurred or issued by a Subsidiary of the Company prior to the Issue Date or in accordance with the Indenture; or (g) Indebtedness of the Company's non-U.S. Subsidiaries under any working capital or other revolving credit facilities in an aggregate amount not to exceed $5 million at any one time. 66 Limitation on Restricted Payments The Company shall not, and shall not permit or cause any of its Subsidiaries to, directly or indirectly, make any Restricted Payment unless, at the time of such proposed Restricted Payment, and on a pro forma basis immediately after giving effect thereto: A. no Default or Event of Default has occurred and is continuing; B. the aggregate amount expended for all Restricted Payments subsequent to the Issue Date, would not exceed the sum of: (1) 50% of aggregate Consolidated Net Income of the Company (or if such Consolidated Net Income is a loss, minus 100% of such loss) earned on a cumulative basis during the period beginning on May 2, 1994 and ending on the last date of the Company's fiscal quarter immediately preceding such proposed Restricted Payment; plus (2) 100% of the aggregate Net Equity Proceeds received by the Company from any Person (other than from a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date of Qualified Capital Stock of the Company (excluding (a) any Qualified Capital Stock of the Company paid as a dividend on any Capital Stock of the Company or of any of its Subsidiaries or as interest on any Indebtedness of the Company or of any of its Subsidiaries, (b) the issuance of Qualified Capital Stock upon the conversion of, or in exchange for, any Capital Stock of the Company or of any of its Subsidiaries and (c) any Qualified Capital Stock of the Company with respect to which the purchase price thereof has been financed directly or indirectly using funds (i) borrowed from or advanced by the Company or any of its Subsidiaries, unless and until and to the extent such borrowing or advance is repaid or(ii) contributed or guaranteed by the Company or by any of its Subsidiaries (including, without limitation, in respect of any employee stock ownership or benefit plan) unless and until such guarantee terminates; and C. The Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under "--Limitation on Indebtedness" above (assuming a market rate of interest with respect thereto). The foregoing provisions of this covenant will not prevent: (a) the payment of any dividend within 60 days after the date of its declaration if at such date of declaration the payment of such dividend would comply with the provisions set forth above, provided that (i) such dividend will be deemed to have been paid as of its date of declaration for the purposes of this covenant and (ii) at the time of payment of such dividend no other Default or Event of Default shall have occurred and be continuing or would result therefrom, (b) if no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof, the purchase, redemption, retirement or acquisition of any shares of Capital Stock of the Company or of any Subsidiary or any Indebtedness of the Company that is subordinated to the Senior Notes solely by conversion into, in exchange for or with or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company and neither such purchase, redemption, retirement, or acquisition, conversion or exchange nor the proceeds of any such sale will be included in any computation made under clause (B)(2) above, or (c) the making of a Permitted Payment. The amounts expended pursuant to clauses (a) and (c) (with respect to those items identified in clauses (a)(i), (d), (e) or (f) of the definition of Permitted Payments) of this paragraph will be included in computing the amounts available for Restricted Payments for purposes of the immediately preceding paragraph. For purposes of this covenant a distribution to holders of the Company's Capital Stock of (a) shares of Capital Stock of any of its Subsidiaries or (b) other assets of the Company or of any of its Subsidiaries, without, in either case, the receipt of equivalent consideration therefor shall be deemed to be the equivalent of a cash dividend equal to the excess of the Fair Market Value of the shares or other assets being so distributed at the time of such distribution over the consideration, if any, received therefor. 67 Limitation on Sale of Assets The Company will not, and will not permit any of its Subsidiaries to, consummate any Asset Sale unless such Asset Sale is for at least Fair Market Value and at least 80% of the consideration therefrom received by the Company or such Subsidiary is in the form of cash or Cash Equivalents. Following any Asset Sale, an amount equal to the Net Cash Proceeds of such Asset Sale shall be applied by the Company or such Subsidiary within 365 days of the date of the Asset Sale, at its election, to either: (a) the payment of Pari Passu Indebtedness with an equal and concurrent reduction in the commitment related to such Pari Passu Indebtedness, if applicable, provided any Net Cash Proceeds which are applied on such pro rata basis to reduce Indebtedness under the Revolving Credit Agreement shall result in a permanent reduction of the borrowing availability thereunder; or (b) make any Permitted Program Investment or any other investment in capital assets usable in the Company's or its Subsidiaries' lines of business or in an asset or business in the same line of business as the Company; or (c) a combination of payment and investment permitted by the foregoing clauses (a) and (b). On the earlier of (A) the 366th day after the date of an Asset Sale or (B) such date as the Board of Directors of the Company or of such Subsidiary determines (as evidenced by a written resolution of said Board of Directors) not to apply an amount equal to the Net Cash Proceeds relating to such Asset Sale as set forth in the immediately preceding sentence (each of (A) and (B), an "Asset Sale Offer Trigger Date"), the Company would be obligated to apply or cause its Subsidiary to apply an amount equal to the aggregate amount of Net Cash Proceeds which have not been applied on or before such Asset Sale Offer Trigger Date as permitted in clauses (a), (b) and (c) of the immediately preceding sentence (each an "Asset Sale Offer Amount") to make an offer to purchase for cash (the "Asset Sale Offer") from all holders of Senior Notes on a pro rata basis that amount of Senior Notes equal to the Asset Sale Offer Amount at a price equal to 100% of the principal amount of the Senior Notes to be repurchased, plus accrued and unpaid interest thereon to the date of repurchase. Notwithstanding the foregoing, if an Asset Sale Offer Amount is less than $10 million, the application of such Asset Sale Offer Amount to an Asset Sale Offer may be deferred until such time as such Asset Sale Offer Amount plus the aggregate amount of all Asset Sale Offer Amounts arising subsequent to such Asset Sale Offer Trigger Date from all Asset Sales by the Company and its Subsidiaries aggregates at least $10 million, at which time the Company or such Subsidiary shall apply all Asset Sale Offer Amounts that have been so deferred to make an Asset Sale Offer (the first date the aggregate of all such deferred Asset Sale Offer Amounts is equal to $10 million or more shall be deemed to be an "Asset Sale Offer Trigger Date"). In the event of the transfer of substantially all (but not all) of the property and assets of the Company as an entirety to a Person in a transaction permitted under "--Merger, Consolidation, Etc." below, the successor Person shall be deemed to have sold the properties and assets of the Company not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. Each Asset Sale Offer will be mailed to the holders of the Convertible Subordinated Notes at the addresses shown on the register of holders maintained by the registrar, with a copy to the Trustee and the paying agent, within ten days following the applicable Asset Sale Offer Trigger Date, and shall comply with each of the procedures for notice set forth in the Indenture. Each Asset Sale Offer shall remain open until a specified date (the "Asset Sale Offer Termination Date") which is at least 20 business days from the date such Asset Sale Offer is mailed. During the period specified in the Asset Sale Offer, holders may elect to tender their Senior Notes in whole or in part in integral multiples of $1,000 in exchange for cash. Payment shall be made by the Company (or applicable subsidiary) in respect of Senior Notes properly tendered pursuant to this section on a specified business day which shall be no earlier than three business days after the Asset Sale Offer Termination Date and no later than 60 days after such applicable Asset Sale Offer Trigger Date. To the extent holders properly tender Senior Notes in an amount exceeding the Asset Sale Offer Amount, Senior Notes of tendering holders will be repurchased on a pro rata basis (based on amounts tendered). An Asset Sale Offer shall remain open for a period of 20 business days or such longer period as may be required by law. 68 If an offer is made to repurchase the Senior Notes pursuant to an Asset Sale Offer, the Company will and will cause its Subsidiaries to comply with all tender offer rules under state and federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. Any event which would require the Company or its Subsidiary to offer to purchase Senior Notes after an Asset Sale would also require the Company to repay amounts outstanding under its Revolving Credit Agreement, and to offer to repay its 9.33% Senior Notes due 2002 and 9.35% Senior Notes due 2000. The Company's and the Subsidiaries' ability to repurchase the Senior Notes in an Asset Sale Offer may also be restricted or otherwise limited by the terms of other then-existing borrowing agreements and by the Company's financial position. Limitation on Liens The Company may not, and may not permit any of its Subsidiaries to, voluntarily or involuntarily, create, incur, or assume any Liens upon any of their respective properties or assets, whether owned on the Issue Date or acquired thereafter, or on any income or profits therefrom, or assign or otherwise convey any right to receive income or profits thereon, securing any Indebtedness of the Company or of any of its Subsidiaries other than, without duplication: (a) Liens granted by the Company securing Indebtedness of the Company that is incurred in accordance with the Indenture and that is Pari Passu Indebtedness; provided that the Senior Notes are secured on an equal and ratable basis to such Liens, (b) Liens granted by the Company securing Indebtedness of the Company incurred in accordance with the Indenture and that is subordinated to the Senior Notes; provided that the Senior Notes are secured by Liens ranking prior to such Liens, (c) Liens existing on the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date, (d) Permitted Liens, (e) Liens relating to other Indebtedness and Sale-Leaseback Financings in an aggregate amount not to exceed at any one time 10% of the Company's Consolidated Net Worth, (f) Liens in respect of Acquired Indebtedness incurred by the Company in accordance with "--Limitation on Indebtedness" above and in respect of Acquired Indebtedness incurred by a Subsidiary of the Company in accordance with clause (d) of "--Limitation on Subsidiary Indebtedness and Preferred Stock" above, provided that the Lien in respect of such Acquired Indebtedness secured such Acquired Indebtedness at the time of the incurrence of such Acquired Indebtedness by the Company or by one of its Subsidiaries and such Lien and the Acquired Indebtedness were not incurred by the Company or any of its Subsidiaries or by the Person being acquired or from whom the assets are proposed to be acquired in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or by one of its Subsidiaries, and provided, further that such Liens in respect of such Acquired Indebtedness do not extend to or cover any property or assets of the Company or of any of its Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or of one of its Subsidiaries, (g) Liens granted by a corporation, which Liens are in existence at the time such corporation becomes a Subsidiary of the Company, provided that such Liens were not created by such corporation in connection with or in anticipation of such corporation becoming a Subsidiary of the Company, and provided further that such liens do not extend to or cover any property or assets of the Company or any of its Subsidiaries other than the property or assets of such acquired corporation prior to the time it became a Subsidiary of the Company and (h) Liens in respect of New Indebtedness that is Permitted Refinancing Indebtedness incurred to Refinance any of the Indebtedness set forth in clauses (a), (b), (c), (e), (f) and (g) above, provided that such Liens in respect of such New Indebtedness are no less favorable to the holders of the Senior Notes than the Liens in respect of the Indebtedness being Refinanced and such Liens in respect of New Indebtedness do not extend to or cover any properties or assets of the Company or of any of the Company's Subsidiaries other than the property or assets that secured the Indebtedness being Refinanced. Limitation on Sale and Leaseback Transactions The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, enter into any sale and leaseback transaction, provided that the Company (and not a Subsidiary of the 69 Company) may enter into such a sale and leaseback transaction if (a) with respect to any such transaction involving the incurrence of Capitalized Lease Obligations, the Company could have (i) incurred Indebtedness in an amount equal to the debt relating to such sale and leaseback transaction pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in the covenant entitled "--Limitation on Indebtedness" and (ii) incurred a Lien to secure such Indebtedness pursuant to the covenant entitled "--Limitation on Liens," (b) the proceeds of such sale and leaseback transaction are at least equal to the Fair Market Value of the property that is the subject of such sale and leaseback transaction and (c) the Company shall apply or cause to be applied the proceeds of such transaction in compliance with the covenant entitled "--Limitation on Sale of Assets." Limitation on Payment Restrictions Affecting Subsidiaries The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or become (after the Issue Date) subject to or allow to become effective any consensual encumbrance or restriction of any kind (a) on the ability of any such Subsidiary to (i) pay dividends, in cash or otherwise, or make other payments or distributions on its Capital Stock or any other equity interest or participation in, or measured by, its profits, owned by the Company or by any of its Subsidiaries, or make payments on any Indebtedness owed to the Company or to any of its Subsidiaries, (ii) make loans or advances to the Company or to any of its Subsidiaries or (iii) transfer any of their respective property or assets to the Company or to any of its Subsidiaries or (b) on the ability of the Company or any of its Subsidiaries to receive or retain any such (i) dividends, payments or distributions, (ii) loans or advances or (iii) transfer of property or assets, except for such encumbrances or restrictions existing under or by reason of (1) customary provisions restricting subletting, transfer or assignment of any lease governing a leasehold interest of the Company or of any of its Subsidiaries, (2) applicable law, (3) reasonable covenants set forth in the agreements governing the formation of a joint venture otherwise permitted by this Indenture, (4) Acquired Indebtedness incurred in accordance with this Indenture, provided that such encumbrance or restriction in respect of such Acquired Indebtedness is not applicable to any Person, or the property of any Person, other than the Person, or the property of the Person, so acquired and that such Acquired Indebtedness was not incurred by the Company or any of its Subsidiaries or by the Person being acquired in connection with or anticipation of such acquisition, (5) with respect to clause (a)(iii) and (b)(iii) above, purchase money obligations for property acquired in the ordinary course of business, (6) Indebtedness outstanding immediately after the Issue Date (as in effect on the Issue Date), or (7) customary provisions in instruments or agreements relating to a Lien permitted to be created, incurred or assumed pursuant to the provisions of "--Limitations on Liens" which restrict the transfer of the property or assets subject to such Lien, (8) customary provisions in any agreement otherwise permitted under this Indenture which (i) provide that transactions between the Company and its Subsidiaries be no less favorable to any such Subsidiary than could be obtained from an unaffiliated third party, and (ii) do not have any material adverse effect on the ability of such Subsidiary to pay dividends to the Company or otherwise advance cash, directly or indirectly, to the Company on terms no less favorable to any such Subsidiary than could be obtained from unaffiliated third party or (9) any new Indebtedness that is Permitted Refinancing Indebtedness incurred to Refinance any of the Indebtedness set forth in clauses (4), (5) and (6) above to the extent such encumbrance or restriction in respect of the New Indebtedness is no less favorable to the holders of the Senior Notes and no more restrictive than such encumbrances or restrictions contained in the Indebtedness being Refinanced as of the date of such Refinancing and do not extend to or cover any other Person or the property of any other Person other than the Person in respect of whom such encumbrance or restriction relating to the Indebtedness being Refinanced applied. Limitation on Transactions with Affiliates The Company shall not, nor shall the Company permit any of its Subsidiaries to, (a) sell, lease, transfer or otherwise dispose of any of its property or assets to, (b) purchase any property or assets 70 from, (c) make any Investment in or (d) enter into or amend any contract, agreement or understanding with or for the benefit of, any Affiliate of the Company or of any Subsidiary of the Company (an "Affiliate Transaction"), other than Affiliate Transactions that, in its reasonable judgment are necessary or desirable for the Company or such Subsidiary in the conduct of its business and that (i) a majority of the members of the Board of Directors of the Company reasonably and in good faith determines are in the best interests of the Company or such Subsidiary and (ii) are on terms (which terms are in writing) that are fair and reasonable to the Company or the Subsidiary and that are no less favorable to the Company or such Subsidiary than those that could be obtained in a comparable arm's length transaction by the Company or such Subsidiary from an unaffiliated party, as determined reasonably and in good faith by the Board of Directors of the Company, provided that if the Company or any Subsidiary of the Company enters into an Affiliate Transaction or series of Affiliate Transactions involving or having an aggregate value of more than $10 million such Affiliate Transaction shall, prior to the consummation thereof, have been approved by a majority of the disinterested directors of the Company (or by a majority of the disinterested directors on any committee of director's authorized to consider such matter; provided that the delegation of such matter to such committee has been approved by a majority of disinterested directors of the Company), and, provided further, that with respect to any such transaction or series of related transactions that involve an aggregate value of more than $20 million the Company or such Subsidiary shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness to itself of such transaction or series of related transactions from a financial point of view from an Independent Financial Advisor and file the same with the Trustee. The foregoing restriction shall not apply to (x) any transaction between Wholly Owned Subsidiaries of the Company, or between the Company and any Wholly Owned Subsidiary of the Company if such transaction is not otherwise prohibited by the terms of the Indenture and (y) any Restricted Payment made in accordance with "--Limitation on Restricted Payments" above. Notwithstanding the foregoing, the term "Affiliate Transaction" shall not include any contract, agreement or understanding with or for the benefit of, or a plan for the benefit of, any or all employees of the Company or its Subsidiaries (in their capacity as such) that has been approved by the Company's Board of Directors or a disinterested committee thereof, or a stock issuance to directors pursuant to plans approved by stockholders of the Company. REPORTS So long as any Senior Note is outstanding, the Company shall file with the Commission and, within 15 days after it files them with the Commission, file with the Trustee and thereafter promptly mail or promptly cause the Trustee to mail to the holders of the Senior Notes at their addresses as set forth in the register of the Senior Notes, copies of the annual reports and of the information, documents and other reports which the Company is required to file with Commission pursuant to Section 13 or 15(d) of the Exchange Act or which the Company would be required to file with the Commission if the Company then had a class of securities registered under the Exchange Act. In addition, the Company shall cause its annual report to stockholders and any quarterly or other financial reports furnished to its stockholders generally to be filed with the Trustee no later than the date such materials are mailed or made available to the Company's stockholders, and thereafter mailed promptly to the holders of the Senior Notes at their addresses as set forth in the register of Senior Notes. MERGER, CONSOLIDATION, ETC. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any Person or adopt a Plan of Liquidation unless: (a) either (i) the Company shall be the surviving or continuing corporation or (ii) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer or lease the properties and assets of the Company substantially as an entirety or, in the case of a Plan of Liquidation, the Person to which all or substantially all of the assets of the Company have been transferred (1) shall be a corporation organized and validly existing under the laws of the United 71 States or any State thereof or the District of Columbia and (2) shall expressly assume, by supplemental indenture executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Senior Notes and the performance of every covenant of the Senior Notes and the Indenture on the part of the Company to be performed or observed; (b) immediately after giving effect to such transaction and any assumption contemplated by clause (a)(ii)(2) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company (in the case of clause (i) of the foregoing clause (a)) or such Person (in the case of clause (ii) thereof) (i) shall have a Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments relating to such transaction) equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction and (ii) shall be able to incur (assuming a market rate of interest with respect thereto) at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under "--Limitation on Indebtedness" above, provided that in determining the "Consolidated Fixed Charge Coverage Ratio" of the resulting transferee or surviving Person, such ratio shall be calculated as if the transaction (including the incurrence of any Indebtedness or Acquired Indebtedness) occurred on the first day of the Reference Period; (c) immediately before and after giving effect to such transaction and any assumption contemplated by clause (a)(ii)(2) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of the transaction) no Default or Event of Default shall have occurred and be continuing; (d) the Company or such Person shall have delivered to the Trustee (i) an officers' certificate and an opinion of counsel (which may be in-house counsel of the Company), each stating that such consolidation, merger, conveyance, transfer or lease or Plan of Liquidation and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with the provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied and (ii) a certification from the Company's independent certified public accountants stating that the Company has made the calculations required by clause (b) above in accordance with the terms of the Indenture; and (e) neither the Company nor any Subsidiary of the Company nor such Person, as the case may be, would thereupon become obligated with respect to any Indebtedness (including Acquired Indebtedness), nor any of its property or assets subject to any Lien, unless the Company or such Subsidiary or such Person, as the case may be, could incur such Indebtedness (including Acquired Indebtedness) or create such Lien under the Indenture (giving effect to such Person being bound by all the terms of the Indenture). For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Upon any such consolidation, merger, sale, assignment, conveyance, lease or transfer in accordance with the foregoing, the successor Person formed by such consolidation or into which the Company is merged or to which such sale, assignment, conveyance, lease or transfer is made will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor had been named as the Company therein, and thereafter (except in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under the Indenture and the Senior Notes. EVENTS OF DEFAULT The following are Events of Default under the Indenture: a. default in the payment of principal of, or premium, if any, on, the Senior Notes when due at maturity, upon repurchase, upon acceleration or otherwise, including, without limitation, failure of the Company to repurchase the Senior Notes on the date required pursuant to "--Certain 72 Covenants--Limitation on Sale of Assets" above or following a Change of Control or failure to make any optional redemption payment when due; or b. default in the payment of any installment of interest on the Senior Notes when due (including any interest payable in connection with any optional redemption payment) and continuance of such default for more than 30 days; or c. failure to observe, perform or comply with any of the provisions described under "--Change of Control," "Certain Covenants--Limitation on Indebtedness," "Certain Covenants--Limitation on Subsidiary Indebtedness and Preferred Stock," "Certain Covenants--Limitation on Restricted Payments," "--Certain Covenants--Limitation on Liens," "--Certain Covenants--Limitation on Sale of Assets" and "--Merger, Consolidation, Etc." above and the failure to remedy such failure prior to the receipt of written notice from the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Senior Notes; or d. default (other than default set forth in clauses (a), (b) and (c) above) in the performance of, or breach of, any other covenant or warranty of the Company in the Indenture or the Senior Notes and failure to remedy such default or breach within a period of 60 days after the receipt of written notice from the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Senior Notes; or e. (i) failure to pay at maturity or default in the obligation to pay when due the principal of, interest on, (but only to the extent any such failure to pay interest is not fully cured prior to the expiration of the grace period provided in such Indebtedness on the date such interest payment was initially due) or any other payment obligation on any other Indebtedness (other than the Senior Notes) of the Company or of any Subsidiary of the Company, whether such Indebtedness exists on the Issue Date or shall be incurred thereafter, having, individually or in the aggregate, an outstanding principal amount of $15 million or more or (ii) any other Indebtedness (other than the Senior Notes) of the Company or of any Subsidiary of the Company, whether such Indebtedness exists on the Issue Date or shall be incurred thereafter, having individually or in the aggregate an outstanding principal amount of $15 million or more, is declared due and payable prior to its stated maturity; or f. entry by a court of competent jurisdiction of one or more judgments or orders against the Company or any Subsidiary of the Company or any of their respective property or assets in an aggregate amount in excess of $15 million and that are not covered by insurance written by third parties, which judgments or orders have not been vacated, discharged, satisfied or stayed pending appeal within 60 days from the entry thereof; or g. certain events of bankruptcy, insolvency or reorganization involving the Company or any Material Subsidiary of the Company. If an Event of Default (other than an Event of Default specified in clause (g) above) occurs and is continuing, then and in every such case the Trustee, by written notice to the Company, or the holders of not less than 25% in aggregate principal amount of the then outstanding Senior Notes, by written notice to the Company and the Trustee, may declare the unpaid principal of, premium, if any, and accrued and unpaid interest on, all the Senior Notes then outstanding to be due and payable. Upon such declaration such principal amount, premium, if any, and accrued and unpaid interest will become immediately due and payable, notwithstanding anything contained in the Indenture or the Senior Notes to the contrary. If an Event of Default specified in clause (g) above occurs, all unpaid principal of, and premium, if any, and accrued and unpaid interest on, the Senior Notes then outstanding will automatically become due and payable without any declaration or other act on the part of the Trustee or any holder of Senior Notes. Holders of the Senior Notes may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, 73 order or direction of any of the holders of Senior Notes, unless such holders have offered to the Trustee an indemnity satisfactory to it against any loss, liability or expense. Subject to all provisions of the Indenture and applicable law, the holders of a majority in aggregate principal amount of the then outstanding Senior Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. If a Default or Event of Default occurs and is continuing and is known to the Trustee, the Indenture requires the Trustee to mail a notice of Default or Event of Default to each holder of Senior Notes within 60 days of the occurrence of such Default or Event of Default, provided, however, that the Trustee may withhold from such holders notice of any continuing Default or Event of Default (except a Default or Event of Default in the payment of principal of or interest on the Senior Notes) if it determines that withholding notice is in their interest. The holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee may rescind any acceleration of the Senior Notes and its consequences if all existing Events of Default (other than the nonpayment of principal of and premium, if any, and interest on the Senior Notes which has become due solely by virtue of such acceleration) have been cured or waived and if the rescission would not conflict with any judgment or decree of any court of competent jurisdiction. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The holders of a majority in aggregate principal amount of the Senior Notes then outstanding may, on behalf of the holders of all the Senior Notes, waive any past Default or Event of Default under the Indenture and its consequences, except Default or an Event of Default in the payment of principal of or premium, if any, or interest on the Senior Notes (other than the non-payment of principal of and premium, if any, and interest on the Senior Notes which has become due solely by virtue of an acceleration which has been duly rescinded, as provided above), or in respect of a covenant or provision of the Indenture which cannot be modified or amended without the consent of all holders of Senior Notes. Under the Indenture, two officers of the Company are required to provide a certificate to the Trustee promptly upon any such officer obtaining knowledge of any Default or Event of Default (provided that such officers shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. In addition, for each fiscal year, the Company's independent certified public accountants are required to certify to the Trustee that they have reviewed the terms of the Indenture and the Senior Notes as they relate to accounting matters and whether, during the course of their audit examination, any Default or Event of Default has come to their attention, and specifying the nature and period of existence of any such Default or Event of Default. AMENDMENT, SUPPLEMENT AND WAIVER The Indenture (including the terms and conditions of the Senior Notes) may be modified or amended by the Company and the Trustee, without the consent of the holders of any Senior Notes, for the purposes of (a) adding to the covenants of the Company for the benefit of the holders of Senior Notes; (b) surrendering any right or power conferred upon the Company; (c) evidencing the succession of another Person to the Company and the assumption by such successor of the covenants and obligations of the Company thereunder and in the Senior Notes as permitted by the Indenture; or (d) curing any ambiguity or correcting or supplementing any defective provision contained in the Indenture or making any changes in any other provisions of the Indenture which the Company and the Trustee may deem necessary or desirable and which, in either case, will not adversely affect the interests of the holders of Senior Notes. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the then outstanding Senior Notes, to enter into any supplemental indenture for the purpose of adding, changing or eliminating any 74 of the provisions of the Indenture, or of modifying in any manner the rights of the holders under the Indenture, provided that no such supplemental indenture may without the consent of the holder of each outstanding Senior Note affected thereby: (a) reduce the amount of Senior Notes whose holders must consent to an amendment or waiver; (b) reduce the rate of, or extend the time for payment of, interest, including defaulted interest, on any Senior Note; (c) reduce the principal of or premium on or change the fixed maturity of any Senior Note or alter the redemption provisions with respect thereto; (d) make the principal of, or premium, if any, or interest on, any Senior Note payable in money other than as provided for in the Indenture and the Senior Notes; (e) waive continuing default in the payment of the principal of or premium, if any, or interest on, or redemption or repurchase payment with respect to, any Senior Notes, including, without limitation, a continuing failure to make payment when required upon a Change of Control or after an Asset Sale Offer Trigger Date; (f) after the Company's obligation to purchase the Senior Notes arises under the Indenture amend, modify or change the obligation of the Company to make or consummate a Change of Control Offer in the event of a Change of Control or an Asset Sale Offer in the event of an Asset Sale Offer Trigger Date or waive any default in the performance thereof or modify any of the provisions or definitions with respect to any such offers; or(g) make any change in provisions relating to waivers of defaults, the ability of holders to enforce their rights under the Indenture or the matters discussed in these clauses (a) through (g). DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Senior Notes ("legal defeasance") except for (i) the rights of holders of outstanding Senior Notes to receive payments in respect of the principal of, premium, if any, and interest on such Senior Notes when such payments are due, (ii) the Company's obligations with respect to the Senior Notes concerning issuing temporary Senior Notes, registration of Senior Notes, mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the legal defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("covenant defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Senior Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Senior Notes. In order to exercise either legal defeasance or covenant defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Senior Notes, cash in U.S. dollars, non-callable government securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of the Chief Financial Officer of the Company expressed in a written certificate delivered to the Trustee, to pay the principal of, premium, if any, and interest on the outstanding Senior Notes on the stated maturity or on the applicable redemption date, as the case may be, of such principal or installment of principal of, premium, if any, or interest on the outstanding Senior Notes; (ii) in the case of legal defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the IRS a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (iii) in the case of covenant defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the 75 United States reasonably acceptable to the Trustee confirming that the holders of the outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same time as would have been the case if such covenant defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit ; (v) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company shall have delivered to the Trustee an officer's certificate stating that the deposit was not made by the Company with the intent of preferring the holders of Senior Notes over the other creditors of the Company with the intent of defeasing, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the legal defeasance or the covenant defeasance have been complied with. GOVERNING LAW The Indenture will provide that the Senior Notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law. THE TRUSTEE The Indenture will provide that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the continuance of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. The Indenture and the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions, provided that if the Trustee acquires any conflicting interest as described in the TIA it must eliminate such conflict or resign. CERTAIN DEFINITIONS "Acquired Indebtedness" of any specified Person means Indebtedness of any other Person and its Subsidiaries existing at the time such other Person merged with or into or became a Subsidiary of such specified Person or assumed by the specified Person in connection with the acquisition of assets from such other Person including, without limitation, Indebtedness of such other Person and its Subsidiaries incurred in connection with or in anticipation of (a) such other Person and its Subsidiaries being merged with or into or becoming a Subsidiary of such specified Person or (b) such acquisition by the specified Person. "Affiliate" means, when used with reference to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the referent Person, as the case may be, or any Person who beneficially owns (within the meaning of Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, 10% or more of the equity interests of the referent 76 Person or warrants, options or other rights to acquire or hold more than 10% of any class of equity interests of the referent Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of management or policies of the referent Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "Asset Sale" means any sale, lease, transfer, exchange or other disposition by the Company or any Subsidiary (or series of related sales, leases, transfers, exchanges or dispositions) in excess of $1,000,000, including, without limitation, dispositions pursuant to merger, consolidation or sale and leaseback transactions, of (a) shares of Capital Stock of a Subsidiary of the Company (pro-rated to the extent of the Company's interest therein), (b) all or substantially all of the properties and assets of any division or line of business of the Company or any Subsidiary of the Company or (c) any other property or assets of the Company (pro-rated to the extent of the Company's interest therein), or of any Subsidiary of the Company (pro-rated to the extent of the Company's interest therein) (each referred to for purposes of this definition as a "disposition") by the Company or by any of its Subsidiaries (other than (i) dispositions by the Company to a Wholly Owned Subsidiary of the Company or by a Subsidiary of the Company to the Company or to a Wholly Owned Subsidiary of the Company, (ii) sales or other dispositions of inventory in the ordinary course of business, (iii) any disposition of properties or assets that is consummated in accordance with the provisions of "--Merger, Consolidation, Etc." above,(iv) any disposition of any account receivable pursuant to the Pooling and Servicing Agreement,(v) dispositions by the Company or any Subsidiary of the Company of the business jet product line, the overhaul and repair business, as conducted by Rohr Aero Services, Inc. and Rohr Aero Services Europe on the Issue Date, the Hagerstown, Maryland plant and the Auburn, Washington plant, in each case, including related assets, (vi) the disposition by the Company or any Subsidiary of the Company of interests owned on the Issue Date in two trusts which own an Airbus A300 aircraft and a McDonnell Douglas DC10 aircraft, respectively and (vii) the disposition of Building 107 (at the Company's facility in Chula Vista, California) to (a) any pension plan of the Company or (b) to any other Person if the net proceeds of such disposition are delivered to any pension plan referred to in clause (a) of this definition, in either case resulting in the full satisfaction (or in case the full amount of such net proceeds are so delivered and shall be insufficient to effect such full satisfaction, the partial satisfaction) of the Company's funding liabilities with respect to any such pension plan or plans). "Average Life" means, as of the date of determination, with respect to any Indebtedness or security, the quotient obtained by dividing (a) the sum of the product of (i) the number of years from such date to the date of each successive scheduled principal or redemption payment of such Indebtedness or security multiplied by (ii) the amount of such principal or redemption payment by (b) the sum of all such principal or redemption payments. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of such Person's capital stock, including each class of Common Stock or Preferred Stock of such Person, whether outstanding on the Issue Date or issued after the Issue Date, and any and all rights, warrants or options exchangeable for or convertible into such capital stock (but excluding any debt security that is exchangeable for or convertible into such capital stock). "Capitalized Lease Obligation" means any obligation under a lease that is required to be classified and accounted for as capital lease obligation under GAAP and, for purposes of the Indenture, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. The Stated Maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without penalty. 77 "Cash Equivalents" means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within three years from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having a long-term rating of at least A from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's") or a short-term rating of at least A-1 from S&P or P- 1 from Moody's, (c) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's, (d) certificates of deposit, bankers' acceptances, time deposits, eurocurrency deposits or similar types of investments routinely offered by commercial banks and maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any United States branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $500 million, (e) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a) above entered into with any commercial bank meeting the qualifications specified in clause (d) above or with investment banks reporting to the Market Reports Division of the Federal Reserve Bank ("FRB") meeting the FRB's capital criteria and having a long-term rating of at least A from either S&P or Moody's and (f) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (a) through (e) above. "Change of Control" has the meaning assigned to it under "--Change of Control." "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of any Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of (a) the aggregate amount of EBITDA of such Person for the four full fiscal quarters ending on or immediately prior to the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to (b) the aggregate Consolidated Fixed Charges of such Person for such Four Quarter Period. For purposes of this definition, if the Transaction Date occurs prior to the first anniversary of the Issue Date, EBITDA and Consolidated Fixed Charges shall be calculated, in the case of the Company, after giving effect on a pro forma basis as if the issuance of the Securities and the application of the net proceeds therefrom occurred on the first day of the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, EBITDA and Consolidated Fixed Charges shall be calculated after giving effect on a pro forma basis for the period of such calculation to (x) the incurrence or retirement, as the case may be, of any Indebtedness (including Acquired Indebtedness) of such Person or of any of its Subsidiaries during the period commencing on the first day of the Four Quarter Period to and including the Transaction Date (the "Reference Period"), including, without limitation, the incurrence of the Indebtedness giving rise to the need to make such calculation, as if such incurrence or retirement, as the case may be, occurred on the first day of the Reference Period and (y) the EBITDA attributable to any Person, business, property or asset acquired or divested during the Reference Period (provided that with respect to any such acquisition, only to the extent the EBITDA of such Person is otherwise includable in the referent Person's EBITDA) as if such transaction occurred on the first day of the Reference Period. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i) interest on Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so 78 determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (ii) if interest on any Indebtedness actually incurred on the Transaction Date may be optionally determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the entire Reference Period; and (iii) notwithstanding the foregoing, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by Interest Rate Protection Agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Interest Expense and (b) the product of (i) the amount of all dividend requirements, whether in cash or otherwise (except dividends payable in shares of Common Stock) paid, accrued or scheduled to be paid or accrued during such period multiplied by (ii) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated Federal, state, local and foreign tax rate (expressed as a decimal number between 1 and 0) of such Person (as reflected in the audited consolidated financial statements of such Person for the most recently completed fiscal year). "Consolidated Interest Expense" means, with respect to any Person for any period, the aggregate of the interest expense (without deduction of interest income) of such Person and its Consolidated Subsidiaries for such period, on a consolidated basis, as determined in accordance with GAAP, including all amortization of original issue discount, the interest component of Capitalized Lease Obligations, net cash costs under all Interest Rate Protection Agreements (including amortization of fees), all capitalized interest, the interest portion of any deferred payment obligations for such period and cash contributions to any employee stock ownership plan to the extent such contributions are used by such employee stock ownership plan to pay interest or fees to any Person (other than the referent Person or one of its Wholly Owned Subsidiaries) in connection with loans incurred by such employee stock ownership plan to purchase capital stock of the referent Person, but net of any amortization of any debt issuance costs. If the Person for whom this calculation is being made or any of its Subsidiaries directly or indirectly guarantees Indebtedness of a third person, the calculation shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or Subsidiary of such Person had directly incurred or to otherwise assumed such guaranteed Indebtedness as of the first day of the Reference Period. "Consolidated Net Income" means, with respect to any Person for any period, the consolidated net income (or deficit) of such Person and its Consolidated Subsidiaries for such period, on a consolidated basis, as determined in accordance with GAAP consistently applied, provided that the net income of any other Person (other than a Subsidiary) in which the referent Person or any Subsidiary of the referent Person has a joint interest with a third party (which interest does not cause the net income of such other Person to be consolidated into the net income of the referent Person in accordance with GAAP) shall be included only to the extent of the lesser of (a) such net income that has been actually received by the referent Person or Wholly Owned Subsidiary of the referent Person in the form of cash dividends or similar cash distributions (subject to, in the case of a dividend or other distribution to a Wholly Owned Subsidiary of the referent Person, the limitations set forth in clause (i)(1) of the next proviso hereof) or (b) the net income of such other Person (which in no event shall be less than zero); provided further that there shall be excluded (i)(1) the net income (but not loss) of any Subsidiary of the referent Person to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary, (2) the net income of any Person acquired in a pooling of interests transaction accrued prior to the date it became a Subsidiary of the referent Person and (3) all gains and losses resulting from the cumulative effect of any accounting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended, or any successor thereto; (ii) any gain (but not loss), net of any related provisions 79 for taxes, realized upon the sale or to other disposition (including, without limitation, dispositions pursuant to Sale-Leaseback Financings) of any property or assets which are not sold or otherwise disposed of in the ordinary course of business and upon the sale or other disposition of any Capital Stock of any Subsidiary of the referent Person; (iii) any gain arising from the acquisition of any securities, or the extinguishment, under GAAP, of any Indebtedness of the referent Person; (iv) any extraordinary gain (but not extraordinary loss) net of any related provision for taxes on any such extraordinary gain; (v) any amounts paid or accrued as dividends on Preferred Stock of such Person or Preferred Stock of any Subsidiary of such Person; (vi) income or loss attributable to discontinued operations; and (vii) in the case of a successor to the Company by consolidation or merger or as a transferee of the Company's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. "Consolidated Net Worth" of a Person at any date means the Consolidated Stockholders' Equity of such Person less (a) the amount of any gain resulting, directly or indirectly, from the extinguishment, retirement or repurchase of any Indebtedness of such Person or of any of its Subsidiaries, (b) any revaluation or other write-ups subsequent to the Issue Date in the book value of any asset owned by such Person or a Consolidated Subsidiary and (c) any amounts attributable to the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of Capital Stock of such Person or of any of its Subsidiaries. Notwithstanding any of the foregoing, net deferred income tax assets recorded in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), shall be calculated without regard to any valuation allowance with respect to such net deferred tax asset recorded by the Company in accordance with SFAS 109. "Consolidated Stockholders' Equity" as of any date means with respect to any Person the amount by which the assets of such Person and of its Subsidiaries on a consolidated basis exceed (a) the total liabilities of such Person and of its Subsidiaries on a consolidated basis plus (b) any redeemable Preferred Stock (including Disqualified Capital Stock) of such Person or any redeemable Preferred Stock (including Disqualified Capital Stock) of any Subsidiary of such Person issued to any Person other than to such Person or to a Wholly Owned Subsidiary of such Person, in each case determined in accordance with GAAP. "Consolidated Subsidiary" of any Person means a Subsidiary which for financial reporting purposes is or, in accordance with GAAP, should be, accounted for by such Person as a consolidated Subsidiary. "Consolidated Tax Expense" means, with respect to any Person for any period, the aggregate of the U.S. Federal, state and local tax expense attributable to taxes based on income and foreign income tax expenses of such Person and its Consolidated Subsidiaries for such period (net of any income tax benefit), determined in accordance with GAAP. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of the Indenture or becomes a party or a beneficiary thereafter. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Capital Stock" means any Capital Stock that, other than solely at the option of the issuer thereof, by its terms (or by the terms of any security into which it is convertible or exchangeable) is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased, in whole or in part, or has, or upon the happening of an event or the passage of time would have, a redemption or similar payment due on or prior to the first anniversary of the Maturity 80 Date of the Senior Notes or is convertible into or exchangeable for debt securities at the option of the holder thereof at any time prior to such Maturity Date. "EBITDA" for any Person means for any period for which it is to be determined the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income of such Person for such period, plus (b) only to the extent Consolidated Net Income has been reduced thereby, (i) Consolidated Tax Expense of such Person paid or accrued in accordance with GAAP for such period, (ii) Consolidated Interest Expense of such Person for such period,(iii) depreciation and amortization expenses (including, without limitation, amortization of capitalized debt issuance costs) of such Person and its Consolidated Subsidiaries for such period; all as determined on a consolidated basis in conformity with GAAP consistent with those principles applied in the preparation of the audited financial statements of such Person and its Consolidated Subsidiaries on the Issue Date; provided that if a Person has any Subsidiary that is not a Wholly Owned Subsidiary, EBITDA of such Person shall be reduced by an amount equal to (1) the Consolidated Net Income of such Subsidiary for such period multiplied by (2) the quotient of (A) the number of shares of outstanding Common Stock of such Subsidiary not owned on the last day of such period by such Person or by any Wholly Owned Subsidiary of such Person that is not subject to any encumbrance or restriction on the payment of dividends to such Person divided by (B) the total number of shares of outstanding Common Stock of such Subsidiary on the last day of such period. "Existing Indebtedness" has the meaning set forth in the definition of Permitted Refinancing Indebtedness. "Fair Market Value" or "fair value" means, with respect to any asset or property or Capital Stock, the price which could be negotiated in an arm's- length, free market transaction, for cash, between an informed and willing seller and an informed, willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a written resolution of said Board of Directors (certified by the Secretary or Assistant Secretary of the Company) delivered to the Trustee, provided that if the aggregate non-cash consideration to be received by the Company or any of its Subsidiaries from any Asset Sale shall exceed $10,000,000 then Fair Market Value shall be determined by an Independent Financial Advisor. "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 or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "incurrence," "incurred," "incurable" and "incurring" shall have meanings correlative to the foregoing), provided that the accrual of interest (whether such interest is payable in cash or in kind) and the accretion of original issue discount shall not be deemed an incurrence of Indebtedness, provided, further that (a) any Indebtedness or Disqualified Capital Stock of a Person existing at the time such Person becomes (after the Issue Date) a Subsidiary (whether by merger, consolidation, acquisition or otherwise) of the Company shall be deemed to be incurred by such Subsidiary at the time it becomes a Subsidiary of the Company and (b) any amendment, modification or waiver of any document pursuant to which Indebtedness was previously incurred shall be deemed to be an incurrence of Indebtedness unless such amendment, modification or waiver does not (i) increase the principal or premium thereof or interest rate thereon (including by way of original issue discount), (ii) change to an earlier date the 81 Stated Maturity thereof or the date of any scheduled or required principal payment thereon or the time or circumstances under which such Indebtedness may or shall be redeemed, (iii) if such Indebtedness is subordinated to the Senior Notes, modify or affect, in any manner adverse to the holders, such subordination, (iv) if the Company is the obligor thereon, provide that a Subsidiary of the Company not already an obligor thereon shall be an obligor thereon or (v) violate, or cause the Indebtedness to violate, the provisions described under "--Certain Covenants--Limitation on Liens" and "--Certain Covenants--Limitation on Payment Restrictions Affecting Subsidiaries" above. "Indebtedness" means, with respect to any Person, at any date, any of the following, without duplication, (a) any liability, contingent or otherwise, of such Person (i) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) evidenced by a note, bond, debenture or similar instrument or (iii) for the payment of money relating to a Capitalized Lease Obligation or other obligation (whether issued or assumed) relating to the deferred purchase price of property but excluding advances, deposits, partial and progress payments, unpaid wages and related employee obligations, trade accounts payable and accrued liabilities in each case arising in the ordinary course of business that are not overdue by 180 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (b) all conditional sale obligations and all obligations under any title retention agreement (even if the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of such property); (c) reimbursement obligations of such Person with respect to letters of credit and all obligations of such Person in respect of any banker's acceptance or similar credit transaction entered into in the ordinary course of business; (d) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on any asset or property (including, without limitation, leasehold interests and any other tangible or intangible property) of such Person, whether or not such Indebtedness is assumed by such Person or is not otherwise such Person's legal liability, provided that if the obligations so secured have not been assumed in full by such Person or are otherwise not such Person's legal liability in full, the amount of such Indebtedness for the purposes of this definition shall be limited to the lesser of the amount of such Indebtedness secured by such Lien or the Fair Market Value of the assets or property securing such Lien; (e) all Indebtedness of others guaranteed (including all dividends of other Persons the payment of which is guaranteed), directly or indirectly, by such Person or that is otherwise its legal liability or which such Person has agreed to purchase or repurchase or in respect of which such Person has agreed contingently to supply or advance funds; (f) all Disqualified Capital Stock issued by such Person (other than such Disqualified Capital Stock owned by the referent Person or by any Wholly Owned Subsidiary of the referent Person, provided that if any Wholly Owned Subsidiary of the referent Person shall cease to be a Wholly Owned Subsidiary of the referent Person or shall transfer such Disqualified Capital Stock (other than to the referent Person or another Wholly Owned Subsidiary of the referent Person) the date on which such Wholly Owned Subsidiary so ceases to be a Wholly Owned Subsidiary of the referent Person or so transfers such Disqualified Capital Stock shall be deemed to be the issuance of such Disqualified Capital Stock by the Subsidiary issuer thereof) with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any; and (g) all obligations under Currency Agreements and Interest Rate Protection Agreements. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date, provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the full 82 amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP. "Independent Financial Advisor" means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the reasonable and good faith judgment of the Board of Directors of the Company, qualified to perform the task for which such firm has been engaged and disinterested and independent with respect to the Company and its Affiliates. "Interest Rate Protection Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect a Person or any of its Subsidiaries against fluctuations in interest rates to or under which such Person or any of its Subsidiaries is a party or a beneficiary on the Issue Date or becomes a party or a beneficiary thereafter. "Investment" by any Person means (a) any direct or indirect loan, advance or other extension of credit or capital contribution to (by means of transfers of cash or other property (valued at the Fair Market Value thereof as of the date of transfer) to others or payments for property or services for the account or use of others, or otherwise), (b) any direct or indirect purchase or acquisition of Capital Stock, bonds, notes, debentures, or other securities or evidences of Indebtedness issued by any other Person (whether by merger, consolidation, amalgamation or otherwise and whether or not purchased directly from the issuer of such securities or evidences of Indebtedness), (c) any direct or indirect guarantee or assumption of the Indebtedness of any other Person and (d) all other items that would be classified as investments (including, without limitation, purchases of assets outside of the ordinary course of business) on a balance sheet of such Person prepared in accordance with GAAP. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "Issue Date" means the date on which the Senior Notes are originally issued under the Indenture. "Lien" means, with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, including any sale and leaseback transaction, any option or other similar agreement to sell, in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute or statutes) of any jurisdiction other than to reflect ownership by a third party of property leased to the referent Person or any of its Subsidiaries under a lease that is not in the nature of a conditional sale or title retention agreement). "Material Subsidiary" means, at any date of determination, any Subsidiary of the Company that, together with its Subsidiaries, (i) for the most recent fiscal year of the Company accounted for more than five percent of the consolidated revenues of the Company or (ii) as of the end of such fiscal year, was the owner of more than five percent of the consolidated assets of the Company, all as set forth on the most recently available consolidated financial statements of the Company and its Consolidated Subsidiaries for such fiscal year prepared in conformity with generally accepted accounting principles as then in effect. "Maturity Date" means , 2003. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations 83 (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or Cash Equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or Cash Equivalents, net of (a) reasonable third-party brokerage commissions and other reasonable third-party fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (b) provisions for all taxes as a result of such Asset Sale computed on a consolidated basis reflecting the consolidated results of operations of the Company and its Subsidiaries, taken as a whole, (c) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that was incurred in accordance with the Indenture and that either (i) is secured by a Lien incurred in accordance with the Indenture on the property or assets sold or (ii) is required to be paid as a result of such sale, in each case to the extent actually repaid in cash and (d) appropriate amounts to be provided by the Company or any Subsidiary of the Company as a reserve against liabilities associated with such Asset Sale, including without limitation pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with generally accepted accounting principles as then in effect. For purposes of this definition and "--Certain Covenants--Limitation on Sale of Assets," "cash" means U.S. dollars or such money as is freely and readily convertible into U.S. dollars. "Net Equity Proceeds" means (a) in the case of any sale by the Company of Qualified Capital Stock of the Company, the aggregate net proceeds received by the Company, after payment of expenses, commissions and the like incurred in connection therewith, whether such proceeds are in cash or in other property (valued as determined reasonably and in good faith by the Board of Directors of the Company, as evidenced by a written resolution of said Board of Directors, at the Fair Market Value thereof at the time of receipt) and (b) in the case of any exchange, exercise, conversion or surrender of any outstanding Indebtedness of the Company or any Subsidiary for or into shares of Qualified Capital Stock of the Company, the amount of such Indebtedness (or, if such Indebtedness was issued at an amount less than the stated principal amount thereof, the accrued amount thereof as determined in accordance with generally accepted accounting principles as then in effect) as reflected in the consolidated financial statements of the Company prepared in accordance with generally accepted accounting principles as then in effect as of the most recent date next preceding the date of such exchange, exercise, conversion or surrender (plus any additional amount required to be paid by the holder of such Indebtedness of the Company or to any Wholly Owned Subsidiary of the Company upon such exchange, exercise, conversion or surrender) and less any and all payments made to the holders of such Indebtedness, and all other expenses incurred by the Company in connection therewith, in the case of each of clauses (a) and (b) to the extent consummated after the Issue Date, provided that the exchange, exercise, conversion or surrender of any Indebtedness outstanding on the Issue Date, including the Convertible Subordinated Notes, which is subordinated (whether pursuant to its terms or by operation of law) to the Senior Notes shall not be or be deemed to be included in Net Equity Proceeds. "New Indebtedness" has the meaning set forth in the definition of Permitted Refinancing Indebtedness. "Pari Passu Indebtedness" means the Senior Notes and any Indebtedness under the Company's Revolving Credit Agreement, its 9.33% Senior Notes due 2002, its 9.35% Senior Notes due 2000, and any other Indebtedness permitted under the Indenture which is pari passu in right of payment with the Senior Notes. "Permitted Indebtedness" means, without duplication, (a) Indebtedness of the Company and its Subsidiaries remaining outstanding immediately after the Issue Date after giving effect to the consummation of the transactions described in the Prospectus under "Use of Proceeds" above;(b) $110 million of Indebtedness of the Company evidenced by or arising under the Revolving Credit Agreement; (c) Indebtedness of the Company evidenced by or arising under the Senior Notes and the 84 Indenture; (d) Permitted Refinancing Indebtedness incurred by the Company or by any of its Subsidiaries; (e) unsecured Indebtedness of the Company to a Wholly Owned Subsidiary of the Company, provided that (i) any Indebtedness of the Company to a Wholly Owned Subsidiary of the Company shall be evidenced by an intercompany promissory note that is subordinated in right of payment to the payment and performance of the Company's obligations under the Indenture and the Senior Notes and (ii) any subsequent issuance or transfer of Capital Stock of a Wholly Owned Subsidiary of the Company (the "Creditor Subsidiary") that results in such Creditor Subsidiary ceasing to be a Wholly Owned Subsidiary of the Company or any subsequent transfer of Indebtedness owing from the Company to such Creditor Subsidiary (other than a transfer to another Wholly Owned Subsidiary of the Company) shall be deemed in each case to constitute the incurrence of Indebtedness by the Company to the extent of any such Indebtedness then outstanding; (f) Indebtedness of the Company in an aggregate principal amount not to exceed, when added to Indebtedness and Preferred Stock of Subsidiaries of the Company incurred under clause (d) of "Certain Covenants--Limitation on Subsidiary Indebtedness and Preferred Stock" above, 10% of Consolidated Net Worth of the Company, provided, however, that no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of such Indebtedness; and (g) Indebtedness (1) of the Company or of any Subsidiary of the Company in respect of bankers' acceptances provided in the ordinary course of business, (2) of the Company under Currency Agreements and Interest Rate Protection Agreements which are entered into for the purpose of protection against risk of currency or interest rate fluctuations affecting the Company or any of its Subsidiaries in its ordinary course of business that are related to payment obligations of the Company or any of its Subsidiaries otherwise permitted under the Indenture, provided that in the case of Currency Agreements or Interest Rate Protection Agreements that relate to other Indebtedness, such Currency Agreements or Interest Rate Protection Agreements do not increase the obligations of the Company outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates, as applicable, or by reason of fees, indemnities and compensation payable thereunder, and (3) of the Company or any of the Subsidiaries of the Company in respect of letters of credit issued in connection with self-insurance and reinsurance obligations incurred in the ordinary course of business, provided that the total amount of outstanding Indebtedness incurred under this clause (3), other than in connection with workers' compensation, unemployment insurance and other social security obligations, shall not exceed $9 million at any one time. "Permitted Investments" means (a) investments held in the form of cash and Cash Equivalents; (b) Investments in any Wholly Owned Subsidiary (or in any Person which will, upon the making of such Investment, become a Wholly Owned Subsidiary) of the Company by the Company or by any other Wholly Owned Subsidiary of the Company provided that (i) any Indebtedness evidencing an Investment in a Wholly Owned Subsidiary of the Company shall not be subordinated or junior to any other Indebtedness or other obligation of such Wholly Owned Subsidiary and (ii) such Investment shall only be a Permitted Investment so long as any such Wholly Owned Subsidiary in which the Investment has been made or which has made such Investment remains a Wholly Owned Subsidiary of the Company; (c) Investments made after the Issue Date, not exceeding $15 million at any one time in excess of Investments made as Restricted Payments, in joint ventures, partnerships or Persons that are not Wholly Owned Subsidiaries of the Company that are made solely for the purpose of acquiring or furthering businesses related to the Company's business; (d) Investments of the Company and its Subsidiaries arising as a result of any Asset Sale otherwise complying with the terms of the Indenture, provided that for each Asset Sale the maximum aggregate amount of Investments permitted under this clause (d) shall not exceed 20% of the total consideration received for such Asset Sale by the Company or any Subsidiary of the Company; (e) Investments in the Company by any Subsidiary of the Company, provided that any Indebtedness evidencing such Investment is subordinated to the Senior Notes; (f) Investments of the Company and its Subsidiaries in the form of promissory notes or deferred payment obligations as a result of the sale of the Company's business jet product line or its Hagerstown, Maryland plant; provided that the aggregate amount of such non-cash consideration does not exceed 85 $15 million; (g) Investments arising from, or of the type contemplated by, the Company's Pooling and Servicing Agreement as in effect on the Issue Date; (h) Investments received in connection with the bona fide settlement of legal proceedings or other disputed obligations arising in the ordinary course of business; (i) loans, advances or other extensions of credit to actual or potential customers or suppliers that are made as part of the purchase or sale of goods or services by the Company or any of its Subsidiaries, as made from time to time by the Company or any Subsidiary in the ordinary course of business and consistent with practices in the industry of the Company; and (j) other Investments made after the Issue Date in the ordinary course of business of the Company not to exceed $10 million at any one time. "Permitted Liens" means, without duplication (a) Liens for taxes, assessments and governmental charges or levies (other than any Lien imposed by the Employee Retirement Income Security Act of 1974, as amended) that are not yet subject to penalties for non-payment or are being contested in good faith by appropriate proceedings and for which adequate reserves, if required, have been established or other provisions have been made in accordance with GAAP; (b) statutory mechanics', workmen's, materialmen's, operators', warehousemen's, repairmen's and bankers' liens, and similar Liens imposed by law and arising in the ordinary course of business for sums which are not overdue by more than 15 days or, if so overdue, are being contested in good faith by appropriate proceedings and for which adequate reserves, if required, have been established or other provisions have been made in accordance with GAAP; (c) minor imperfections of, or encumbrances on, title that do not impair the value of property for its intended use; (d) Liens (other than any Lien under the Employee Retirement Income Security Act of 1974, as amended) incurred or deposits made in the ordinary course of business in connection with (or made to secure reinsurance obligations of the Company or any of its Subsidiaries incurred in connection with its or their obligations with respect to) workers' compensation, unemployment insurance and other types of social security; (e) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (f) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of the Company or of any of its Subsidiaries; (g) Liens (including extensions and renewals thereof) upon real or tangible personal property acquired after the Issue Date, provided that (1) any such Lien is created solely for the purpose of securing Indebtedness (other than Permitted Indebtedness) (A) that is incurred in accordance with "Certain Covenants--Limitation on Indebtedness" or "Certain Covenants--Limitation on Subsidiary Indebtedness and Preferred Stock" above to finance the cost (including the cost of improvement or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within 365 days after the later of the acquisition, the completion of construction or the commencement of full operation of such property or (B) that is Permitted Refinancing Indebtedness to Refinance any Indebtedness previously so secured, (2) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost, and (3) any such Lien shall not extend to or cover any property or assets of the Company or of any of its Subsidiaries other than such item of property or assets and any improvements on such item; (h) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company or of any of its Subsidiaries; (i) Liens encumbering property or assets to secure repayment of advances, deposits or progress or partial payments by a customer of the Company or of any of its Subsidiaries relating to such property or assets; (j) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (k) Liens in favor of the Company or any Wholly Owned Subsidiary of the Company; (l) Liens securing any real property or other assets of the Company or of any Subsidiary of the Company in connection with the financing of industrial revenue and similar bond facilities and related obligations or of any equipment of other property designed primarily for the purpose of air or water pollution control, provided that any such Lien on such facilities, equipment or other property shall not apply to any other property or assets of the 86 Company or of such Subsidiary of the Company; (m) Liens arising from the rendering of a final judgment or order against the Company or any Subsidiary of the Company that does not give rise to an Event of Default; (n) Liens securing reimbursement obligations with respect to letters of credit incurred in accordance with the Indenture that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (o) 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; (p) Liens encumbering customary initial deposits and margin deposits, and other Liens that are within the general parameters customary in the industry and incurred in the ordinary course of business securing Indebtedness under Interest Rate Protection Agreements and Currency Agreements and forward contracts, options, futures contracts, futures options or fluctuations in the price of commodities; (q) Liens on sales of receivables; (r) Liens in favor of the Trustee arising under the Indenture; (s) Liens incurred or deposits made in the ordinary course of business to secure up to $9 million of self-insurance and reinsurance obligations, other than obligations related to workers' compensation, unemployment insurance and other types of social security; and (t) deposits made to secure procurement credit card obligations arising from miscellaneous, non-repetitive purchases of supplies and services in the ordinary course of business, with no such purchase to exceed $5,000. "Permitted Payments" means, so long as no Default or Event of Default shall have occurred and be continuing or would result as a consequence thereof, (a) the prepayment, acquisition, retirement or decrease of Indebtedness of the Company that is subordinated (whether pursuant to its terms or by operation of law) to the Senior Notes that is prepaid, acquired, decreased or retired (i) by conversion into or in exchange for Qualified Capital Stock of the Company or (ii) in exchange for or with or out of the net cash proceeds of the substantially concurrent sale (other than by the Company to a Subsidiary of the Company) of Permitted Refinancing Indebtedness; (b) payroll, travel, relocation and similar advances to employees of the Company or any Subsidiary in the ordinary course of the Company's business; (c) loans to employees (other than travel advances) not to exceed $500,000 in the aggregate at any one time outstanding; (d) any purchases, redemptions, acquisitions, cancellations or other retirement for value of shares of Capital Stock of the Company or of any Subsidiary of the Company, options on any such shares or related stock appreciation rights or similar securities held by officers, directors or employees or former officers or employees (or their estates or beneficiaries under their estates) and which were issued pursuant to any stock option plan (or other director, officer or employee benefit plan or agreement), upon death, disability, retirement, termination of employment or pursuant to the terms of such plan or agreement and which in the aggregate do not exceed $1,000,000 in any fiscal year; (e) the purchase, at a price of not more than $.05 per right, of any rights issued or issuable pursuant to currently existing or future rights plans of the Company, provided that such purchase shall not exceed $3 million in the aggregate; or (f) the retirement of shares of the Company's Capital Stock in exchange for or out of the proceeds of a substantially concurrent sale (other than a sale to a Subsidiary of the Company) of other shares of its Capital Stock (other than Disqualified Capital Stock). "Permitted Program Investment" means an investment in design, engineering, tooling or similar costs related to a program undertaken by the Company in the ordinary course of its business. "Permitted Refinancing Indebtedness" means Indebtedness of the Company or of any of the Company's Subsidiaries or Preferred Stock of a Subsidiary of the Company, the net proceeds of which are used to Refinance outstanding Indebtedness of the Company or of any of the Company's Subsidiaries that was outstanding as of the Issue Date or incurred in accordance with the Indenture or Preferred Stock of a Subsidiary of the Company that was outstanding as of the Issue Date or issued in accordance with the Indenture, provided that (a) if the Indebtedness (including the Senior Notes) being Refinanced (the "Existing Indebtedness") is pari passu with or subordinated to the Senior Notes, then any Indebtedness Refinancing the Existing Indebtedness (the "New Indebtedness") shall be pari passu with or subordinated to, as the case may be, the Senior Notes at least to the same extent and in the same manner as the Existing Indebtedness is to the Senior Notes, (b) such New Indebtedness has a 87 Stated Maturity no earlier than the Stated Maturity of the Existing Indebtedness, (c) such New Indebtedness has an Average Life at the time such New Indebtedness is incurred that is equal to or greater than the Average Life of the Existing Indebtedness as of the date of such Refinancing, (d) such New Indebtedness is in an aggregate principal amount (or, if such New Indebtedness is issued at a price less than the principal amount thereof, the aggregate amount of gross proceeds therefrom is) not in excess of the aggregate principal amount outstanding under the Existing Indebtedness on the date of the proposed Refinancing thereof (or if the Existing Indebtedness was issued at a price less than the principal amount thereof, then not in excess of the amount of liability in respect thereof determined in accordance with GAAP as of the date of such proposed Refinancing), (e) with respect to such Preferred Stock of the Company's Subsidiaries, Preferred Stock issued in exchange for or the proceeds of which are used to Refinance such existing Preferred Stock of a Subsidiary ("New Preferred Stock") shall have (i) a Stated Maturity no earlier than the Stated Maturity of the Preferred Stock being exchanged or Refinanced, (ii) an Average Life at the time such New Preferred Stock is proposed to be incurred that is equal to or greater than the Average Life of the Preferred Stock to be exchanged or Refinanced as of the date of such proposed exchange or Refinancing and (iii) a liquidation value no greater than the liquidation value of the Preferred Stock to be exchanged or Refinanced as of the date of such proposed exchange or Refinancing and (f) if such Existing Indebtedness is Indebtedness solely of the Company, such New Indebtedness will only be permitted if it is Indebtedness solely of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Plan of Liquidation" means a plan (including by operation of law) that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously) (a) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company otherwise than as an entirety or substantially as an entirety and (b) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all or the remaining assets of the Company to holders of Capital Stock of the Company. "Pooling and Servicing Agreement" means the Pooling and Servicing Agreement dated as of December 23, 1992, among the Company, the Company's Wholly Owned Subsidiary RI Receivables, Inc. and Bankers Trust Company, as trustee on behalf of the Certificateholders (as defined therein), and related documentation and any extension, renewal, modification, restatement or replacement thereof (in whole or in part), and as the same may be amended, supplemented or otherwise modified from time to time; provided, however, the investors in any such receivables program shall not obtain an interest in receivables sold under such program which exceeds $70 million in aggregate principal amount at any one time. "Preferred Stock" means the Capital Stock of any Person (other than the Common Stock of such Person) of any class of classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding-up of such Person, to shares of Capital Stock of any other class of such Person. "Pro Forma" means, with respect to any calculation made or required to be made pursuant to the terms of the Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act. "Qualified Capital Stock" means, with respect to any Person, any Capital Stock of such Person that is not Disqualified Capital Stock or convertible into or exchangeable or exercisable for Disqualified Capital Stock, and includes rights and other securities issuable under the Company's Amended and Restated Rights Agreement, dated as of April 6, 1990, between the Company and The First National Bank of Chicago, as Rights Agent, as such agreement may be amended or supplemented from time to time. 88 "Reference Period" has the meaning set forth in the definition of "Consolidated Fixed Charge Coverage Ratio." "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Restricted Payment" means (a) the declaration or payment of any dividend or the making of any other distribution, including any dividend or distribution made in connection with the merger or consolidation of the Company (whether in any such case in cash, securities or other property or assets of the Company or of any of its Subsidiaries), on the Company's or any of its Subsidiaries' Capital Stock, or to the holders of the Company's or any of its Subsidiaries' Capital Stock, whether outstanding on the Issue Date or thereafter (other than dividends or distributions payable solely in Qualified Capital Stock of the Company or of such Subsidiary (subject to the last paragraph of the covenant described under "Certain Covenants--Limitation on Restricted Payments") and other than any dividend or distribution declared or paid by any Wholly Owned Subsidiary of the Company); (b) the making of any Investment by the Company or any of its Subsidiaries in any Person other than Permitted Investments; (c) any purchase, redemption, retirement or other acquisition for value by the Company or any Subsidiary of any Capital Stock of the Company or of any of its Subsidiaries or of any Affiliate of the Company or any other securities of a direct or indirect parent of the Company, whether outstanding on the Issue Date or thereafter, or any warrants, rights or options to purchase or acquire shares of the Capital Stock of the Company or of any of its Subsidiaries or of any Affiliate of the Company, whether outstanding on the Issue Date or thereafter, held by any Person other than the Company or one of its Wholly Owned Subsidiaries, other than through the issuance in exchange therefor solely of Qualified Capital Stock of the Company or of such Subsidiary; or (d) the prepayment, acquisition, decrease or retirement for value prior to maturity, scheduled repayment or scheduled sinking fund payment of any Indebtedness of the Company that is subordinated (whether pursuant to its terms or by operation of law) to the Senior Notes, in each case to the extent not contained within the definition of "Permitted Payments." The dollar amount of any non-cash dividend or distribution by the Company or any of its Subsidiaries on the Company's or any Subsidiary's Capital Stock shall be equal to the Fair Market Value of such dividend or distribution at the time of such dividend or distribution. "Stated Maturity" means, with respect to any security or Indebtedness, the date specified therein as the fixed date on which any principal of such security or Indebtedness is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase thereof at the option of the holder thereof). A "Subsidiary" of a Person means (a) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person or (b) any other Person (other than a corporation) in which such Person, one or more Subsidiaries of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, have (i) at least a majority ownership interest or (ii) the power to elect or direct the election of the directors or other governing body of such Person. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock of such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the board of directors or other governing body of such Person. "Wholly Owned Subsidiary" means, with respect to any Person, any subsidiary of such Person all the outstanding shares of Capital Stock (other than directors' qualifying shares, if applicable) of which are owned directly by such Person or another Wholly Owned Subsidiary of such Person. 89 DESCRIPTION OF CONCURRENT FINANCING CONVERTIBLE SUBORDINATED NOTES In connection with the Offering, the Company is concurrently offering, pursuant to a separate prospectus, the Convertible Subordinated Notes which will mature on , 2004. The Convertible Subordinated Notes are convertible at the option of the holder thereof at any time prior to maturity, unless previously redeemed, into shares of Common Stock of the Company, at a conversion price of $ per share, subject to adjustment in certain events. On May 10, 1994, the last reported sale price for the Common Stock on the New York Stock Exchange (symbol: RHR) was $8.875 per share. The Convertible Subordinated Notes are redeemable at the option of the Company, in whole or in part, at any time on and after , 1998 at the prices specified in the Convertible Subordinated Notes, plus accrued interest. The Convertible Subordinated Notes do not provide for any sinking fund. Upon a change of control, the holders of the Convertible Subordinated Notes will have the right, subject to certain restrictions and conditions, to require the Company to purchase all or any part of the Convertible Subordinated Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The Convertible Subordinated Notes will be general unsecured obligations of the Company and will be subordinate in right of payment to all existing and future Senior Indebtedness (as defined in the Indenture governing the Convertible Subordinated Notes) of the Company and pari passu in right of payment with all existing and future Subordinated Indebtedness (as defined in such indenture.) UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement (the "Underwriting Agreement") between the Company and the Underwriter, the Company has agreed to sell to the Underwriter, and the Underwriter has agreed to purchase, the principal amount of the Senior Notes set forth below:
PRINCIPAL AMOUNT UNDERWRITER OF SENIOR NOTES ----------- ---------------- Salomon Brothers Inc..................................... $100,000,000
In the Underwriting Agreement, the Underwriter has agreed, subject to the terms and conditions set forth therein, that the obligations of the Underwriter are subject to certain conditions precedent and that the Underwriter will be obligated to purchase the entire principal amount of the Senior Notes offered hereby if any Senior Notes are purchased. The Company has been advised by the Underwriter that it proposes to offer the Senior Notes directly to the public at the initial public offering price set forth on the cover of this Prospectus and to certain dealers at such price less a concession of not more than % of the principal amount of the Senior Notes. The Underwriter may allow, and such dealers may reallow, a concession not in excess of % of the principal amount of the Senior Notes. After the initial public offering of the Senior Notes, the public offering price and such concessions may be changed. The Company does not intend to list the Senior Notes on any national securities exchange. The Underwriter has indicated that it intends to make a market in the Senior Notes, subject to applicable laws and regulations. However, the Underwriter is not obligated to do so and any market-making may be discontinued at any time at the sole discretion of the Underwriter without notice. Accordingly, no assurance can be given that any market for the Senior Notes will develop, or, if any such market develops, as to the liquidity of such market. See "Risk Factors--Absence of Public Market for the Securities." The Underwriting Agreement provides that the Company will indemnify the Underwriter against certain civil liabilities, including liabilities under the Securities Act, or contribute to payments that the Underwriter may be required to make in respect thereof. 90 LEGAL MATTERS Certain legal matters in connection with the issuance of the Securities will be passed upon for the Company by Gibson, Dunn & Crutcher, San Diego, California, and for the Underwriter by Latham & Watkins, Los Angeles, California. EXPERTS The financial statements and the related financial statement schedules as of July 31, 1993 and 1992 and for each of the three years in the period ended July 31, 1993, included and incorporated by reference in this Prospectus, have been audited by Deloitte & Touche, independent auditors, as stated in their reports which are included and incorporated by reference herein, and have been so included and incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 91 ROHR, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Financial Statements: Independent Auditors' Report F-2 Consolidated Balance Sheets--January 30, 1994, July 31, 1993 and 1992 F-3 Consolidated Statements of Operations--For the Six Months Ended January 30, 1994 and January 31, 1993 and the Years Ended July 31, 1993, 1992 and 1991 F-4 Consolidated Statements of Shareholders' Equity--For the Six Months Ended January 30, 1994 and the Years Ended July 31, 1993 and 1992 F-5 Consolidated Statements of Cash Flows--For the Six Months Ended January 30, 1994 and January 31, 1993 and for the Years Ended July 31, 1993, 1992 and 1991 F-6 Notes to Consolidated Financial Statements F-7
F-1 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ROHR, INC.: We have audited the accompanying consolidated balance sheets of Rohr, Inc. and its subsidiaries as of July 31, 1993 and July 31, 1992, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended July 31, 1993. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Rohr, Inc. and its subsidiaries as of July 31, 1993 and July 31, 1992, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 1993, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, in fiscal year 1993 the Company changed certain elements in the application of accounting principles relating to long-term programs and contracts and changed its method of accounting for income taxes and for post-retirement benefits other than pensions. Deloitte & Touche San Diego, California September 17, 1993 (March 28, 1994 as to Notes 7 and 8) F-2 ROHR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT FOR SHARE DATA)
ASSETS JULY 31, ------ JAN. 30, ---------------------- 1994 1993 1992 ----------- ---------- ---------- (UNAUDITED) Cash and short-term investments............ $ 28,768 $ 42,186 $ 21,122 Accounts receivable........................ 94,126 94,140 133,153 Inventories: Work-in-process.......................... 516,483 560,139 972,003 Raw materials, purchased parts and sup- plies................................... 29,051 32,575 42,549 Less customers' progress payments and ad- vances.................................. (133,380) (152,976) (181,575) --------- ---------- ---------- Inventories--net......................... 412,154 439,738 832,977 Prepaid expenses and other current assets.. 15,539 16,861 21,118 Deferred tax asset......................... 13,723 13,654 -- --------- ---------- ---------- Total Current Assets................... 564,310 606,579 1,008,370 Property, Plant and Equipment.............. 499,388 496,452 531,239 Less accumulated depreciation and amorti- zation.................................. (268,539) (257,407) (260,956) --------- ---------- ---------- Property, plant and equipment--net....... 230,849 239,045 270,283 Investment in Leases....................... 37,735 38,233 39,446 Deferred Tax Asset......................... 88,915 89,348 -- Other Assets............................... 45,757 44,581 45,859 --------- ---------- ---------- $ 967,566 $1,017,786 $1,363,958 ========= ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Trade accounts and other payables.......... $ 155,691 $ 166,916 $ 162,638 Salaries, wages and benefits............... 33,955 38,623 67,194 Taxes on income............................ -- -- 30,247 Short-term debt............................ -- -- 20,000 Current portion of long-term debt.......... 16,211 50,719 27,517 --------- ---------- ---------- Total Current Liabilities.............. 205,857 256,258 307,596 Long-Term Deferred Taxes on Income......... -- -- 43,458 Long-Term Debt............................. 467,214 480,889 525,077 Pension and Post-Retirement Obligations.... 69,246 63,040 25,785 Other Obligations.......................... 35,020 35,356 13,176 Commitments and Contingencies (Note 8) Shareholders' Equity: Preferred stock, $1 par value per share, 10 million shares authorized, none is- sued.................................... -- -- -- Common stock, $1 par value per share, au- thorized 50,000,000 shares; issued and outstanding 18,017,930, 17,995,866 and 17,833,076 shares, respectively......... 18,018 17,996 17,833 Additional paid-in capital............... 102,541 102,312 101,261 Retained earnings........................ 82,976 75,241 329,772 Minimum pension liability adjustment..... (13,306) (13,306) -- --------- ---------- ---------- Total Shareholders' Equity............. 190,229 182,243 448,866 --------- ---------- ---------- $ 967,566 $1,017,786 $1,363,958 ========= ========== ==========
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. F-3 ROHR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED YEAR ENDED JULY 31, ------------------- ---------------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 -------- ---------- ---------- ---------- ---------- (UNAUDITED) Sales................... $484,823 $ 626,004 $1,175,152 $1,279,656 $1,385,086 Costs and Expenses...... 439,719 594,568 1,133,040 1,223,931 1,275,269 General and Administrative Expenses............... 13,446 22,467 43,800 10,167 9,239 -------- ---------- ---------- ---------- ---------- Operating Income (Loss). 31,658 8,969 (1,688) 45,558 100,578 Interest Income......... 520 405 928 3,666 1,119 Interest Expense........ 24,201 23,175 48,811 67,039 54,820 -------- ---------- ---------- ---------- ---------- Income (Loss) Before Taxes and Cumulative Effect of Accounting Changes..... 7,977 (13,801) (49,571) (17,815) 46,877 Taxes (Benefit) on Income................. 242 (5,286) (18,990) (19,270) 16,360 -------- ---------- ---------- ---------- ---------- Income (Loss) Before Cumulative Effect of Accounting Changes..... 7,735 (8,515) (30,581) 1,455 30,517 Cumulative Effect Through July 31, 1992, of Accounting Changes, Net of Taxes........... -- (223,950) (223,950) -- -- -------- ---------- ---------- ---------- ---------- Net Income (Loss)....... $ 7,735 $ (232,465) $ (254,531) $ 1,455 $ 30,517 ======== ========== ========== ========== ========== Net Income (Loss) per Average Share of Common Stock: Income (Loss) Before Cumulative Effect of Accounting Changes... $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 Cumulative Effect Through July 31, 1992 of Accounting Changes, Net of Taxes................ -- (12.52) (12.50) -- -- -------- ---------- ---------- ---------- ---------- Net Income (Loss)....... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 ======== ========== ========== ========== ========== Pro forma amounts assuming the changes in the application of accounting principles for long-term programs and contracts are applied retroactively (unaudited): Net (Loss)............ $ (30,581) $ (36,271) $ (22,898) Net (Loss) per Average Share of Common Stock................ $ (1.71) $ (2.05) $ (1.31)
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. F-4 ROHR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
MINIMUM COMMON STOCK ADDITIONAL PENSION PAR VALUE PAID-IN RETAINED LIABILITY $1 A SHARE CAPITAL EARNINGS ADJUSTMENT ------------ ---------- -------- ---------- Balance at August 1, 1991......... $17,497 $ 95,587 $328,317 $ -- Common stock issued to employee benefit plans.................. 319 4,995 Stock plans activity............ 17 679 Net income...................... 1,455 ------- -------- -------- -------- Balance at July 31, 1992.......... 17,833 101,261 329,772 -- Common stock issued to employee benefit plans.................. 67 673 Stock plans activity............ 96 378 Net loss........................ (254,531) Minimum Pension Liability Adjustment (See Note 9a)....... (13,306) ------- -------- -------- -------- Balance at July 31, 1993.......... 17,996 102,312 75,241 (13,306) Stock plans activity............ 22 229 Net Income...................... 7,735 ------- -------- -------- -------- Balance at Jan. 30, 1994 (unaudited)...................... $18,018 $102,541 $ 82,976 $(13,306) ======= ======== ======== ========
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. F-5 ROHR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED JULY 31, ------------------- ----------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 -------- --------- --------- -------- -------- (UNAUDITED) Operating Activities: Net Income (loss)......... $ 7,735 $(232,465) $(254,531) $ 1,455 $ 30,517 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Cumulative effect of accounting changes--net of taxes............... -- 223,950 223,950 -- -- Depreciation and amortization........... 11,693 12,648 25,578 27,855 27,721 Changes due to (increase) decrease in operating assets: Accounts receivable... 6,998 (34,527) 84,013 53,174 (38,791) Net inventories....... 27,584 9,954 34,447 5,990 (31,122) Prepaid expenses and other assets......... 1,322 8,106 4,514 10,910 (2,392) Changes due to increase (decrease) in operating liabilities: Trade accounts and other payables....... (11,817) (13,848) (17,478) 27,362 (47,757) Taxes on income and deferred taxes....... 364 (9,717) (29,432) (20,816) (2,684) Other................... 1,049 328 7,607 4,412 1,738 -------- --------- --------- -------- -------- Net Cash Provided by (Used in) Operating Activities.. 44,928 (35,571) 78,668 110,342 (62,770) -------- --------- --------- -------- -------- Investing Activities: Proceeds from sale-lease- back transactions........ -- 52,247 52,247 -- -- Purchase of property, plant and equipment...... (2,949) (18,878) (27,536) (62,933) (32,383) Other, including investment in leases..... (390) (2,522) (1,180) 21,789 13,528 -------- --------- --------- -------- -------- Net Cash Provided by (Used in) Investing Activities.. (3,339) 30,847 23,531 (41,144) (18,855) -------- --------- --------- -------- -------- Financing Activities: Issuance of 9.33% senior notes.................... -- 62,000 62,000 -- -- Annual principal payment on 9.35% senior notes.... (12,500) (12,500) (12,500) -- -- Issuance (repayment) of medium-term notes........ (35,000) (10,000) (10,000) (5,000) 50,000 Net short-term borrowings (repayments)............. -- 5,000 (20,000) (57,000) 17,000 Long-term borrowings under revolving credit agreement................ 81,000 80,000 90,000 300,000 180,000 Repayment of borrowings under revolving credit agreement................ (81,000) (50,000) (120,000) (290,000) (150,000) Repayment of other long- term borrowings.......... (649) (18,712) (36,387) (11,890) (11,883) Net repayment of receivable and equivalents.............. -- (45,000) (45,000) (15,000) -- Proceeds from cash values in insurance policies.... -- -- 9,984 -- -- Cash collateral for receivables sales program.................. (6,984) -- -- -- -- Stock contributions to employee benefit plans... -- 741 741 5,314 -- Repurchase of common stock on open market..... -- -- -- -- (3,375) Other..................... 126 11 27 (58) (77) -------- --------- --------- -------- -------- Net Cash Provided by (Used in) Financing Activities.. (55,007) 11,540 (81,135) (73,634) 81,665 -------- --------- --------- -------- -------- Increase (Decrease in Cash and Short-Term Investments............... (13,418) 6,816 21,064 (4,436) 40 Cash and Short-Term Investments, Beginning of Period.................... 42,186 21,122 21,122 25,558 25,518 -------- --------- --------- -------- -------- Cash and Short-Term Investments, End of Period.................... $ 28,768 $ 27,938 $ 42,186 $ 21,122 $ 25,558 ======== ========= ========= ======== ======== Supplemental Cash Flow Information: Cash paid for interest, net of amounts capitalized.............. $ 21,353 $ 20,422 $ 47,758 $ 53,936 $ 81,914 Cash paid (refunded) for income taxes............. (178) 4,392 9,802 2,243 19,501 Non-Cash Investing and Financing Activities: Sale of receivables..... 60,000 20,000 Repurchase of receivables or inventory equivalents.. (105,000) (20,000)
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. F-6 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIODS ENDED JANUARY 30, 1994 AND JANUARY 31, 1993, (UNAUDITED) AND THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 The consolidated balance sheets of the Company as of July 31, 1993 and 1992 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years ended July 31, 1993, 1992 and 1991 have been audited by Deloitte & Touche, independent auditors. The consolidated balance sheet as of January 30, 1994, the consolidated statements of operations and statements of cash flows for the six-month periods ended January 30, 1994, and January 31, 1993, and the consolidated statement of shareholders' equity for the six-month period ended January 30, 1994, are unaudited but reflect all adjustments (including normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods. In the third quarter of fiscal 1993, the Company changed, effective August 1, 1992, certain elements in the application of accounting principles relating to long-term programs and contracts, as described in Note 2--Accounting Changes. The Summary of Significant Accounting Policies (Note 1) reflects the changed accounting policies in effect on August 1, 1992. Financial results for interim periods are not necessarily indicative of results to be expected for the full year and, particularly in light of the accounting policy changes referred to above and the substantial provisions taken in the third quarters of fiscal 1992 and fiscal 1993, a comparison of the interim periods may not be meaningful. NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Principles of Consolidation The consolidated statements include the accounts of Rohr, Inc. and all subsidiaries ("Company"). Total assets and sales of foreign subsidiaries are not significant. Certain reclassifications have been made to prior years to conform to current year presentation. b. Sales and Earnings The Company follows the guidelines of Statement of Position 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" (the contract method of accounting) for certain commercial and all governmental contracts, except that the Company's contract accounting policies differ from the recommendations of SOP 81-1 with respect to the treatment of general and administrative costs (prior to the accounting change described in Note 2) and with respect to revisions of estimated profits on contracts which revisions are included in earnings by the Company under the reallocation method rather than the cumulative catch-up method recommended by SOP 81-1. Contract accounting generally places limitations on the combining of contracts and prohibits the anticipation of future contracts in determining the contract profit center. Approximately one-half of the Company's sales during the fiscal year 1993 are accounted for using the contract method of accounting. In the third quarter of fiscal 1993, the Company made significant changes, effective August 1, 1992, to certain elements of its application of accounting principles relating to its long-term contracts as described in Note 2. Several major commercial programs, under which spares and technical product support are sold directly to airlines, are accounted for under the program method of accounting, a method which existed in practice for many years prior to the issuance of SOP 81-1. Guidelines for use of program accounting have been developed in practice and are not codified by authoritative accounting literature. This method F-7 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of accounting is followed by relatively few public companies in a limited number of industries. It applies in situations where the economics of producing and marketing the program product extend beyond the initial production order. The most significant differences from contract accounting are that (1) the quantity of units included in the profit center under program accounting includes existing and anticipated contracts, and (2) program units may be sold to more than one customer. The Company uses program accounting in those circumstances where it is able to make reasonably dependable estimates of (1) the value of anticipated production units and spares sales in future contracts, (2) the length of time to produce and sell those additional production units and spares, and (3) the production costs and selling prices associated with such units and spares. Typically, the Company applies program accounting on programs for which the Company is responsible for total systems integration and continuing product support. The Company initially adopted the program method of accounting in 1988 in response to the changing characteristics of its contracting environment. Profit is estimated based on the difference between total estimated revenue and total estimated cost of a contract or program and is recognized evenly as a uniform percentage of sales value on all remaining units to be delivered. Current revenue does not anticipate higher or lower future prices, but includes units delivered at actual sales prices. A constant contract or program margin is achieved by deferring or accelerating a portion of the average unit cost on each unit delivered. Cost includes the estimated cost of the pre-production effort (primarily tooling and design), plus the cost of manufacturing both a specified number of production units and, under the program method of accounting, those spares which are expected to be delivered concurrently with such production units. The specified number of production units used to establish the profit margin is predicated upon market forecasts and does not exceed the lesser of those quantities assumed in original program pricing or those quantities which the Company now expects to deliver in the periods assumed in original program pricing. The number of units used to estimate profit margin is increased when firm orders exceed the number of units used for pricing purposes (a firm order authorizes the Company to commence production). Spares, as a percentage of total deliveries, increase as a program matures and historically have been sold at higher prices than production units. This higher price reflects, in part, additional costs related to technical and customer support activities. Under both the contract and program methods of accounting, the Company's sales are primarily under fixed-price contracts, many of which contain escalation clauses and require delivery of products over several years. Sales and profits on each contract or program are recognized primarily in accordance with the percentage-of-completion method of accounting, using the units-of- delivery method. Revisions of estimated profits on contracts or programs are included in earnings by the reallocation method, which spreads the change in estimate over current and future deliveries. Any anticipated losses on contracts or programs are charged to earnings when identified. Both the contract and program methods of accounting involve the use of various estimating techniques to project estimated costs at completion. These estimates involve various assumptions and projections relative to the outcome of future events. Paramount are assumptions relative to labor performance and anticipated future labor rates, and projections relative to material and overhead costs. These assumptions involve various levels of expected performance improvements. The Company reevaluates its estimates quarterly for all significant contracts and programs. Changes in estimates are reflected in the current and future periods. Included in sales are amounts arising from contract terms that provide for invoicing a portion of the contract price at a date after delivery. Also included are: negotiated values for units delivered; and F-8 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) anticipated price adjustments for contract changes, claims, escalation, and estimated earnings in excess of billing provisions resulting from the percentage-of-completion method of accounting. Certain contract costs are estimated based on the learning curve concept discussed in Note 1c. c. Inventories Inventories of raw materials, purchased parts and supplies are stated at the lower of average cost or estimated realizable value. Inventoried costs on long- term contracts and programs include certain pre-production costs, consisting primarily of tooling and design costs, and production costs, including applicable overhead. As the production costs for early units are charged to work-in-process inventory at an actual unit cost in excess of the estimated average cost for all units projected to be delivered over the entire contract or program, a segment of inventory described as the excess of production costs over estimated average unit cost (and referred to as excess-over-average inventory) is created. Generally, excess-over-average inventory, which may include production (but not pre-production) cost over-runs, builds during the early years of the contract or program when the efficiencies resulting from learning are not yet fully realized and declines as the program matures. Under the learning curve concept, an estimated decrease in unit labor hours is assumed as tasks and production techniques become more efficient through repetition of the same manufacturing operation and through management action such as simplifying product design, improving tooling, purchasing new capital equipment, improving manufacturing techniques, etc. For programs under the program method of accounting, excess-over-average inventory also builds until sales of spares, as a percentage of total sales, equal or exceed the percentage used for the overall profit margin calculation. Inventoried costs are reduced by the estimated average cost of deliveries computed as a uniform percentage of sales value. In the event that work-in-process inventory plus estimated costs to complete a specific contract or program exceeds the anticipated remaining sales value of such contract or program, such excess is charged to current earnings, thus reducing inventory to estimated realizable value. In accordance with industry practice, costs in inventory include amounts relating to programs and contracts with long production cycles, much of which is not expected to be realized within one year. See Note 2, which describes certain changes in the application of accounting principles and the effect of such changes on inventories. d. Property, Plant and Equipment Property, plant and equipment is recorded at cost or, in the case of assets under capital leases, the lower of the present value of minimum lease payments or fair market value. Depreciation and amortization is computed by the straight-line method over the estimated useful lives of the various classes of assets or, in the case of capitalized leased assets, over the lease term if shorter. When assets are retired or disposed of, the assets and related accumulated depreciation are eliminated and any resulting gain or loss is reflected in income. e. Pension and Health Plans Pension costs include current costs plus the amortization of transition assets over periods up to 14 years. The Company funds pension costs in accordance with plan and legal requirements. The Company adopted, effective August 1, 1992, the provisions of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Post-Retirement Benefits other than Pensions." This standard requires the Company to accrue the expected cost of subsidizing an employee's post-retirement health care benefits during the employee's service period. See Note 9b. F-9 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) f. Research and Development Research and development costs incurred for the development of proprietary products are expensed as incurred. These costs have not been material to operations during the periods presented. Design efforts performed under contract generally consist of the adaptation of an existing capability to a particular customer need and are accounted for as an element of contract costs. These design efforts do not fall within the definition of Research and Development as defined in SFAS No. 2, "Accounting for Research and Development Costs." g. Income Taxes The Company adopted, effective August 1, 1992, the provisions of SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are recognized based upon temporary differences between financial statement and tax bases of assets and liabilities using presently enacted tax rates. See Note 6. h. Net Income Per Average Share of Common Stock Net income per share was determined by dividing net income by the weighted average number of common shares and common share equivalents outstanding during the year. The assumed conversion of the Company's convertible debentures was anti-dilutive. As a result, only primary earnings per share is presented in the Company's Consolidated Statements of Operations. i. Cash Flows For purpose of the statement of cash flows, the Company considers all investments and highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. j. Industry Segments The Company considers itself to operate in one significant industry segment. NOTE 2--ACCOUNTING CHANGES a.Introduction In the third quarter of fiscal year 1993, the Company changed, effective August 1, 1992, certain elements in the application of accounting principles relating to long-term programs and contracts. In addition, the Company adopted the provisions of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other than Pensions," and SFAS No. 109, "Accounting for Income Taxes." Each change requires that the Company calculate the effect of the change in accounting principles on retained earnings as of the first day in the fiscal year of change. These changes do not affect the Company's cash flow. Each of these changes is discussed separately below. Prior year financial statements have not been restated to apply the provisions of adopting these standards. b. Long-term Contracts In fiscal 1993, the Company changed certain elements of its application of accounting principles relating to long-term programs and contracts, effective August 1, 1992. Certain costs previously carried in inventory for amortization over future deliveries will now be expensed. These costs include certain F-10 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) pre-certification costs, consisting primarily of tooling and design expenses in excess of negotiated contractual values, that will now be expensed as identified. In addition, prior to the accounting change, general and administrative expenses were expensed as period charges, except for (1) such expenses that were clearly related to production in accordance with Accounting Research Bulletin No. 43 and had contractual revenue coverage and (2) other amounts charged to commercial programs which did not have a material impact upon the results of operations. The financial result of capitalizing these latter amounts of general and administrative expense was not material due to the offsetting impact upon operations resulting from their inclusion as an element of total costs for purposes of determining contract and program gross margins. Following a thorough review of its accounting policies, the Company concluded there was a need, particularly in light of the current aerospace environment, to have financial results more closely reflect near-term program economics (cash flow and internal rate of return). As a result, these changes will generally reduce the number of production units and spares used in the calculation of overall profit margins. While the previous methods of applying the Company's accounting principles were in accordance with generally accepted accounting principles (GAAP), the changed policies are preferable. The application of these policies produces program and contract estimates that are based on shorter delivery periods, allowing a better matching of revenues and expenses. The cumulative effect of these changes for the periods through July 31, 1992, was a charge of $219.7 million, net of income tax benefits of $136.3 million. The effect of these changes on the year ended July 31, 1993, was to increase the net loss before the cumulative effect of the changes in accounting principles by $24.6 million ($1.37 per average common share), net of income tax benefits of $15.3 million. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," pro forma amounts are shown for net loss and net loss per average share of common stock for all prior periods presented. The pro forma amounts presented in the Consolidated Statements of Operations reflect the retroactive application of these accounting changes, net of income tax benefits (which were allocated ratably over the pro forma restated periods) for each period presented. Primarily as a result of these changes, excess-over-average inventory decreased from $323.7 million at July 31, 1992 to $75.4 million at July 31, 1993. Pre-production inventory also decreased from $258.4 million at July 31, 1992 to $181.0 million at July 31, 1993 primarily as a result of the accounting changes. See Note 4. c. Post-Retirement Benefits Other Than Pensions The Company adopted, effective August 1, 1992, SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other than Pensions." The accumulated post-retirement benefit obligation for active employees and retirees was recorded using the immediate recognition transition option. See Note 9b. This standard requires companies to accrue the expected cost of providing health care benefits to retired employees and their dependents during the employees' service periods. The Company previously charged the cost of providing these benefits on a pay-as-you-go basis. The cumulative effect of this change for the periods through July 31, 1992 was a charge of $4.3 million, net of income tax benefits of $2.7 million. The effect of the change on the year ended July 31, 1993 was not material. d. Income Taxes The Company also adopted, effective August 1, 1992, SFAS No. 109, "Accounting for Income Taxes." See Note 6. The cumulative effect of this change for periods through July 31, 1992 was not material by itself. However, under this standard, the Company recorded a substantial deferred tax asset as a result of the other changes in accounting principles and certain other charges recorded in the year ended July 31, 1993. See Note 6. F-11 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) e. Effect of Changes The cumulative effect of the changes described in this Note 2, as of August 1, 1992 and the effect of the changes on net loss before the cumulative effect of the changes in accounting principles on the year ended July 31, 1993 were as follows ($ in millions except per share data):
CUMULATIVE EFFECT AT EFFECT ON THE YEAR AUGUST 1, 1992 ENDED JULY 31, 1993 ------------------------- ------------------------ (LOSS) PER (LOSS) PER NET AVERAGE SHARE OF NET AVERAGE SHARE OF (LOSS) COMMON STOCK (LOSS) COMMON STOCK ------- ---------------- ------ ---------------- Change in application of accounting principles relating to long-term programs and contracts--net of taxes................... $(219.7) $(12.26) $(24.6) $(1.37) Post-retirement benefits other than pensions--net of taxes...................... (4.3) (.24) -- -- ------- ------- ------ ------ $(224.0) $(12.50) $(24.6) $(1.37) ======= ======= ====== ======
The cumulative effect of adopting SFAS No. 109, "Accounting for Income Taxes," for periods through July 31, 1992 and the effect on the year ended July 31, 1993 was not material by itself. However, under this standard, the Company recorded a substantial deferred tax asset as a result of the other changes in accounting principles and certain other charges recorded in the year ended July 31, 1993. See Note 6. Quarterly earnings for 1993 have been restated as if the changes occurred at August 1, 1992. NOTE 3--ACCOUNTS RECEIVABLE Accounts receivable, which relate primarily to long-term programs and contracts, consist of the following (in thousands):
JULY 31, JAN. 30, ---------------- 1994 1993 1992 ----------- ------- -------- (UNAUDITED) Amount billed..................................... $49,962 $40,628 $ 62,405 Recoverable costs and accrued profit on units delivered but not billed......................... 9,474 13,436 20,903 Recoverable costs and accrued profit on progress completed but not billed......................... 499 810 3,273 Unrecovered costs and estimated profit subject to future negotiations.............................. 34,191 39,266 46,572 ------- ------- -------- $94,126 $94,140 $133,153 ======= ======= ========
"Recoverable costs and accrued profit on units delivered but not billed" represent revenue recognized on contracts for amounts not billable to customers at the balance sheet date. This amount principally represents delayed payment terms along with escalation and repricing predicated upon deliveries and final payment after acceptance. Some of these recoverable costs are expected to be billed and collected in the normal course of business beyond one year. F-12 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) "Recoverable costs and accrued profit on progress completed but not billed" represent revenue recognized on contracts based on the percentage-of-completion method of accounting and is anticipated to be billed and collected in accordance with contract terms, which may be longer than one year. "Unrecovered costs and estimated profit subject to future negotiations" consist of contract tasks completed for which a final price has not been negotiated with the customer. Amounts in excess of agreed upon contract prices are recognized when it is probable that the claim will result in additional contract revenue and the amounts can be reliably estimated. Included in this amount at January 30, 1994, July 31, 1993 and 1992 are estimated recoveries on constructive change claims related to government imposed redefined acceptance criteria on the Grumman F-14, Boeing E3/E6, and the Boeing KC-135 and Lockheed C-5 production programs. Management believes that amounts reflected in the financial statements, which in the aggregate are very substantial, are reasonable estimates of the ultimate settlements. The resolution of these items may take several years. The Company entered into an arrangement on December 23, 1992 under which it sells receivables through a subsidiary to a trust on an ongoing basis. Investors' beneficial interests in the trust are reported as a reduction to accounts receivable. Under the arrangement, the Company acts as an agent for the trust by performing all record keeping and collection functions with respect to the receivables that have been sold. At January 30, 1994 and July 31, 1993 the investors held a $60 million beneficial interest in the receivables transferred to the trust. The Company's subsidiary holds the remaining beneficial interest in the trust which fluctuates in value depending upon the amount of receivables owned by the trust from time to time. At July 31, 1993 the Company's subsidiary had a 9 percent beneficial interest in the trust and a zero percent interest at January 30, 1994. The Company has deposited cash collateral as required to support the facility and has withdrawn such cash when it is no longer required to be deposited. At January 30, 1994, the Company had $7 million of cash collateral on deposit. At July 31, 1992 and July 31, 1991 the investor in a now terminated predecessor facility held a $105 million and $120 million interest in Company receivables, respectively. The cost associated with the sales of receivables under the current facility is 7.57 percent per year. The costs and those of the predecessor facility, all of which have been reflected as a reduction in sales values, were $2.4 million, $5.3 million, $7.0 million, and $9.2 million for the six months ended January 30, 1994 and in fiscal years 1993, 1992 and 1991, respectively. Sales The Company's direct sales to major customers including related program spares, expressed as a percentage of total sales, during the following periods are summarized as follows:
YEAR ENDED SIX MONTHS ENDED JULY 31, ----------------- ---------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 -------- -------- ---- ---- ---- (UNAUDITED) Pratt & Whitney................................ 17% 19% 17% 15% 16% General Electric............................... 16 12 14 12 12 International Aero Engines..................... 15 8 9 7 4 CFM International.............................. 9 8 8 2 0 McDonnell Douglas.............................. 8 13 11 18 14 Boeing......................................... 8 11 11 15 14 Rolls Royce.................................... 8 6 8 7 8 Lockheed....................................... 4 2 3 3 3 Airbus Industrie............................... 2 8 6 8 12 U.S. Government................................ 1 1 1 2 4 Grumman........................................ 0 0 0 1 6 Other.......................................... 12 12 12 10 7
F-13 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Total sales to the U.S. Government (including direct sales and indirect sales through prime contractors) accounted for 12%, 11%, 13%, 14% and 20% for the six months ended January 30, 1994, and January 31, 1993, and for fiscal years 1993, 1992 and 1991, respectively. Commercial products sold by the Company to jet engine manufacturers are ultimately installed on aircraft produced by the major commercial airframe manufacturers, Airbus, Boeing and McDonnell Douglas. Sales to foreign customers accounted for 23%, 25%, 25%, 22% and 21% of total sales for the first six months of fiscal 1994 and 1993 and for fiscal years 1993, 1992 and 1991, respectively. Of the total sales 22%, 23%, 23%, 19% and 20% were to Europe for the first six months of fiscal 1994 and 1993 and for fiscal years 1993, 1992 and 1991, respectively. NOTE 4--INVENTORIES Work-in-process inventories, which relate primarily to long-term contracts and programs as of January 30, 1994, are summarized as follows (in thousands, except quantities): (Table and Notes are Unaudited)
AIRCRAFT ORDER COMPANY ORDER STATUS STATUS(3) WORK-IN-PROCESS INVENTORY ------------------------------- ------------------ -------------------------------------- AS OF 1/30/94 AS OF 12/31/93 FIRM --------------------- ------------------ EXCESS PROGRAM UNFILLED FISCAL YEAR UNFILLED UNFILLED PRE- OVER PROGRAM QUANTITY(1) ORDERS(2) DELIVERED COMPLETE(7) ORDERS OPTIONS PRODUCTION PRODUCTION AVERAGE TOTAL - ------- ----------- --------- --------- ----------- -------- -------- ---------- ---------- ------- -------- A340 nacelle(4)(6)... 117 28 45 1997 95 74 $ 15,409 $ 63,794 $ 7,386 $ 86,589 PW4000 nacelle for the A300/A310 and MD-11(4)........ 422 28 251 2000 51 72 27,397 6,920 19,898 54,215 MD-90(4)(6)...... 451 11 3 2006 77 102 8,478 69,518 3,885 81,881 V2500 nacelle for the A320/ A321(4)(6)...... 270 62 163 1997 155 198 25,245 22,068 0 47,313 CF6-80C nacelle for the 747/ 767, MD-11 and for the A300/ A310(5)(6)...... 694 117 577 1996 302 319 31,143 2,809 19,915 53,867 CFM56-5 nacelle for the A320/ A321(5)(6)...... 435 122 313 1999 150 145 23,121 2,723 4,535 30,379 MD-11(4)(6)...... 200 39 121 1997 60 127 6,549 0 0 6,549 PW300(4)(6)...... 164 63 76 1997 40(8) 0(8) 3,910 8,489 0 12,399 Others........... 118,769 23,032 1,490 143,291 -------- -------- ------- -------- Balance at Janu- ary 30, 1994.... $260,021 $199,353 $57,109 $516,483 ======== ======== ======= ========
- -------- (1) Represents the number of aircraft used to obtain average unit cost. Spares (which are not included in this quantity) anticipated to be delivered concurrently with the production units for the above aircraft are also used in calculating average unit cost. Total spares sales value used in calculating average unit cost at January 30, 1994 were $91,734 on the A340, $324,803 on the PW4000, $381,503 on the MD-90, $110,764 on the V2500, $154,007 on the CF6-80C, $255,179 on the CFM56-5 and $16,986 on the MD-11. Total spares sales value sold as of January 30, 1994 were $18,667 on the A340, $193,633 on the PW4000, $0 on the MD-90, $63,196 on the V2500, $112,295 on the CF6-80C, $113,219 on the CFM56-5 and $13,814 on the MD-11. (2) Represents the number of aircraft for which the Company has firm unfilled nacelle orders. F-14 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (3) Represents the aircraft order status as announced by the aircraft manufacturers for the related aircraft and engine option. The Company's orders frequently are less than the announced orders shown above. (4) Program quantity represents initial program quantities and does not exceed the lesser of those quantities assumed in original program pricing or those quantities which the Company now expects to deliver in the periods assumed in original program pricing. The Company does not have orders for all of these units at this time. (5) Program quantity represents initial plus follow-on program quantities. The Company has firm orders for all of these units. (6) Programs accounted for in accordance with the program method of accounting. (7) The year presented for each program or contract represents the fiscal year in which the final production and spares units included in the program quantity are expected to be delivered. (8) Aircraft order status as of July 31, 1993, subsequent order data not available. Work-in-process inventories, which relate primarily to long-term contracts and programs as of July 31, 1993, are summarized as follows (in thousands, except quantities):
AIRCRAFT ORDER COMPANY ORDER STATUS STATUS(3) ------------------------------- ----------------- AS OF 7/31/93 AS OF 6/30/93 WORK-IN-PROCESS INVENTORY --------------------- ----------------- --------------------------------------- FIRM EXCESS PROGRAM UNFILLED FISCAL YEAR UNFILLED UNFILLED PRE- OVER PROGRAM QUANTITY(1) ORDERS(2) DELIVERED COMPLETE(7) ORDERS OPTIONS PRODUCTION PRODUCTION AVERAGE TOTAL - ------- ----------- --------- --------- ----------- -------- -------- ---------- ---------- -------- -------- A340 nacelle(4)(6)... 124 38 35 1997 107 65 $ 24,611 $ 57,181 $ 4,443 $ 86,235 PW4000 nacelle for the A300/A310 and MD-11(4)........ 422 47 234 2002 79 71 45,808 0 33,623 79,431 MD-90(4)(6)...... 454 8 3 2006 77 102 4,670 63,180 4,169 72,019 V2500 nacelle for the A320/ A321(4)(6)...... 291 52 139 1998 187 202 45,385 18,235 0 63,620 CF6-80C nacelle for the 747/ 767, MD-11 and A300/ A310(5)(6)...... 647 105 542 1995 368 358 26,204 8,701 25,162 60,067 CFM56-5 nacelle for the A320/ A321(5)(6)...... 390 79 311 1997 183 175 18,741 4,593 3,535 26,869 MD-11(4)(6)...... 200 47 113 1998 74 143 12,612 0 1,642 14,254 PW300(4)(6)...... 193 63 64 1997 40 0 5,897 7,918 0 13,815 Others........... 119,858 21,180 2,791 143,829 -------- -------- -------- -------- Balance at July 31, 1993........ $303,786 $180,988 $ 75,365 $560,139 ======== ======== ======== ======== Balance at July 31, 1992........ $389,904 $258,416 $323,683 $972,003 ======== ======== ======== ========
- -------- (1) Represents the number of aircraft used to obtain average unit cost. Spares (which are not included in this quantity) anticipated to be delivered concurrently with the production units for the above aircraft are also used in calculating average unit cost. Total spares sales value used in calculating average unit cost at July 31, 1993 were $91,734 on the A340, $325,151 on the PW4000, $417,588 on the MD-90, $143,550 on the V2500, $152,664 on the CF6-80C, $190,601 on the CFM56-5 and $16,474 on the MD-11. Total spares sales value sold as of July 31, 1993 were $13,989 on the A340, $181,083 on the PW4000, $0 on the MD-90, $51,998 on the V2500, $103,553 on the CF6-80C, $108,856 on the CFM56-5 and $12,282 on the MD-11. (2) Represents the number of aircraft for which the Company has firm unfilled nacelle orders. F-15 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (3) Represents the aircraft order status as announced by the aircraft manufacturers for the related aircraft and engine option. The Company's orders frequently are less than the announced orders shown above. (4) Program quantity represents initial program quantities and does not exceed the lesser of those quantities assumed in original program pricing or those quantities which the Company now expects to deliver in the periods assumed in original program pricing. The Company does not have orders for all of these units at this time. (5) Program quantity represents initial plus follow-on program quantities. The Company has firm orders for all of these units. (6) Programs accounted for in accordance with the program method of accounting. (7) The year presented for each program or contract represents the fiscal year in which the final production and spares units included in the program quantity are expected to be delivered. The Company's inventories at July 31, 1993 have been significantly reduced as a result of the changes in the application of accounting principles for long- term programs and contracts, effective August 1, 1992. See Note 2b. On certain long-term programs, the Company has agreed to recover pre- production costs (primarily tooling and design) over an expected number of deliveries, including spare parts. The number of deliveries over which production costs are to be amortized is predicated upon initial pricing agreements and does not exceed the Company's overall assessment of the market for that program. Excess-over-average inventory represents the cost of in-process and delivered units less, for each such unit, the current estimated average cost of the units in the program. Recovery of these inventoried costs assumes (i) certain production efficiencies, (ii) the sale of the program quantity used in estimating the profit margin, (iii) a specified allocation of sales among production units and spare units, and (iv) the attainment of an estimated spares margin that is substantially higher than the margin of production units. Spares prices are higher than production unit prices, in part, due to additional costs related to technical and customer support activities. If these program assumptions are not attained, then substantial amounts of unrecoverable costs may be charged to expense in subsequent periods. To the extent that a forward loss is encountered on a program, the amount of such loss is offset against the inventory of such program (until such inventory has been depleted). The loss is offset first against excess-over-average, followed by pre-production, then production. Contractual terms on certain programs provide varying levels of recovery commitments for specified amounts of pre-production costs. Certain programs also provide for the repricing of units in the event that less than a specified quantity is sold, which allows for recovery of additional excess-over-average inventory in such circumstances. The Company, in turn, has provided certain subcontractors with similar recovery commitments and repricing provisions on these programs. The excess of deferred program costs over the total costs allocated to units in process and delivered (less recoveries from customers due to repricing provisions) that would not be recovered based on existing firm orders as of July 31, 1993 was $6.6 million on the A340, $72.0 million on the MD-90, $9.6 million on the V2500 and $7.9 million on the PW300 and, as of January 30, 1994, was $2.3 million on the A340, $81.9 million on the MD-90, $7.2 million on the V2500 and $8.5 million on the PW300. F-16 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company uses forward contracts to manage its exchange risk on a portion of its purchase commitments from vendors of aircraft components denominated in foreign currencies and to manage its exchange risk for sums paid to its French subsidiary for services. The extent to which the Company utilizes forward contracts varies and depends upon management's evaluation of current and projected foreign currency exchange rates, but the Company does not acquire forward contracts in excess of its current hedging requirements. At January 30, 1994 and July 31, 1993, $25 million and $34 million, respectively, of foreign exchange contracts were outstanding to purchase foreign currencies. The foreign exchange contracts generally have maturities which do not exceed 12 months. Gains and losses on contracts which hedge specific foreign currency denominated commitments are not recognized currently but are included in the determination of profit or loss on the contract or program to which they relate. The Company believes that the credit risk from these instruments is minimal as the contracts are placed with highly reputable financial institutions. As described in Note 2, effective August 1, 1992, the Company changed accounting principles and began expensing certain general and administrative expenses as incurred; these expenses were previously inventoried. Amounts charged to inventories as incurred (prior to the accounting change, effective August 1, 1992), for general and administrative expenses were $42.8 million and $40.0 million for the years ending July 31, 1992 and 1991. Included in work-in- process inventories at July 31, 1992 and 1991 were general and administrative costs aggregating $36.1 and $30.9 million, respectively. These costs were estimated assuming that they bear the same relationship to total general and administrative costs incurred during the year as the ending inventory bears to total costs charged to inventory during the year. NOTE 5--PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following (in thousands):
JULY 31, JAN. 30, -------------------- 1994 1993 1992 ----------- --------- --------- (UNAUDITED) Land......................................... $ 25,152 $ 24,833 $ 24,883 Buildings.................................... 208,329 188,643 143,809 Machinery and equipment...................... 253,153 251,298 295,627 Construction in progress..................... 12,754 31,678 66,920 --------- --------- --------- 499,388 496,452 531,239 Less accumulated depreciation and amortiza- tion........................................ (268,539) (257,407) (260,956) --------- --------- --------- Property, plant & equipment--net............. $ 230,849 $ 239,045 $ 270,283 ========= ========= =========
Included in the above categories are assets recorded under capital leases totaling $50.5 million, at January 30, 1994, and July 31, 1993 and 1992. NOTE 6--TAXES ON INCOME The Company changed, effective August 1, 1992, its method of accounting for income taxes from the provisions of APB No. 11 "Accounting for Income Taxes" to the provisions of SFAS No 109 "Accounting for Income Taxes." The cumulative effect from the adoption of this standard for periods through July 31, 1992 was not material by itself. However, under this standard, the Company recorded a substantial deferred tax asset as a result of the adoption of the other changes in accounting principles and certain other charges recorded in the year ended July 31, 1993. F-17 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (b) operating loss and tax credit carryforwards. The components of the Company's deferred tax asset reflect the tax effects of the Company's temporary differences, tax credit carryforwards and net operating loss carryforwards (NOLs) at July 31, 1993. The components of the Company's deferred tax asset are listed below (in thousands): Current: Inventories................................................... $ 11,557 Employee benefits............................................. 6,885 State taxes................................................... (4,788) -------- Net deferred tax asset--current............................... $ 13,654 ======== Long-term: Depreciation.................................................. $ 31,872 Deferred gain on sale/leaseback............................... 9,201 Minimum pension liability adjustment.......................... 8,259 Net operating loss carryforward............................... 73,053 Tax credit carryforward....................................... 7,949 Investment in leases.......................................... (41,237) Other--net.................................................... 251 -------- Net deferred tax asset--long-term............................. $ 89,348 ========
The Company has federal NOLs totaling approximately $186 million at July 31, 1993, which expire in the years 2003 through 2008. When tax effected at the rates in effect July 31, 1993, the net deductible temporary differences, tax credit carryforwards, and NOLs result in a deferred tax asset of $103.0 million, consisting of $85.3 million for federal tax purposes and $17.7 million for state tax purposes. As of January 30, 1994 and July 31, 1993, based upon rates in effect on such dates, approximately $286 million and $271 million of future taxable income, respectively, is required prior to expiration of the Company's NOLs and credits for full realization of the deferred tax asset as of those dates. The Company believes that its expected future taxable income will be sufficient for full realization of the deferred tax asset. During fiscal 1993, a tax benefit of $8.2 million was provided for the charge recorded as a reduction to shareholders' equity for the additional minimum liability for the pension plan. See Note 9a. The provision (benefit) for taxes on income is comprised of the following (in thousands):
LIABILITY METHOD DEFERRED METHOD --------- ----------------- JULY 31, JULY 31, ----------------- 1993 1992 1991 --------- -------- ------- Currently Payable: Federal income taxes........................ $ 400 $ 3,500 $ 1,100 Foreign income taxes........................ 1,000 1,700 600 State income taxes.......................... -- 2,300 1,200 Deferred: Federal income taxes........................ (16,420) (23,000) 10,760 State income taxes.......................... (3,970) (3,770) 2,700 -------- -------- ------- $(18,990) $(19,270) $16,360 ======== ======== =======
F-18 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The deferred portion of the federal income tax provision (benefit) is comprised of the following (in thousands):
DEFERRED METHOD ----------------- JULY 31, ----------------- 1992 1991 -------- ------- Contract profit and loss recognition........................ $ (400) $14,200 Employee benefits........................................... 5,900 (2,900) Depreciation................................................ (8,400) (9,700) California franchise tax.................................... 500 (1,400) General and administrative expenses......................... 2,300 800 Provision for estimated losses and expenses................. (19,800) 1,000 Pre-production costs........................................ -- (400) Rate differences............................................ (1,100) (280) Utilization of reserves previously provided for tax assessments................................................ (9,800) Offset of loss and credit carryforwards against deferred taxes...................................................... (3,100) (1,100) Utilization of loss and credit carryforwards................ 18,600 18,100 Leveraged leasing........................................... (7,900) (8,600) Other items--net............................................ 200 1,040 -------- ------- $(23,000) $10,760 ======== =======
The difference between the income tax provision (benefit) computed at the federal statutory rate and the actual tax provision (benefit) is accounted for as follows (in thousands):
LIABILITY METHOD DEFERRED METHOD --------- ----------------- JULY 31, JULY 31, ----------------- 1993 1992 1991 --------- -------- ------- Taxes (benefit) computed at the federal statutory tax rate......................................... $(16,854) $ (6,100) $15,900 Increase (reduction) resulting from: State income taxes, net of federal tax benefit.. (2,617) (500) 2,600 Leveraged leasing............................... (1,300) (1,900) Tax-exempt income from Foreign Sales Corporation.................................... (700) Rate differences................................ (1,100) (280) Utilization of reserves previously provided for tax assessments................................ (9,800) Other........................................... 481 230 40 -------- -------- ------- $(18,990) $(19,270) $16,360 ======== ======== =======
As a result of applying SFAS No. 109, and after effecting the other changes in accounting principles adopted by the Company, effective August 1, 1992, the Company has recognized the future tax effects attributable to deductible temporary differences, NOLs and tax credit carryforwards for financial statement purposes. Thus, under the provisions of SFAS No. 109, the Company has recorded a $19.0 million income tax benefit on the net loss for the year ended July 31, 1993 and a $139.0 million income tax benefit on the cumulative effect of accounting changes at a 38.3 percent effective tax rate. The Company's effective tax rate on its net loss was 108 percent for the year ended July 31, 1992 primarily as a result of the utilization of reserves previously provided for tax assessments. Net deferred tax liabilities, reduced by loss and credit carryforwards, approximating $34.5 million and $40.6 million are included in Taxes on Income in the Consolidated Balance Sheets at July 31, 1992 and 1991, respectively. F-19 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Internal Revenue Service (IRS) has completed its examination of fiscal years 1984 and 1985 and proposed additional taxes of $36.6 million, excluding interest. The most significant adjustments involve the Company's adoption in fiscal 1984 of the completed contract method of accounting for tax purposes (which was conceded by the IRS subsequent to the second quarter of fiscal 1994) and the timing of deductions for employee benefit payments. The Company intends to vigorously protest the proposed adjustments through the IRS appeals process. Based upon all the information available to it, the Company believes that the resolution of this matter will not have a material effect on the financial position or results of operations of the Company. The Company has provided $3.1 million for income taxes during the six months ended January 30, 1994, offset by a tax benefit of $2.8 million due to the change in federal tax rates under the Omnibus Budget Reconciliation Act of 1993. The Company's deferred tax asset of $102.6 million remains substantially unchanged from the amount at July 31, 1993 but is expected to increase due to increased pension liability by the end of fiscal 1994. NOTE 7--INDEBTEDNESS The maturity schedule of the Company's indebtedness, which includes debt and capital lease obligations, is summarized as follows (in thousands):
SCHEDULED MATURITIES TOTAL AT FISCAL YEAR ENDED JULY 31, TOTAL AT JULY 31, JAN. 30, ------------------------------------------------------ ------------------ 1994 1994 1995 1996 1997 1998 THEREAFTER 1993 1992 ----------- ------- ------- ------- ------- ------- ---------- -------- -------- (UNAUDITED) Short-Term Debt......... $ 20,000 Current portion of Long- Term Debt.............. $ 16,211 $50,719 $ 50,719 27,517 Long-Term Debt: Medium-Term Notes...... 0 35,000 Revolving Credit....... 50,000 $50,000 50,000 80,000 9.35% Senior Notes..... 62,500 $12,500 12,500 $12,500 $12,500 $ 25,000 75,000 87,500 9.33% Senior Notes..... 62,000 8,850 8,850 44,300 62,000 Other Debt............. 17,858 914 337 293 255 16,604 18,403 18,448 -------- ------- ------- ------- ------- -------- -------- -------- 192,358 13,414 62,837 21,643 21,605 85,904 205,403 220,948 Capital Leases.......... 14,154 1,849 1,762 1,674 1,588 8,395 15,268 76,876 Less Imputed Interest.. (4,298) (837) (754) (672) (591) (1,928) (4,782) (37,829) Direct Finance Leases.. 0 -- 82 -------- ------- ------- ------- ------- -------- -------- -------- 9,856 1,012 1,008 1,002 997 6,467 10,486 39,129 Subordinated Debentures: 9 1/4%, maturing in 2017.................. 150,000 7,500 142,500 150,000 150,000 7%, maturing in 2012... 115,000 115,000 115,000 115,000 -------- ------- -------- -------- -------- 265,000 7,500 257,500 265,000 265,000 -------- ------- -------- -------- -------- Total Long-Term Debt. 467,214 14,426 63,845 22,645 30,102 349,871 480,889 525,077 -------- ------- ------- ------- ------- ------- -------- -------- -------- Total Indebtedness... $483,425 $50,719 $14,426 $63,845 $22,645 $30,102 $349,871 $531,608 $572,594 ======== ======= ======= ======= ======= ======= ======== ======== ========
The Company's total financing includes: indebtedness, shown in the table above; the receivables sales program, in the amount of $60 million, which is reported as a reduction to accounts receivable (see Note 3); and two sale- leaseback transactions, accounted for as operating leases, through which the Company raised $52.3 million in fiscal 1993. The sale leaseback transactions resulted in a gain of $20.7 million which was deferred and is being amortized over the terms of the lease. The Company's total financings were $587.0 million, $643.9 million and $677.6 million at January 30, 1994, July 31, 1993 and July 31, 1992, respectively. These amounts exclude undrawn commitments under the revolving credit agreement. F-20 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company's unsecured revolving credit agreement with a group of banks provides a total loan commitment of $150 million, reduced annually by $50 million in April of each of 1994 through 1996. This revolving credit agreement consists of a bank line, of which a portion is immediately available for borrowing (or to support the issuance of up to $8.5 million of letters of credit), and the balance can be made available at the end of any month. Borrowings under this credit agreement incur interest at an annual rate equal to one of the following at the Company's option: (1) prime rate plus 0% to 2.25%; (2) London Interbank Offered Rate plus 0.75% to 3.25%; (3) or a Domestic Money Market Bid Rate plus 0.875% to 3.375%; or (4) competitive bid. The interest rate at January 30, 1994 and July 31, 1993 was approximately 5.3% and 4.9%, respectively. The agreement provides for a facility fee, payable on a monthly basis at the rate of 0.35 to 0.75 of 1% on each lender's total commitment. The specific interest rate and facility fee payable at any time is based upon the Company's credit rating and the amount drawn under the credit agreement. The Company's 9.35% Senior Notes mature in 2000 and require principal payments of $12.5 million in January of each year until repaid. The Company's 9.33% Senior Notes mature in 2002 and require principal payments of approximately $8.9 million in December of each year, beginning in 1996, until repaid. With respect to each of these two Senior Note transactions, the Company can make principal prepayments at its option, which may include a premium for yield adjustment. The note holders can require the Company to purchase the remaining principal amount of the notes plus accrued interest and premium for yield adjustment in the event of certain changes in control or ownership of the Company. The Company's 9 1/4 percent subordinated debentures mature in 2017. These debentures are subject to mandatory annual sinking-fund payments of $7.5 million beginning March 1998. The Company may redeem an additional $15 million on each sinking-fund date. The subordinated debentures are redeemable at the Company's option, at 106.5 percent of the outstanding principal amount at July 31, 1993, 106.01% at March 1, 1994, declining annually to 100.5 percent in 2006, plus accrued interest. However, no such redemption may be effected prior to March 1997, directly or indirectly, from borrowed money having an interest cost of less than 9 1/4 percent per annum. The Company's 7 percent convertible subordinated debentures mature in 2012. These debentures are convertible prior to maturity, unless previously redeemed, at a conversion price of $43 per share, subject to adjustment under certain conditions. The debentures are redeemable at the option of the Company, in whole or in part, at a redemption price of 102.8 percent declining annually to 100.7 percent in 1996, together with accrued interest to the date of redemption. Annual sinking-fund payments of 5 percent of the aggregate principal amount of the debentures originally issued are to be applied to the redemption of debentures at 100 percent of principal amount plus accrued interest, commencing October 1998. The Company has the option of delivering repurchased debentures to the sinking-fund in lieu of cash. The mandatory sinking-fund is calculated to retire 70 percent of the debentures prior to maturity. The debentures are subordinated to all existing or future senior debt of the Company and rank on equal terms with the Company's outstanding 9 1/4 percent subordinated debentures due 2017. The Company's medium term note, which was privately placed with a bank, was paid in October, 1993. In fiscal 1993, the Company's debt relating to the Foley, Alabama, Industrial Revenue Bonds totaling $5.3 million was removed from the balance sheet as a result of the Company's deposit of U.S. Government securities in an irrevocable trust. The principal and interest of the securities deposited with the trustee were sufficient to fund the scheduled principal and interest payments of the debt. Subsequent to July 31, 1993, the debt was extinguished in exchange for the securities deposited. F-21 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Several of the Company's principal financing agreements contain financial covenants that require it to maintain specified levels of Consolidated Tangible Net Worth (as defined), specified ratios of Consolidated Net Income Available for Fixed Charges (as defined) to Fixed Charges (as defined), and specified ratios of Debt to Consolidated Tangible Net Worth (as defined). Effective upon the sale of the Securities, these covenants require a Consolidated Tangible Net Worth of $125 million plus 50% of positive consolidated net income; a ratio of Consolidated Net Income Available for Fixed Charges (as defined) to Fixed Charges (as defined) of 1.40 to 1 through July 31, 1994, 1.55 to 1 from August 1, 1994 through July 31, 1995, 1.90 to 1 from August 1, 1995 through July 31, 1996, and 2.00 to 1 thereafter; and a ratio of Debt to Consolidated Tangible Net Worth (as defined) of 5.60 to 1 through July 31, 1994, 5.00 to 1 from August 1, 1994 through July 31, 1995, 4.10 to 1 from August 1, 1995 through July 31, 1996, and 3.20 to 1 thereafter. The Company's principal financing agreements also contain other restrictions, including restrictions on indebtedness, liens, lease obligations, mergers, sales of assets, investments and capital expenditures. If the Company were to breach a covenant in any of its principal financing agreements, the lenders under such agreement could, at their option, accelerate the maturity of the debt evidenced by such agreement. In addition, any such default (or, in some cases, an acceleration after the occurrence of such a default) would cause defaults under cross-default provisions (or cross-acceleration provisions) in other Company financing agreements. NOTE 8--COMMITMENTS AND CONTINGENCIES Minimum rental commitments under operating leases with non-cancelable terms of more than one year as of January 30, 1994 and July 31, 1993 are as follows (in thousands):
JAN. 30, JULY 31, 1994 1993 ----------- -------- (UNAUDITED) 1994--Six Months..................................... $ 5,700 $ -- 1994--Year........................................... -- 11,500 1995................................................. 9,300 8,700 1996................................................. 7,200 6,700 1997................................................. 6,400 6,200 1998................................................. 5,700 6,000 Thereafter........................................... 23,200 23,400 ------- ------- $57,500 $62,500 ======= =======
Generally, leases have provisions for rent escalation based on inflation. Certain leases provide for options to renew with substantially similar terms (except negotiable rent increases). The total expense under all operating leases was approximately $6.7 million, $7.7 million, $15.9 million, $15.3 million and $14.9 million for the first six months of fiscal 1994 and 1993 and for fiscal years 1993, 1992 and 1991, respectively. During fiscal year 1992, the U.S. Air Force filed a termination notice for alleged default under the C-5 spare pylon contract, and the Company then commenced the appeal process to convert the termination to one for convenience of the government. Contemporaneously, the Company filed a notice of breach of contract with the government on the C-5 spare pylon contract. The Company also filed a variety of actions before the Armed Services Board of Contract Appeals ("ASBCA") requesting payment of sums owed the Company due to the government's imposition of redefined acceptance criteria under the C-5 pylon program and the KC-135 re-engining program. The Company also recorded special provisions for this matter in prior periods. F-22 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Following the end of the Company's fiscal 1994 second quarter, the Company and the U.S. Air Force settled all of their disputes as well as certain constructive change claims of the Company against the U.S. Air Force for which estimated revenues were included in the accounts receivable of the Company at July 31, 1993. (See Note 3 Accounts Receivable). The most significant aspects of this settlement were: (1) The C-5 spare pylon contract will be converted to termination for government convenience. The Company will retain approximately $27.3 million of unliquidated progress payments previously made by the U.S. Air Force. (2) The Company will retain most of the C-5 spare pylon work-in-process and raw material inventories. (3) The Company will provide a warranty on certain, specified C-5 pylon panels. This will end seven years after the original delivery date of each applicable panel to the Air Force. The original delivery dates for the warranted panels range from 1989 to 1991. The Company has established a reserve for this warranty obligation. Contemporaneously with the settlement with the U.S. Air Force, the Company and the United States Attorney for the Central District of California settled the civil aspects of an investigation, which had been ongoing since 1990, concerning the production of parts, the recording of information which is a part of that production process, and the testing practices utilized by the Company on many programs. The Company cooperated fully in the investigation and does not believe there was any adverse effect on the safety or utilization of its products. The Company recorded special provisions in prior periods reflecting its assessment of the ultimate costs which it believed would be incurred. Under this settlement the Company will pay $4 million to the U.S. Attorney's office. In connection with these settlements, a recently unsealed qui tam lawsuit filed by former employees against the Company on behalf of the U.S. Government with respect to certain of the activities that had been under investigation has been dismissed with prejudice. The criminal aspects of this matter are pending a pre-sentencing report to a judge in the U.S. District Court in Los Angeles. The Company's plea of making eight false statements under which it has agreed to pay approximately $3.7 million, is conditioned upon judicial approval of the settlement agreement. In connection with this matter, the Company is also engaged in discussions with government officials who have the discretion to temporarily suspend or to debar the Company from entering into government contracts in the future. The discussions are designed to demonstrate that the Company is a presently-responsible contractor and that it should be entitled to continue to be eligible to receive additional governmental contracts. In June 1987, the U.S. District Court of Los Angeles, in U.S. et al, vs. Stringfellow, granted partial summary judgment against the Company and 14 other defendants on the issue of liability under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). This suit, along with related lawsuits, alleges that the defendants are jointly and severally liable for all damage in connection with the Stringfellow hazardous waste disposal site in Riverside County, California. In June 1989, a federal jury and a special master appointed by the federal court found the State of California also liable for the cleanup costs. On November 30, 1993, the special master released his "Findings of Fact, Conclusion of Law and Reporting Recommendations of the Special Master Regarding the State Share Fact Finding Hearing". In it, he allocates liability between the State of California and other parties. As this hearing did not involve the valuation of future tasks and responsibilities, the order did not specify dollar amounts of liability. The order, phrased in percentages of liability, recommended allocating liability on the CERCLA claims as follows: 65% to the State of California and 10% to the Stringfellow entities, leaving 25% to the generator/counter claimants (including the Company) and other users of the site (or a maximum of up to 28% depending on the allocation of any Stringfellow entity orphan share). On the state law claims, the special master recommended a 95% share for the State of California, and 5% F-23 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) for the Stringfellow entities, leaving 0% for the generator/counterclaimants. This special master's recommendation is subject to a final decision and appeal. The Company is the second largest generator of wastes by volume disposed at the site, although it and certain other generators have argued the final allocation of cleanup costs among generators should not be determined solely by volume. The largest volume generator of wastes disposed at the Stringfellow site has indicated it is significantly dependent on insurance to fund its share of any cleanup costs, and that it is in litigation with certain of its insurers. The Company and the other generators of wastes disposed at the Stringfellow site, which include numerous companies with assets and equity significantly greater than the Company, are jointly and severally liable for the share of cleanup costs for which the generators, as a group, ultimately are found to be responsible. The Company has claims against its comprehensive general liability insurers for reimbursement of its cleanup costs at the site. These claims are the subject of separate litigation, although the insurers nevertheless are paying substantially all of the Company's costs of defense in the EPA and State action against the generators of wastes disposed at the site. Certain of these insurance policies have pollution exclusion clauses which are being argued as a defense and the insurers are alleging various other defenses to coverage. The Company has entered settlements with some of the insurance carriers and is engaged in settlement discussions with certain others. The Company intends to continue to vigorously defend this matter and believes, based upon currently available information, that the ultimate resolution will not have a material adverse effect on the financial position, liquidity, or results of operations of the Company. The Company is also involved in several other proceedings and investigations related to environmental protection matters. It is difficult to estimate the ultimate level of environmental expenditures due to a number of uncertainties, including the complexity of the related laws and their interpretation, alternative cleanup technologies and methods, insurance and other recoveries, and in some cases, the extent and uncertainties of the Company's involvement. However, the Company has heard of very preliminary estimates of cleanup costs for the Rio Bravo, Chatham Brothers and Casmalia waste disposal sites as approximately $7 million, $30 million and $70 million, respectively, and the Company's share (based on estimated, respective volumes of discharges into such sites by all generators, all of which cannot now be known with certainty) could approximate $450,000 for the Rio Bravo site, $0 for the Chatham Brothers site (based on the Company's belief that it never used that site), and $1,750,000), for the Casmalia site. The Company does not yet know about the ability of other waste generators using the Casmalia and Rio Bravo sites to fund their allocable share, and the Company could be found jointly or severally liable with all waste generators using such sites. The Company has made claims against its insurance carriers for certain of these items, and has received claims acknowledgment letters reserving the rights of such carriers. The insurers have alleged or may allege various defenses to coverage, although no litigation has been commenced. Based upon presently available information, the Company believes that capital expenditures and costs of remedial actions in relation to these other matters will not have a material adverse effect on the financial position or results of operations of the Company. In 1990, the Division of Enforcement of the Securities and Exchange Commission (the "SEC") began conducting an informal inquiry regarding various Company production programs, program and contract estimates at completion and related accounting practices. Following the filing of a registration statement with the SEC, the Company received on August 17, 1993, and shortly thereafter responded to, a request for documents from the SEC Division of Enforcement concerning its decision to change its accounting practices relating to long- term programs and contracts, and its previous practice of capitalizing pre- certification and certain general and administrative costs. There have been no further comments from the SEC Division of Enforcement since that date. F-24 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company is involved as plaintiff or defendant in various other legal and regulatory actions and inquiries incident to its business, none of which are believed by management to have a material adverse effect on the financial position or results of operations of the Company. Included in trade accounts and other payables at January 30, 1994 and July 31, 1993 and 1992 are allowances aggregating $50.4 million, $49.8 million and $19.3 million, respectively, for plant closure, other costs related to the planned downsizing process and various items of litigation. NOTE 9--EMPLOYEE BENEFIT PLANS a. Pension Plans The Company has non-contributory pension plans covering substantially all of its employees. Benefits for the salaried employees' plan are based on salary and years of service, while those for the hourly employees' plan are based on negotiated benefits and years of service. The Company has historically made contributions to an independent trust for the minimum funding requirements of these plans under IRS regulations. In addition, the Company has unfunded supplemental retirement plans. Pension expense consists of the following components (in thousands):
YEAR ENDED JULY 31, --------------------------- 1993 1992 1991 -------- -------- ------- Service cost....................................... $ 12,250 $ 8,123 $ 6,873 Interest cost on projected benefit obligation...... 34,601 32,260 29,376 Actual gain on plan assets......................... (29,379) (40,344) (30,716) Net amortization and deferral...................... 1,605 13,356 1,912 -------- -------- ------- Pension expense.................................... $ 19,077 $ 13,395 $ 7,445 ======== ======== =======
An amendment to the hourly employees' pension plan, reflecting increased benefits resulting from union negotiations, accounted for approximately $.6 million of additional pension expense in fiscal 1993 and approximately $2.3 million of additional pension expense in fiscal 1991. An amendment to the salaried employees' retirement plan accounted for approximately $3.6 million of additional pension expense in fiscal 1992. Pension expense for the first six months of fiscal 1994 and 1993 was $7.1 million and $7.5 million, respectively. F-25 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes the funded status of these plans and the amounts recognized in the Consolidated Balance Sheets (in thousands):
JULY 31, -------------------- 1993 1992 --------- --------- Actuarial present value of benefit obligations: Vested........................................... $ 413,460 $ 372,714 Non-vested....................................... 18,483 16,982 --------- --------- Accumulated benefit obligation..................... 431,943 389,696 Effect of projected future salary increases........ 10,145 13,036 --------- --------- Projected benefit obligation for service rendered to date........................................... 442,088 402,732 Plan assets at fair value, primarily stocks, bonds, other fixed income obligations and real estate.... 376,474 346,883 --------- --------- Plan assets less than projected benefit obligation. (65,614) (55,849) Unrecognized net loss.............................. 46,140 29,594 Unrecognized net asset from initial application of SFAS No. 87 being recognized over plans' average remaining service life............................ (18,202) (21,130) Unrecognized prior service cost.................... 38,353 36,740 Additional minimum liability....................... (58,550) (34,164) --------- --------- Pension liability recognized in the Consolidated Balance Sheet..................................... $ (57,873) $ (44,809) ========= =========
At July 31, 1993, the Company's additional minimum liability was in excess of the unrecognized prior service costs and net transition obligation and recorded as a reduction of $13.3 million to shareholders' equity, net of tax benefits of $8.2 million, in accordance with SFAS No. 87, "Employers' Accounting for Pensions". The remaining portion of the additional minimum liability of $37.0 million was recorded as intangible assets and additional minimum pension liability and included in Other Assets and Pension and Post-Retirement Obligations respectively, in the Consolidated Balance Sheets. The weighted average discount rate used in determining the present value of the projected benefit obligation was 8.5 percent at July 31, 1993 and 8.75 percent for fiscal 1992. For compensation based plans, the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation and service cost was based upon an experience- related table and approximated 5.5 percent on current salaries through January 1, 1994, in accordance with plan terms. The expected long-term rate of return on plan assets was 9 percent for the periods presented. The Company also has certain defined contribution plans covering most employees. Expenses for these plans amounted to $0.9 million, $2.1 million, $3.4 million, $6.7 million and $9.7 million in the first six months of fiscal 1994 and 1993 and fiscal years 1993, 1992 and 1991, respectively. b. Post-retirement Benefit Obligations Other Than Pensions The Company has a retirement health care program that pays a specified fixed amount to supplement the medical insurance payments made by retirees who are under age 65 and their spouses and covered dependents. Eligibility for and the amount of the supplement provided by the Company is based on age and years of service. The program requires deductibles and employee contributions. F-26 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company, effective August 1, 1992, adopted the provisions of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions" using the immediate recognition transition option. See Note 2. This standard requires recognition, during an employee's service with the Company, of the cost of his or her retiree health care benefits. The Company recognized the accumulated post-retirement benefit obligation for past service cost as a one- time charge to earnings (the transition obligation) as of August 1, 1992 of $4.3 million, net of income tax benefit of $2.7 million ($.24 per average share of common stock). In fiscal 1993, 1992 and 1991, the Company's cost of providing post-retirement health care benefits was $2.0 million, $2.9 million and $2.0 million, respectively, excluding the cumulative effect of adopting SFAS No. 106. The costs of health care benefits is provided largely under a self-insured plan, which is scheduled for termination on January 1, 1994. The effect of adopting the new standard on net periodic post-retirement benefit expense for the year ended July 31, 1993 was not material. The accumulated post-retirement benefit obligation was determined using a weighted average discount rate of 8.5 percent. The plan is unfunded. Each year the Company funds the benefits paid. SFAS No. 106 requires disclosure of the effect on the Company's accumulated post-retirement benefit obligation, and net periodic post-retirement benefit cost, using the assumption that the health care cost trend will increase by 1 percent each year. This disclosure is not applicable because the Company is not affected by future health care cost trends since its obligation is to pay a fixed amount as a health care supplement for retirees entitled to this benefit. Net periodic post-retirement benefit cost for the year ended July 31, 1993, included the following components (in thousands): Service cost--benefits attributed to service during the period....... $196 Interest cost on accumulated post-retirement benefit obligation...... 549 ---- Net periodic post-retirement benefit cost............................ $745 ====
The liability for post-retirement health care benefits at July 31, 1993, included the following components (in thousands): Accumulated post-retirement benefit obligation: Retirees........................................................ $2,749 Fully eligible active plan participants......................... 376 Other active plan participants.................................. 2,929 ------ Liability for post-retirement health care benefits................ $6,054 ======
Net periodic post-retirement health care benefit cost for the six months ended January 30, 1994 and January 31, 1993 was $317 and $373, respectively. Liability for post-retirement health care benefits was $5,602 and $6,290, respectively. c. Post-Employment Benefits The Financial Accounting Standards Board has issued SFAS No. 112, Employers' Accounting for Post-Employment Benefits. The new standard is effective for fiscal years beginning after December 15, 1993 and requires employers to recognize the obligation to provide post-employment benefits to former or inactive employees, their beneficiaries, and covered dependents when certain conditions are met. The Company does not expect there to be a material adverse effect on the financial position or result of operations in the year of adoption. F-27 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 10--SHAREHOLDERS' EQUITY Under the terms of the Company's debt covenants of its loan agreements (See Note 7), no portion of retained earnings is available for payment of cash dividends until after July 9, 1995. Thereafter, the Company may pay cash dividends in an amount not to exceed 50 percent of net income for the period beginning August 1, 1995. Effective upon the sale of the Securities, the Company may pay cash dividends only when its ratio of consolidated debt to consolidated tangible net worth is at least 2.50-to-1.00. The Company's 1989 Stock Incentive Plan provides that qualified employees are eligible to receive stock options and various other stock-based awards. Subject to certain adjustments, the plan provides that up to 2,500,000 shares of common stock may be sold or issued under the plan. As a result of previous option grants under this plan, 381,431, 371,281 and 377,147 stock options and other stock-based awards remained available for grant at January 30, 1994, July 31, 1993 and 1992, respectively. The plan has no specific termination date except that Incentive Stock Options may not be granted after July 31, 1999. The terms and conditions of the stock-based awards are determined by a Committee of the Board of Directors on each grant date and may include provisions for the exercise price, expiration, vesting, restriction on sale and forfeiture, as applicable. Restricted shares purchased under this plan are subject to restrictions on sale or disposal, which lapse in varying installments from one to 10 years. During fiscal 1992, 6,000 restricted shares were purchased at a price of $1.00 per share. During fiscal 1993, 115,000 restricted shares were purchased by grantees and 21,300 restricted shares were repurchased from grantees, in each case at a price of $1.00 per share. During the six months ended January 30, 1994, 20,000 stock bonus awards were granted at no cost to the recipient. The Company's 1982 Stock Option Plan, under which no future options will be granted, provided for the issuance of non-qualified stock options at the market price of the Company's common stock at the date of grant. The options become exercisable in installments from one to two years after date of grant and expire 10 years from date of grant. The Company has a director stock plan under which non-employee directors are automatically granted, on the first business day following the annual meeting of shareholders, an option to purchase 1,000 shares of common stock. The option exercise price is equal to the fair market value of the stock on the date the option is granted. Options granted under the plan generally becomes exercisable six months after the date of grant and expire 10 years from the date of grant. Subject to certain adjustments, the plan provides that up to 100,000 shares of common stock may be sold or issued under the plan. As a result of previous option grants under the plan, 50,000, 59,000 and 69,000 stock options remained available for grant at January 30, 1994, July 31, 1993 and 1992, respectively. The Company also has a stock compensation plan for non-employee directors pursuant to which the Company will issue or deliver to each such director, in partial consideration for the services rendered by such director during the Company's prior fiscal year, 250 shares of the Company's common stock, subject to certain adjustments. The shares will be issued or delivered on the date of the first meeting of the Board that occurs after the end of each fiscal year. In May 1993, in connection with certain amendments to the financial covenants of its principal financing agreements, the Company issued warrants to certain lenders. The warrants are exercisable for 600,000 shares of common stock at $9.00 per share and expire in seven years. Under the various stock option plans, outstanding options for 1,771,342, 1,671,947 and 1,113,910 shares of common stock were exercisable as of January 30, 1994, July 31, 1993 and 1992, respectively. Activity in these stock option plans for the three years and six months ended January 30, 1994 is summarized as follows: F-28 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OPTIONS OPTION PRICE --------- ------------------- Balance Outstanding at August 1, 1991........... 1,331,420 $12.500 - $31.625 Granted....................................... 1,548,803 10.625 - 22.125 Relinquished.................................. (16,760) 16.500 - 31.625 Forfeited..................................... (33,600) 12.000 - 22.125 Exercised..................................... (34,000) 12.000 - 19.375 --------- ------------------- Balance Outstanding at July 31, 1992............ 2,795,863 $10.625 - $31.625 Granted....................................... 155,000 8.875 - 11.375 Relinquished.................................. (30,880) 16.500 - 31.625 Forfeited..................................... (254,134) 10.625 - 22.125 --------- ------------------- Balance Outstanding at July 31, 1993............ 2,665,849 $ 8.875 - $31.625 Granted....................................... 29,000 0 - 8.875 Bonus Stock Award............................. (20,000) 0 Relinquished.................................. (17,955) 16.500 - 31.625 Forfeited..................................... (30,150) 10.625 - 22.125 --------- ------------------- Balance Outstanding at January 30, 1994 (Unau- dited)......................................... 2,626,744 $ 8.875 - $31.625 ========= ===================
The Company's stockholder rights plan generally entitles the holder of each right to purchase one one-hundredths of a share of Series C preferred stock, $1 par value, from the Company for $100, subject to adjustment. A right is included with, and attaches to, each share of common stock issued and expires on August 25, 1996 and is redeemable by the Company. The rights become exercisable and separate from the common stock under certain circumstances generally when a person or group of affiliated or associated persons has acquired or obtained the right to acquire 15 percent or more of the Company's outstanding voting stock or has made a tender offer to acquire 15 percent or more of such voting stock. Under certain circumstances, each right would entitle the holder to purchase a certain number of the Company's common stock at one-half of fair market value. Authorized, unissued shares of common stock were reserved for the following:
JULY 31, JAN. 30, ------------------- 1994 1993 1992 ----------- --------- --------- (UNAUDITED) Various stock plans............................. 3,058,175 3,096,130 3,242,010 Conversion of subordinated debentures........... 2,674,418 2,674,418 2,674,418 Warrants........................................ 600,000 600,000 -- --------- --------- --------- 6,332,593 6,370,548 5,916,428 ========= ========= =========
F-29 (PICTURES) NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ----------- TABLE OF CONTENTS
PAGE ---- Incorporation of Certain Documents by Reference........................... 3 Available Information..................................................... 3 Prospectus Summary........................................................ 4 Risk Factors.............................................................. 12 Financing Plan............................................................ 17 Use of Proceeds........................................................... 18 Capitalization............................................................ 19 Selected Consolidated Financial and Operating Data........................ 20 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 23 Business.................................................................. 35 Directors and Executive Officers of the Company........................... 52 Legal and Environmental Proceedings....................................... 55 Description of Certain Financings......................................... 60 Description of Senior Notes............................................... 63 Description of Concurrent Financing....................................... 90 Underwriting.............................................................. 90 Legal Matters............................................................. 91 Experts................................................................... 91 Index to Financial Statements............................................. F-1
$100,000,000 ROHR, INC. % SENIOR NOTES DUE 2003 [LOGO OF ROHR] - ---------------------------------- SALOMON BROTHERS INC - --------------------------------------- PROSPECTUS DATED , 1994 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION PROSPECTUS MAY 11, 1994 $50,000,000 ROHR, INC. [LOGO OF ROHR] % CONVERTIBLE SUBORDINATED NOTES DUE 2004 The % Convertible Subordinated Notes due 2004 (the "Convertible Subordinated Notes") are being issued by Rohr, Inc. ("Rohr" or the "Company") and will mature on , 2004. The Convertible Subordinated Notes are convertible at the option of the holder thereof at any time prior to maturity, unless previously redeemed, into shares of Common Stock of the Company, at a conversion price of $ per share, subject to adjustment in certain events. On May 10, 1994, the last reported sale price for the Common Stock on the New York Stock Exchange (symbol: RHR) was $8.875 per share. The Convertible Subordinated Notes are redeemable at the option of the Company, in whole or in part, at any time on and after , 1998, at the redemption prices specified herein, plus accrued interest. The Convertible Subordinated Notes do not provide for any sinking fund. Upon a Change of Control (as defined), the holders of the Convertible Subordinated Notes will have the right, subject to certain restrictions and conditions, to require the Company to purchase all or any part of the Convertible Subordinated Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. In connection with the offering of the Convertible Subordinated Notes (the "Offering"), the Company is concurrently offering, pursuant to a separate prospectus (together with the Offering, the "Offerings"), $100 million aggregate principal amount of its % Senior Notes due 2003 (the "Senior Notes" and, together with the Convertible Subordinated Notes, the "Securities"). See "Description of Concurrent Financing." The Convertible Subordinated Notes will be general unsecured obligations of the Company and will be subordinate in right of payment to all existing and future Senior Indebtedness (as defined) of the Company and pari passu in right to payment with all existing and future Subordinated Indebtedness (as defined). The Convertible Subordinated Notes will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. As of January 30, 1994, after giving effect to the Offerings and the anticipated use of the proceeds therefrom, the Company would have had approximately $256.8 million of Senior Indebtedness outstanding and the indebtedness and other liabilities of the Company's subsidiaries would have been approximately $32.7 million. Application has been made to list the Convertible Subordinated Notes on the New York Stock Exchange. AN INVESTMENT IN THE CONVERTIBLE SUBORDINATED NOTES INVOLVES A SIGNIFICANT DEGREE OF RISK. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CONVERTIBLE SUBORDINATED NOTES. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT COMPANY (2) Per Note..................................... % % % Total (3).................................... $ $ $
- -------------------------------------------------------------------------------- (1) Plus accrued interest, if any, from , 1994 to the date of delivery. (2) Before deducting expenses payable by the Company, estimated at $ . (3) The Company has granted to the Underwriter a 30-day option to purchase up to $7,500,000 principal amount of the Convertible Subordinated Notes on the same terms as the Convertible Subordinated Notes offered hereby to cover over- allotments, if any. If all such additional Convertible Subordinated Notes are purchased by the Underwriter, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ , and $ , respectively. The Convertible Subordinated Notes are offered subject to receipt and acceptance by the Underwriter, to prior sale and to the Underwriter's right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of the Convertible Subordinated Notes will be made at the office of Salomon Brothers Inc, Seven World Trade Center, New York, New York or through the facilities of The Depository Trust Company on or about , 1994. - --------------------------------------------------------- SALOMON BROTHERS INC - --------------------------------------------------------- The date of this Prospectus is , 1994. INSERT PICTURES 2 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CONVERTIBLE SUBORDINATED NOTES AND THE COMPANY'S COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET, OR THE NEW YORK STOCK EXCHANGE, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ---------------- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed with the Securities and Exchange Commission (the "Commission") by Rohr pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated herein by reference and made a part hereof: (1) The Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1993; (2) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended October 31, 1993 and January 30, 1994; (3) The Company's Current Report on Form 8-K dated May 2, 1994; and (4) The description of the Company's Common Stock contained in the Registration Statement on Form 8-B, File No. 1-3801. Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the Offering made hereby shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such document. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER OF CONVERTIBLE SUBORDINATED NOTES, TO WHOM THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). SUCH REQUESTS SHOULD BE DIRECTED TO: ROHR, INC., ATTN.: SHAREHOLDER SERVICES, P.O. BOX 878, CHULA VISTA, CALIFORNIA 91912-0878, (619) 691-2808. AVAILABLE INFORMATION The Company has filed a Registration Statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement") with the Commission under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Securities. This Prospectus does not contain all of the information set forth in such Registration Statement, certain portions of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the securities offered hereby, reference is made to the Registration Statement. The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected, without charge, and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and the following regional offices of the Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W. Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and other information can also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and The Pacific Stock Exchange Incorporated, 301 Pine Street, San Francisco, California 94104. 3 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements (including the notes thereto) appearing elsewhere or incorporated by reference in this Prospectus. Investors should carefully consider the information set forth under the heading "Risk Factors." Market discussions and references to aircraft production exclude consideration of markets in the former U.S.S.R. THE COMPANY Rohr, Inc. ("Rohr" or the "Company") designs, develops, manufactures, sells and supports complete nacelle and pylon systems for large aircraft engines. The Company has over 50 years of experience in the aerospace industry and is the leading independent supplier of nacelle and pylon systems to the world's major commercial airframe and engine manufacturers ("OEMs"). Rohr manages projects from the early design stage through production and systems integration to lifetime customer support. In addition, the Company has the right to provide customer and product support directly to approximately 145 airlines around the world, including on-site field services and the sale of spare parts. Nacelles are aerodynamic structures which surround jet engines. A nacelle system generally includes the nose cowl or inlet, fan cowl, nozzle systems, thrust reverser and engine build-up ("EBU"). Pylons (sometimes referred to as struts) are the structures that attach the jet engines to the aircraft. Nacelle and pylon systems are highly engineered, critical to fuel efficiency and integral to all of the key interfaces between the jet engine and the airframe. The Company believes that it is competitively well-positioned in its core business. Management estimates that the Company supplied approximately 45% of the nacelle systems and 25% of the pylons for all large commercial aircraft produced worldwide in 1993, including products represented on the Boeing 737, 747, 757 and 767, the Airbus A300, A310, A320, A321, A330 and A340, and the McDonnell Douglas MD-80 and MD-11. The Company attributes its strong market position to its leading technologies, its focus on a specific product line and its competitive cost structure. Management believes that this market position is protected by (i) Rohr's long-term contracts, including some "life-of- program" agreements, (ii) the substantial costs required for the airframe or engine OEMs to change supply sources, (iii) the significant up-front design, development, tooling and certification costs which must be borne before production on a program may begin and (iv) a strong reluctance by airlines to support different nacelle systems manufactured by more than one supplier. Rohr's management intends to maintain the Company's leading market position by supplying its customers with high-quality, technically-advanced products at competitive prices while improving profitability and returns to investors. Management plans to accomplish this goal by (i) focusing on its core product line and on customer satisfaction, (ii) continuing to reduce costs and improve productivity, (iii) capitalizing on past investments in product lines and fixed assets and (iv) implementing a financing plan to improve the Company's capital structure and liquidity. Focus on Core Business: Over the past year, the Company has increased its focus on its core business within the commercial aerospace industry--the design and manufacture of nacelle and pylon systems for large commercial aircraft. The Company intends to focus exclusively on these products and to be the low cost producer in this segment. The Company is currently in negotiations to sell two non-core businesses, its business jet product line and its overhaul and repair business. These two businesses generated approximately $35 million of revenue in fiscal 1993. 4 In April 1993, Robert H. Rau was recruited from outside the Company and appointed President and Chief Executive Officer. Under his leadership, new management has placed increased emphasis on enhancing its customers' satisfaction. Management believes these efforts have contributed to the strong relationships that the Company currently has with customers. Cost Improvement Program: New management has taken aggressive actions to increase competitiveness, improve earnings, maximize cash flow and reduce debt. From April 30, 1993 (the end of the third quarter of fiscal 1993) to January 30, 1994 (the end of the second quarter of fiscal 1994), total employment was reduced over 30% from 7,450 employees to 5,154. The ratio of indirect employees to direct employees has improved from 1-to-2.0 to 1-to-2.6 over this same time frame. Management has targeted a ratio of 1-to-2.8 by July 31, 1994. Management has established a total overhead expense budget equal to 29% of sales for fiscal 1994, which compares to a high of 41% of sales in fiscal 1989 and 32% of sales for the 12 months ended January 30, 1994. Total overhead peaked at $477 million in fiscal 1991, was reduced to $327 million for the 12 months ended January 30, 1994, and is budgeted for $267 million in fiscal 1994. Coincident with these overhead reductions, the Company has increased its effort to streamline its operations and reduce material costs. To reduce excess capacity and to increase overall production efficiencies through higher utilization of its remaining facilities, the Company has closed and sold the Auburn, Washington plant, is closing the Hagerstown, Maryland plant and has deferred completion of a new facility in Arkadelphia, Arkansas. Modest Future Investment Requirements: During the five-year period ended July 31, 1993, the Company invested significantly in the design, development, tooling, certification and other start-up costs associated with new aircraft programs. Although the Company intends to aggressively pursue all important new nacelle programs, management anticipates that few program introductions will be made by airframe and engine manufacturers during the next five years. Management believes that this slow down in new product introductions will enable the Company to focus on efficiencies in existing programs, protect its current market share and generate increased cash flow without the investments required for new product development. In addition, capital expenditures (including expenditures funded by industrial revenue bonds and capital leases) averaged $45 million per year over the past five fiscal years. During that period, the Company spent $109 million for upgraded production and office facilities. No new facilities will be required over the next five years. Management anticipates that capital expenditures will total approximately $7 million in fiscal 1994 and that capital expenditures over the subsequent four years will average less than $20 million per year. Financing Plan: The Company has adopted a financing plan to enhance its liquidity, extend the maturity of its bank credit facility and improve its financial flexibility. The financing plan is comprised of three components: (i) amendments to a three-year revolving credit agreement (the "Revolving Credit Agreement"), providing an initial commitment of $110 million, (ii) amendments to certain other financing agreements and (iii) the offering of $100 million of Senior Notes and the offering of $50 million of Convertible Subordinated Notes (assuming no exercise of the Underwriter's over-allotment option). 5 RECENT FINANCIAL PERFORMANCE The Company believes that its performance for the three most recent fiscal quarters represents meaningful evidence of the Company's financial turnaround. For the nine-month period ended January 30, 1994, the Company recorded an operating profit margin of 6.0%, net income margin of 1.1% and EBITDA of $62.7 million. During the same nine-month period, the Company generated $78.1 million in cash from operating activities and reduced total financings (debt plus off- balance sheet financings) by $94.4 million from $681.4 million at May 2, 1993 to $587.0 million at January 30, 1994. SELECTED UNAUDITED QUARTERLY FINANCIAL INFORMATION
FISCAL YEAR ENDED JULY 31, 1994 FISCAL YEAR ENDED JULY 31, 1993 ----------------- ---------------------------------------- SECOND FIRST FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Operating Income (Loss). $ 14,594 $ 17,064 $ 12,710 $(23,367) $ (7,534) $ 16,503 Operating Margin........ 6.1% 7.0% 5.0% (7.9)% (2.2)% 5.8% EBITDA(1)............... $ 20,642 $ 22,709 $ 19,314 $ 7,959 (2) $ (1,330) $ 22,947 Capital Expenditures.... 1,474 1,475 4,647 4,011 6,993 11,885 Cash Provided by (Used In) Operating Activi- ties................... 27,284 17,644 33,168 81,071 (19,814) (15,757) Total Financings(3)..... $586,982 $618,380 $643,855 $681,412 $740,490 $601,987 Employee Data: Direct Employees....... 3,727 4,081 4,334 4,994 5,823 6,047 Indirect Employees..... 1,427 1,705 2,130 2,456 2,678 2,795 -------- -------- -------- -------- -------- -------- Total Employees...... 5,154 5,786 6,464 7,450 8,501 8,842
- -------- (1) EBITDA represents earnings before the cumulative effect of the accounting changes, interest and other income, interest expense, taxes on income (benefit), depreciation, amortization and the impact of the special provisions referred to in note (2) below. EBITDA is presented here to provide additional information about the Company's ability to meet its future debt service, capital expenditure, and working capital requirements and should not be construed as a substitute for or a better indicator of results of operations or liquidity than net income or cash flow from operating activities computed in accordance with generally accepted accounting principles. (2) EBITDA is adjusted for the impact of the net provision of $25.0 million for plant closure, inventory obsolescence and other asset valuation, other costs related to the planned consolidation process and various items of litigation. (3) Includes off-balance sheet financings. See "Capitalization." ---------------- The Company's principal executive offices are located at 850 Lagoon Drive, Chula Vista, California. The Company's mailing address is P. O. Box 878, Chula Vista, California 91912-0878, and its telephone number is (619) 691-4111. 6 THE OFFERING Issue....................... $50,000,000 principal amount of % Convertible Subordinated Notes due 2004, assuming no exercise of the Underwriter's over-allotment option. Maturity.................... , 2004. Interest Payment Dates...... and of each year, commencing , 1994. Conversion.................. The Convertible Subordinated Notes, unless previously redeemed, are convertible at the option of the holder at any time prior to maturity into shares of Common Stock at a conversion price of $ per share, subject to adjustment upon the occurrence of certain events. See "Description of Notes--Conversion." Optional Redemption......... The Convertible Subordinated Notes are redeemable, at the Company's option, in whole or from time to time in part, on and after , 1998, at the redemption prices specified herein, plus accrued interest. See "Description of Notes--Optional Redemption." Ranking..................... The Convertible Subordinated Notes will be general unsecured obligations of the Company, ranking subordinate in right of payment to all existing and future Senior Indebtedness and pari passu with all Subordinated Indebtedness (as defined). The Convertible Subordinated Notes will also be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. As of January 30, 1994, after giving effect to the Offerings and the anticipated use of the proceeds therefrom, the Company would have had approximately $256.8 million of Senior Indebtedness outstanding and the indebtedness and other liabilities of the Company's subsidiaries would have been approximately $32.7 million at such date. Change of Control........... In the event of a Change of Control, the Company will be required, subject to certain conditions and limitations, to offer to purchase all Convertible Subordinated Notes then outstanding at a purchase price equal to 101% of the aggregate principal amount of the Convertible Subordinated Notes plus accrued and unpaid interest to the date of purchase. There can be no assurance that the Company will have sufficient cash to pay the Change of Control purchase price in the event that a Change of Control occurs. See "Description of Notes--Change of Control." Sale of Assets.............. The Company may be required, subject to certain conditions and limitations, to offer to purchase certain of the Convertible Subordinated Notes at 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, in the 7 event of an Asset Sale (as defined). See "Description of Notes--Limitation on Sale of Assets." Use of Proceeds............. Proceeds from the sale of the Convertible Subordinated Notes and, to the extent necessary, the Senior Notes, will be used to repay all outstanding amounts under the Company's Revolving Credit Agreement. The remaining net proceeds of the Offerings will be used for general corporate purposes. See "Use of Proceeds." Risk Factors................ An investment in the Convertible Subordinated Notes involves a significant degree of risk. For a discussion of certain material factors to be considered by potential investors, see "Risk Factors." Listing..................... The Common Stock of the Company is listed (symbol RHR) on the New York Stock Exchange and the Pacific Stock Exchange. It is also listed on The Stock Exchange in London. Application will be made to list the Convertible Subordinated Notes on the New York Stock Exchange. Concurrent Offering......... The Company is concurrently offering, pursuant to a separate prospectus, $100 million in aggregate principal amount of Senior Notes. See "Description of Concurrent Financing." The sale of the Convertible Subordinated Notes will be conditioned on the simultaneous sale of the Senior Notes. 8 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA The following table sets forth a summary of selected financial and operating data of the Company for each of the periods indicated in the five-year period ended July 31, 1993, which were derived, except as otherwise noted, from the audited Consolidated Financial Statements of the Company. The table also sets forth selected financial and operating data for the six-month periods ended January 30, 1994, and January 31, 1993, which were derived from unaudited interim Consolidated Financial Statements of the Company.
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ------------------- --------------------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993(A) 1992 1991 1990 1989 -------- --------- ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Sales......................... $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677 Operating Income (Loss)....... 31,658 8,969 (1,688)(b) 45,558(c) 100,578 31,605 75,044 Income (Loss) Before Taxes and Cumulative Effect of Accounting Changes........... 7,977 (13,801) (49,571) (17,815) 46,877 (9,001) 46,080 Income (Loss) Before Cumulative Effect of Accounting Changes........... 7,735 (8,515) (30,581) 1,455 30,517 39 33,480 Net Income (Loss)............. 7,735 (232,465)(d) (254,531)(d) 1,455 30,517 39 33,480 Net Income (Loss) Per Share: Income (Loss) Before Cumulative Effect of Accounting Changes.......... $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 $ 0.00 $ 1.90 Net Income (Loss)(d)......... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 $ 0.00 $ 1.90 BALANCE SHEET DATA AT PERIOD END: Working Capital............... $358,453 $ 447,476 $ 350,321 $ 700,774 $ 712,520 $ 640,461 $ 549,799 Property, Plant and Equipment, Net.......................... 230,849 245,948 239,045 270,283 237,434 234,166 204,911 Total Assets.................. 967,566 1,130,164 1,017,786 1,363,958 1,411,498 1,329,308 1,166,828 Total Debt(e)................. 483,425 628,243 531,608 572,594 636,070 551,227 426,390 Total Shareholders' Equity.... 190,229 217,336 182,243 448,866 441,401 413,713 412,387 OTHER DATA: EBITDA(f)..................... $ 43,351 $ 21,617 $ 48,890 $ 123,413 $ 128,299 $ 58,645 $ 99,880 Capital Expenditures(g)....... 2,949 18,878 27,536 62,933 32,383 28,923 39,005 Ratio of Earnings to Fixed Charges(h)................... 1.31x 0.40x 0.01x 0.72x 1.81x 0.83x 2.27x EBITDA to Interest Expense(f). 1.79x 0.93x 1.00x 1.84x 2.34x 1.09x 3.13x PRO FORMA DATA TO REFLECT ACCOUNTING CHANGES (UNAUDITED)(I): Pro Forma Net Income (Loss)(i).................... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680) Pro Forma Net Income (Loss) per Share.................... 0.43 (0.48) (1.71) (2.05) (1.31) (3.29) (0.49) Pro Forma EBITDA(f)(j)........ 43,351 21,617 48,890 62,269 41,727 (36,182) 31,549 ADJUSTED DATA TO REFLECT OFFERINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES (UNAUDITED)(K): Net Income (Loss)............. $ 4,412 $ (36,495) Net Income (Loss) per Share... 0.24 (2.04) Ratio of Earnings to Fixed Charges(h)(l)................ 1.07x 0.01x EBITDA to Interest Expense(f). 1.48x 0.85x
9 - -------- (a) Fiscal 1993 results reflect the Company's adoption, in the third quarter, of changes to certain elements in the application of accounting principles relating to long-term programs and contracts, including the expensing of general and administrative costs that were previously carried in inventory for amortization over future deliveries. The amounts also reflect the Company's adoption of SFAS No. 106, "Employers' Accounting for Post- Retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes." The accounting changes described above were effective August 1, 1992. As a result, periods prior to August 1, 1992 are not comparable. (b) Includes the impact of net provisions of $25.0 million for plant closure, inventory obsolescence and other asset valuations, other costs related to the planned consolidation process and various items of litigation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Fiscal 1993 Compared to Fiscal 1992." The impact of the accounting change on fiscal 1993 was a reduction to operating profit of $39.9 million. (c) Includes the impact of special provisions of approximately $50.0 million for the termination of the Lockheed C-5 spare pylon program, the Valsan 727 re-engining program, an investigation by government agencies concerning production of parts and a provision for the closing of the Auburn plant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Fiscal 1992 Compared to Fiscal 1991." (d) In the third quarter of fiscal 1993, the Company changed certain of its accounting principles as described in note (a) above. These changes required the Company to calculate the effect of the change in accounting principles on retained earnings as of the first day in the fiscal year of change. (e) Excludes off-balance sheet financing. See "Capitalization." (f) EBITDA is defined as earnings before the cumulative effect of the accounting changes, interest and other income, interest expense and taxes on income (benefit) and depreciation, amortization and the impact of the special provisions referred to in notes (b) and (c) above. EBITDA is presented here to provide additional information about the Company's ability to meet its future debt service, capital expenditure, and working capital requirements and should not be construed as substitute for or a better indicator of results of operations or liquidity than net income or cash flow from operating activities computed in accordance with generally accepted accounting principles. (g) Includes capitalized interest; excludes additions to property, plant and equipment financed by industrial revenue bonds and capital leases. (h) For purposes of determining the ratio of earnings to fixed charges, the term "earnings" represents income (loss) before cumulative effect of accounting changes, plus income tax (benefit) and fixed charges excluding capitalized interest. The term "fixed charges" represents interest expense, capitalized interest, amortization of debt issue expense and the portion of operating lease rental expense considered to be representative of an interest factor. Historical earnings were insufficient to cover fixed charges by $14,886 for the six months ended January 31, 1993 and $51,184 for fiscal 1993, $19,312 for fiscal 1992 and $9,604 for fiscal 1990. (i) The Pro Forma Data to Reflect Accounting Changes (Unaudited) assumes the changes in the application of accounting principles for long-term programs and contracts adopted by the Company effective August 1, 1992, are applied retroactively. The pro forma amounts presented also reflect the retroactive application of SFAS No. 109, "Accounting for Income Taxes" to the periods presented--periods which predate both the Company's adoption of SFAS No. 109 and the release of that standard. Tax benefits arising pursuant to SFAS No. 109, "Accounting for Income Taxes", are allocated ratably over the pro forma restated periods. The pro forma restated effect of the Company's adoption of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions" are not material and are not presented. The pro forma financial data should not be considered indicative of actual results that would have been achieved had the accounting changes adopted by the Company effective August 1, 1992 been in effect for the periods indicated and do not purport to indicate results of operations as of any future date or for any future period. The following information should be read in conjunction with "Selected Consolidated Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the "Consolidated Financial Statements of Rohr, Inc. and Subsidiaries" and the Notes thereto, included elsewhere in this Prospectus. 10
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ----------------- ---------------------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 1990 1989 -------- -------- ---------- ---------- ---------- ---------- ---------- PRO FORMA INCOME STATE- MENT DATA (UNAUDITED): Sales.................. $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677 Cost and Expenses...... 439,719 594,568 1,133,040 1,242,240 1,321,792 1,092,150 996,313 General and Adminis- trative Expenses(a)... 13,446 22,467 43,800 53,002 49,288 49,784 41,651 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Income (Loss)................ 31,658 8,969 (1,688)(b) (15,586)(c) 14,006 (63,222) 6,713 Interest Net........... 23,681 22,770 47,883 63,373 53,701 40,606 28,964 -------- -------- ---------- ---------- ---------- ---------- ---------- Income (Loss) before Taxes................. 7,977 (13,801) (49,571) (78,959) (39,695) (103,828) (22,251) Taxes (Benefit) on Income................ 242 (5,286) (18,990) (42,688) (16,797) (45,359) (13,571) -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss).... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680) ======== ======== ========== ========== ========== ========== ==========
- -------- (j) The calculation of pro forma EBITDA is shown below (unaudited):
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ----------------- --------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 1990 1989 -------- -------- ------- -------- -------- -------- ------- Operating Income, as Reported............... $31,658 $ 8,969 $(1,688)(b) $ 45,558 (c) $100,578 $ 31,605 $75,044 Less Changes in the Ap- plication of Account- ing Principles for Long-Term Programs and Contracts............. -- -- -- 61,144 86,572 94,827 68,331 ------- ------- ------- -------- -------- -------- ------- Pro Forma Operating In- come (Loss)............ 31,658 8,969 (1,688) (15,586) 14,006 (63,222) 6,713 Add Depreciation and Amortization........... 11,693 12,648 25,578 27,855 27,721 27,040 24,836 ------- ------- ------- -------- -------- -------- ------- Pro Forma Earnings...... 43,351 21,617 23,890 12,269 41,727 (36,182) 31,549 Add Special Provisions.. -- -- 25,000 50,000 -- -- -- ------- ------- ------- -------- -------- -------- ------- Pro Forma EBITDA........ $43,351 $21,617 $48,890 $ 62,269 $ 41,727 $(36,182) $31,549 ======= ======= ======= ======== ======== ======== =======
- -------- (k) The unaudited adjusted data to reflect the Offerings assumes the financial data has been adjusted for the effect of the Offerings and the corresponding repayment of the outstanding balance under the Revolving Credit Agreement and short-term bank debt as of the first day of each fiscal period, and assumes no exercise of the Underwriter's over-allotment option. (l) Ratio of earnings to fixed charges as adjusted to reflect the Offerings, reflects the issuance of Senior Notes and the Convertible Subordinated Notes (assuming no exercise of the underwriter's over-allotment option) and the application of proceeds therefrom, as if the Offerings had been consummated as of the first day of each fiscal period. On such basis, earnings were insufficient to cover the pro forma fixed charges by $60,769 for fiscal 1993. 11 RISK FACTORS An investment in the Securities involves a significant degree of risk. A prospective investor should consider carefully all of the information contained in this Prospectus before deciding whether to purchase the Securities and, in particular, should consider the following: HIGH LEVERAGE; DEBT SERVICE REQUIREMENTS The Company is highly leveraged. At January 30, 1994, after giving pro forma effect to the sale of the Securities and the repayment of certain indebtedness with a portion of the estimated net proceeds of the Offerings, the Company would have had consolidated total financings of approximately $687.0 million (including $583.4 million of indebtedness and $103.6 million of off-balance sheet sale-leaseback and accounts receivable financings and assuming no exercise of the Underwriter's over-allotment option) and $123.1 million of cash. See "Capitalization" and "Use of Proceeds." At January 30, 1994, the Company's shareholders' equity was approximately $190.2 million, which does not reflect certain anticipated charges to shareholders' equity in connection with the Company's underfunded pension plans. In addition, at January 30, 1994, the Company had a $102.6 million net deferred tax asset recorded in accordance with SFAS No. 109, "Accounting for Income Taxes." See "--Deferred Tax Assets" and "--Underfunded Pension Plans." The Company has reported net income for each of the last three fiscal quarters. On a pro forma basis, however, after giving effect to the accounting changes adopted by the Company effective August 1, 1992, the Company would have reported losses for each of the last five fiscal years and its pro forma earnings would have been insufficient to cover fixed charges for each of such fiscal years. See "Selected Consolidated Financial and Operating Data." The Company's ability to make interest payments on the Securities and its other financing obligations depends upon its future financial performance, including earnings and cash flow from operations. On an adjusted basis, after giving effect to the issuance of the Securities and the application of the proceeds therefrom (assuming no exercise of the Underwriter's over-allotment option), earnings (pre-tax income plus fixed charges) would have been $60.8 million less than the adjusted fixed charges (which represent interest expense, capitalized interest, amortization of debt issue expense and the portion of operating lease rental expense considered to be representative of an interest factor) in fiscal 1993. For the six months ended January 30, 1994, however, adjusted earnings would have been $2.2 million greater than adjusted fixed charges. Available cash flow to service debt could be adversely affected by certain pension funding requirements. See "--Underfunded Pension Plans." The degree to which the Company is leveraged could have important consequences to holders of the Securities, including the following: (1) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired; (2) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of interest on its indebtedness; and (3) the Company's leverage may make it more vulnerable to future economic downturns and may limit its ability to withstand competitive pressures. Based upon current levels of operations and anticipated future business, the Company believes that cash flow from operations together with available cash, borrowings under the Revolving Credit Agreement and other sources of liquidity, will be adequate to meet the Company's anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments. There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels. If the Company is unable to generate sufficient cash flow from operations in the future, it may be required to refinance all or a portion of its existing debt or to obtain additional financing. There can be no assurance that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." UNDERFUNDED PENSION PLANS The Company has substantial obligations related to its defined benefit pension plans (the "Pension Plans"). As of July 31, 1993, the Company's actuaries have determined that the Pension Plans were underfunded by $65.6 million on an ongoing plan basis. This underfunding resulted from a combination of factors, including benefit increases, increased levels of early retirement, less than actuarially- 12 assumed returns on plan assets and a reduction in the discount rate used to calculate the present value of future liabilities of the Pension Plans for financial reporting purposes. The Company is currently assessing certain additional decisions and actions affecting the Pension Plans. It is anticipated that the unfunded liabilities with respect to the Pension Plans will be increased by approximately $75 million on an ongoing basis due to an anticipated reduction in the discount rate used to calculate the present value of future liabilities under the Pension Plans from 8.5% to 7.5% and to a higher-than-previously-expected level of early retirements. As a result of the anticipated increase in the unfunded liabilities, the Company expects to take a direct charge to shareholders' equity estimated at $45 million and to increase its deferred tax account by approximately $30 million. In addition, the Company and its actuaries are evaluating the extent to which the downsizing of personnel may necessitate the expensing of certain unamortized pension benefit past service costs related to the terminated employees. This would not increase the underfunded status of the Pension Plans, but would result in an additional charge to earnings for financial statement purposes. The Company expects that the evaluation of the above described items and the recognition of the financial impact will be completed by the end of the third quarter of fiscal 1994. Concurrent with the consummation of the Offerings, the financial covenants in several of the Company's principal financing agreements will be amended to accommodate the anticipated impact of these matters on its reported financial results. See "Description of Certain Financings." IRS regulations will require the Company to increase its contribution to the Pension Plans. Consistent with these IRS requirements it is the Company's current intention to have the Pension Plans fully funded within approximately five years. The Company's minimum cash contributions to its Pension Plans, based on current IRS regulations, are therefore expected to increase from the current level of approximately $17 million in fiscal 1994 to an average of approximately $35 million per year in fiscal years 1995, 1996 and 1997 and to decline thereafter. The Company expects to have sufficient liquidity to make these contributions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." In addition, minimum cash contributions for these years may increase as a result of legislation which has been introduced in Congress. The prospects for the passage of such legislation are uncertain. The calculation of the amount of underfunding of the Pension Plans for financial reporting and IRS minimum funding purposes assumes continued employment with projections for retirements, mortality, resignations and discharges and also includes assumptions relating to the discount rate, plan asset value and other matters. The Company and its actuaries review these assumptions on a regular basis. If it were to become necessary to make additional reductions in the discount rate, or to make certain other changes in the existing assumptions, the Pension Plans' liabilities and underfunded status might be increased. Such changes could adversely affect the Company because of the increase in recorded liabilities, decreases in shareholders' equity and increases in IRS minimum funding requirements. INDUSTRY CYCLES; CURRENT BUSINESS OUTLOOK The commercial aerospace industry is a cyclical business and the demand by commercial airlines for new aircraft is highly dependent upon a variety of factors, which historically have been related to the stability and health of the United States and world economies. The industry typically lags behind the general economic cycle because it can take up to two years to manufacture an aircraft. Although the United States economy entered a period of slow growth and recession in 1989 and 1990, the aerospace industry made record deliveries of large commercial aircraft, by revenue, during these years. In fact, aircraft deliveries continued to grow through 1991 and only decreased slightly in 1992. In 1990 through 1992, United States scheduled airlines suffered record operating losses of more than $2 billion per year. Non-United States scheduled airlines also reported significantly reduced profits during this period. As a result of the losses incurred by the airlines, the high levels of debt incurred to purchase new aircraft and the excess capacity within the commercial airline sector, airlines and leasing 13 companies deferred existing orders for new aircraft to an unprecedented extent and, to a lesser degree, canceled such orders. All of the Company's major customers received numerous requests for deferrals and cancellations from the airlines and leasing companies and have slowed their aircraft delivery rates. In response to the deferrals and cancellations from their customers, airframe and engine manufacturers reacted by rescheduling future production levels, laying off workers and passing production slow-downs on to their suppliers, including the Company. The large number of aircraft delivered over the last several years has created an excess capacity in the air carrier system, as evidenced by the fact that a substantial number of new and used aircraft are currently inactive. Reactivated aircraft could replace or postpone new aircraft deliveries in the future. The Company expects that orders from and deliveries of large commercial aircraft will continue to be affected through calendar 1995 by the adverse United States and world economic conditions which have existed in recent periods. It appears, however, that the health of the airline industry is improving. In calendar 1993, United States scheduled airlines reported operating income of approximately $1 billion. There can be no assurance that the improved operating health of the commercial airlines will continue or that deliveries of large commercial aircraft will not continue to be affected beyond 1995. In connection with the current contraction in the commercial aircraft industry, subcontractors such as Rohr have been experiencing pressures from their customers to reduce prices. The Company, in turn, is exerting similar pressure on its own suppliers to reduce prices and thus enable the Company to manufacture products at lower costs. There can be no assurance that such reductions in prices by Rohr's suppliers will be achieved. See "Business-- Markets." RECOVERY OF PROGRAM INVESTMENTS The development of a new aircraft, or a variation of an existing aircraft, requires significant investments for pre-production costs such as design and engineering, tooling, testing and certification. Competitive pressures forced suppliers such as the Company to bear a significant amount of the cost and investment risk associated with the large number of new programs under development in the 1980s. During this period, the Company also experienced substantial production inventory increases as it began to produce and deliver products under new programs. In response to these competitive market pressures, the Company agreed on several of its significant contracts to finance a substantial portion of its pre-production costs, with such costs to be recovered ratably as a specified number of units, including spare equivalents, are sold. As a result of these agreements, the Company's inventory included $199.4 million of capitalized pre- production costs at January 30, 1994. See "Notes to the Consolidated Financial Statements--Note 4." On some of these contracts, the prime contractor has agreed to pay the Company for a portion of its pre-production costs if a specified number of units is not sold by an agreed upon date or if the contract is terminated before the specified number of units is delivered. However, on other programs, the Company agreed, based upon its market analysis, to amortize its pre-production costs over a specified number of units without receiving such reimbursement protections from its customer if the specified number of units is not sold. Based on its analysis of the demand for specific products, the Company has also agreed on certain programs to a unit price which may not be profitable, even after recovery of pre-production costs, if fewer units are sold than the Company assumed for pricing purposes. If the Company's market analysis with respect to these programs is incorrect, the Company could incur substantial losses with respect to these programs. See "Business--Contracts," "Business--Program Funding," and "Notes to the Consolidated Financial Statements--Notes 1.c and 4." DEFERRED TAX ASSET SFAS No. 109, "Accounting for Income Taxes," requires businesses to recognize possible future tax benefits if it is "more likely than not" that the tax benefits will be realized. Under this standard, on January 30, 1994, the Company had a net deferred tax asset of $102.6 million, consisting of $85.4 million for federal tax purposes and $17.2 million for state tax purposes. (This net deferred tax asset is anticipated to increase by an additional $30 million in the third quarter of the current fiscal year as a result of an increase in the Company's underfunded pension liabilities.) Based on current tax rates, the Company must generate approximately $286 million of future taxable income (net of $240 million of 14 taxable income that the Company will report as a result of the automatic reversal of existing taxable temporary differences between asset and liability values for financial reporting and income tax purposes) prior to the expiration of the Company's net operating loss carryforwards ("NOLs") in 2003 through 2008 for full realization of the net deferred tax asset. After the anticipated third quarter increase in the net deferred tax asset, the amount of future taxable income the Company must generate will be approximately $360 million. As with its other assets, the Company will regularly re-evaluate the value of its net deferred tax asset. If the Company were to determine that full realization of this asset is no longer "more likely than not," it would be required to reduce the value of the asset by establishing a valuation allowance. Such an allowance would reduce the Company's earnings in the relevant period and, if it causes a loss in such period, would reduce shareholders' equity. In addition, reductions in state or federal tax rates, or limitations on the use of NOLs, as well as adjustments resulting from any audit of the Company's tax returns, could reduce the value of the Company's net deferred tax asset, again affecting earnings and shareholders' equity. See "--Underfunded Pension Plans," "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Income Taxes" and "Notes to the Consolidated Financial Statements--Note 6." RESTRICTIVE COVENANTS The Company's major financing agreements, as amended effective upon the completion of the Offerings, require it to maintain specified financial covenants, including a minimum Consolidated Tangible Net Worth (as defined in such agreements to include the Company's net deferred tax asset), a minimum ratio of Consolidated Net Income Available for Fixed Charges to Fixed Charges (as defined in such agreements) and a maximum ratio of Debt (as defined in such agreements to include the Company's underfunded pension liabilities) to Consolidated Tangible Net Worth (each as defined in such agreements). Covenants in these agreements also impose additional requirements on the Company, including restrictions on its ability to create liens, enter into leases, engage in mergers, consolidations and acquisitions, sell assets, repay debt prior to its maturity, incur additional debt, amend other debt agreements, declare and pay dividends, acquire company securities, and change the nature of its business. A failure by the Company to maintain such financial ratios or to comply with the restrictions contained in its Revolving Credit Agreement or other financing agreements could result in a default thereunder, which in turn could cause such indebtedness (and by reason of cross-default provisions, other indebtedness) to become immediately due and payable, and would prevent the Company from drawing any further amounts under its Revolving Credit Agreement. As a result, any such default could have a material adverse effect on the Company and its ability to make principal and interest payments on the Securities. See "Description of Certain Financings" and "Description of Concurrent Financing." ENVIRONMENTAL MATTERS As an international aerospace manufacturing corporation, the Company is subject to foreign, federal, state and local laws and regulations that limit the discharge of pollutants into the air, soil and water and establish standards for the treatment, storage and disposal of hazardous wastes. As a result, the Company is involved from time to time in administrative and judicial proceedings and inquiries related to environmental matters. These include several currently pending matters. The Company does not believe that its environmental risks are materially different from those of comparable manufacturing companies. Nevertheless, the Company cannot provide assurances that environmental issues will not adversely affect the Company's operations and financial condition in the future. Environmental risks are generally excluded from coverage under the Company's current insurance policies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Legal and Environmental Matters." LIMITED CUSTOMER BASE The Company conducts substantial business with each of the three major commercial airframe manufacturers: The Boeing Company ("Boeing"), Airbus Industrie ("Airbus") and McDonnell Douglas Corporation ("McDonnell Douglas"). In addition, the Company conducts business with each of the 15 major commercial jet engine manufacturers: General Electric Company ("General Electric"), Rolls-Royce, plc ("Rolls-Royce"), United Technologies Corporation ("Pratt & Whitney"), CFM International, Inc. (a corporation jointly owned by General Electric and Societe Nationale d'Etude et de Construction de Moteurs d'Aviation; "CFM International"), and International Aero Engines AG (a corporation owned by Rolls-Royce, Pratt & Whitney, Fiat Aviazione, SpA, Japanese Aero Engines Corporation and MTU Motoren-und Turbinen-Union Munchen GmbH; "International Aero Engines"). Commercial products sold by the Company to jet engine manufacturers are installed ultimately on aircraft produced by one of the three major commercial airframe manufacturers. The Company's financial condition and operations could be materially adversely affected if one or more of its major customers were to reduce operations materially, shift a significant amount of work from the Company or cease conducting operations. See "Business." COMPETITION The Company's principal competition is Boeing (which, in addition to being a customer, also manufactures nacelle systems and pylons for its own aircraft), other significant aerospace companies who have development and production experience with respect to portions of the nacelle system and the companies to whom the Company has subcontracted various components and who could (and have) bid on contracts in competition with the Company. See "Business-- Subcontractors." Military aerospace contractors are also potential competitors, as excess capacity created by reductions in defense spending could cause some of these contractors to look to expand in commercial markets. Because of recent reductions in demand in the aircraft manufacturing industry, excess production capacity exists in the market for a number of the Company's principal products. While the Company has a significant share of the market for commercial aircraft nacelles and pylons, there can be no assurance that the Company can maintain its share of the market at existing levels. See "Business-- Market Share and Competition." REDUCED GOVERNMENT SALES Government (military and space) sales accounted for approximately 12% of the Company's total sales in the six months ended January 30, 1994, and 13% in the fiscal year ended July 31, 1993. The Company expects that the percentage of Company revenues attributable to government sales will continue to decline in future years. The production rate for the Titan rocket motor casing program, which accounted for 5.9% of revenues in fiscal 1993, is expected to decline substantially in response to market demand. In addition, another company's alternative technology casing approach may allow it to become a leading competitor in the market for this product in the future. The Company's military sales are primarily associated with older programs which are being phased out of production. RANKING OF THE CONVERTIBLE SUBORDINATED NOTES The Convertible Subordinated Notes will be general unsecured obligations of the Company ranking subordinated in right of payment to all existing and future Senior Indebtedness of the Company (as defined) and pari passu with all Subordinated Indebtedness (as defined), including the Company's 9.25% subordinated debentures, due in 2017, and its 7% convertible subordinated debentures, due in 2012. The Convertible Subordinated Notes will also be effectively subordinated to all indebtedness and other liabilities of Company's subsidiaries. As of January 30, 1994, after giving effect to the Offerings and the anticipated use of the proceeds therefrom (and assuming no exercise of the Underwriter's over-allotment option), the Company would have had approximately $256.8 million of Senior Indebtedness outstanding and the indebtedness and all other liabilities of the Company's subsidiaries would have been approximately $32.7 million. In addition, the Company had $103.6 million of off-balance sheet sale-leaseback and accounts receivable financings then outstanding. See "Capitalization" and "Description of the Convertible Subordinated Notes-- Subordination." 16 In the event of any bankruptcy, liquidation or reorganization of the Company, the assets of the Company will be available to pay the obligations under the Convertible Subordinated Notes only after all Senior Indebtedness of the Company, and any other secured or priority claims, including secured claims relating to the Company's underfunded pension liabilities, as discussed below, have been paid in full. See "--Underfunded Pension Plans" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources." After such payments, there may not be sufficient assets remaining to pay amounts then outstanding under the Convertible Subordinated Notes and the Company's other subordinated obligations. In addition, the assets of the Company's subsidiaries will be available to creditors of the Company only after such subsidiaries' obligations are satisfied in full. Certain rights of the Pension Benefit Guaranty Corporation (the "PBGC") could also affect the Company in connection with any such bankruptcy, liquidation or reorganization. In general, the PBGC (an agency of the federal government) guarantees certain benefits provided under defined benefit plans, such as the Company's Pension Plans. If a plan is terminated (by either the sponsor or the PBGC) and the sponsor of such plan does not pay the guaranteed benefits, the PBGC will pay those benefits and then seek recovery of all unfunded benefits from any company which contributes to such a plan and certain of its affiliates. If the PBGC has a right to such a recovery, it also has a statutory lien on all assets of such companies, up to a maximum of 30% of the net worth of all companies liable for such amounts. Any claim in excess of the PBGC's secured claim would be a general unsecured claim. The actuarial assumptions used by the PBGC in assessing funding liabilities reflect a termination of the plan rather than continued funding by the plan sponsor. This may result in a substantially greater liability for benefits under the Company's Pension Plans than is reflected in actuarial valuations for such plans prepared on an ongoing basis. ABSENCE OF PUBLIC MARKET FOR THE SECURITIES The Securities comprise new issues of securities for which there is currently no public market. Although application has been made to list the Convertible Subordinated Notes on the New York Stock Exchange, there can be no assurance that an active trading market will be developed or sustained or that Convertible Subordinated Notes will be able to be resold at or above the public offering price as a result of prevailing interest rates, the market for similar securities, the performance of the Company and other factors. FINANCING PLAN The Company has adopted a financing plan to enhance its liquidity, extend the maturity of its Revolving Credit Agreement and improve its financial flexibility. To meet these objectives, the Company is offering the Senior Notes and the Convertible Subordinated Notes and, effective upon the completion of the Offerings, amending its Revolving Credit Agreement and certain of its other principal financing agreements. Upon completion of the Offering, the Company's existing unsecured Revolving Credit Agreement will be amended to provide for an extended three-year term. As part of this amendment, the principal financial covenants in the Revolving Credit Agreement will be modified to provide the Company with greater financial flexibility and to eliminate the previous requirement that the Company sell additional subordinated debt. For a summary of the principal covenants to be contained in the amended Revolving Credit Agreement, see "Description of Certain Financings--Revolving Credit Agreement." The Company will also amend, effective upon the completion of the Offerings, the financial covenants in the agreements governing its existing 9.35% and 9.33% Senior Notes in substantially the same manner as the financial covenants in the Revolving Credit Agreement. For a summary of the principal covenants contained in such agreements, see "Description of Certain Financings--9.35% Senior Notes due 2000 and 9.33% Senior Notes due 2002." 17 USE OF PROCEEDS The Company intends to use all of the net proceeds of the Convertible Subordinated Notes offering and, to the extent necessary, a portion of the net proceeds of the Senior Notes offering to repay, on the date of issuance of the Securities, all of the amounts outstanding under the Company's Revolving Credit Agreement. This repayment will not reduce the lenders' three-year commitment under that agreement. The Revolving Credit Agreement will have an initial availability of $110 million. As of May 1, 1994, the Company had $50 million borrowed under its Revolving Credit Agreement. The Company intends to use the remaining net proceeds for general corporate purposes. For additional information concerning the term, interest rate and other provisions of the Revolving Credit Agreement, see "Description of Certain Financings--Revolving Credit Agreement." PRICE RANGE OF COMMON STOCK AND DIVIDENDS The Common Stock is listed on the New York, Pacific and London Stock Exchanges. The following table sets forth for the fiscal periods indicated, the high and low sales prices of the Common Stock on the Composite Tape, as reported by the National Quotation Bureau, Incorporated:
HIGH LOW ------ ------- 1992 First Quarter........................................... $26 $19 3/8 Second Quarter.......................................... 24 1/4 18 1/2 Third Quarter........................................... 21 5/8 14 1/4 Fourth Quarter.......................................... 15 1/8 9 3/8 1993 First Quarter........................................... 12 7/8 10 1/8 Second Quarter.......................................... 13 1/8 9 1/4 Third Quarter........................................... 12 1/2 8 5/8 Fourth Quarter.......................................... 10 1/4 6 1/2 1994 First Quarter........................................... 8 3/4 6 3/4 Second Quarter.......................................... 11 1/2 7 1/8 Third Quarter........................................... 11 1/8 8 Fourth Quarter(1)....................................... 8 7/8 8 5/8
- -------- (1) Through May 10, 1994, on which date the last reported sale price on the Composite Tape was $8.875 per share. At February 28, 1994, there were approximately 4,855 shareholders of record holding the Company's Common Stock. The Company has not paid cash dividends on its Common Stock since October 1975. Under the terms of the Company's Revolving Credit Agreement, the Company may not pay cash dividends on its Common Stock. The Company's current policy is to retain earnings for use in its business rather than to pay cash dividends on its Common Stock. Future dividends on the Common Stock will depend on business and financial conditions, earnings, then existing covenants in the Company's financing agreements, and other factors and are subject to declaration by the Company's Board of Directors at its discretion. 18 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company and its subsidiaries as of January 30, 1994, and as adjusted to give effect to (i) the sale of the Senior Notes, (ii) the sale of the Convertible Subordinated Notes and (iii) the repayment of amounts outstanding under the Revolving Credit Agreement. This table should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Prospectus.
JANUARY 30, 1994 ------------------- AS ACTUAL(1) ADJUSTED --------- -------- (DOLLARS IN THOUSANDS) Cash and Short-Term Investments.......................... $ 28,768 $123,068 ======== ======== Debt: Revolving Credit Agreement(2).......................... $ 50,000 $ -- 9.35% Senior Notes due 2000............................ 75,000 75,000 9.33% Senior Notes due 2002............................ 62,000 62,000 Senior Notes due 2003.................................. -- 100,000 Capital leases......................................... 11,102 11,102 Convertible Subordinated Notes due 2004................ -- 50,000(3) 9.25% Subordinated Debentures due 2017................. 150,000 150,000 7.00% Convertible Subordinated Debentures due 2012..... 115,000 115,000 Other debt............................................. 20,323 20,323 -------- -------- Total Debt(4)........................................ 483,425 583,425(3) Shareholders' Equity: Preferred Stock, $1 par value, 10,000,000 shares authorized, no shares issued.......................... -- -- Common Stock, $1 par value, 50,000,000 shares autho- rized, 18,017,930 shares issued(5).................... 18,018 18,018 Additional paid-in capital............................. 102,541 102,541 Retained earnings...................................... 82,976 82,976 Minimum pension liability adjustment(6)................ (13,306) (13,306) -------- -------- Total Shareholders' Equity........................... 190,229 190,229 -------- -------- Total Capitalization................................. $673,654 $773,654 ======== ========
- -------- (1) See "Notes to the Consolidated Financial Statements--Notes 7 and 10" for additional information concerning indebtedness and shareholders' equity. (2) Borrowings under the Revolving Credit Agreement were $50 million as of May 1, 1994. All outstanding amounts under the Revolving Credit Agreement will be repaid with a portion of the net proceeds of the Offerings. See "Use of Proceeds." (3) Assuming the Underwriter does not exercise any part of its over-allotment option. (4) The Company's total financings include indebtedness, shown in the table above, and off-balance sheet financings consisting of a $60 million accounts receivable sales facility, which is reported as a reduction to accounts receivable, and certain sale-leaseback transactions, accounted for as operating leases, with an outstanding balance of $50.5 million as of January 30, 1994. At January 31, 1994, the Company had deposited approximately $7 million of cash into a reserve fund to support the accounts receivable facility. See "Description of Certain Financings." The Company's total financings were $587 million at January 30, 1994, and $687 million as adjusted for the Offerings. (5) Excludes 2,674,418 shares reserved for issuance upon conversion of the 7.00% Convertible Subordinated Debentures due 2012, 3,058,175 shares reserved for issuance upon exercise of outstanding or issuable stock options, and 600,000 shares reserved for issuance upon exercise of outstanding warrants. (6) See "Notes to the Consolidated Financial Statements--Note 9a" and "Risk Factors--Underfunded Pension Plan." 19 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The following table sets forth the selected financial and operating data of the Company for each of the periods indicated in the five-year period ended July 31, 1993, which were derived, except as otherwise noted, from the audited Consolidated Financial Statements of the Company. The table also sets forth selected financial and operating data for the six-month periods ended January 30, 1994, and January 31, 1993, which were derived from unaudited interim Consolidated Financial Statements of the Company.
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, -------------------- ------------------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993(A) 1992 1991 1990 1989 -------- ---------- ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Sales.................. $484,823 $ 626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677 Cost and Expenses...... 439,719 594,568 1,133,040 1,223,931 1,275,269 1,038,501 969,240 General and Adminis- trative Expenses(b)... 13,446 22,467 43,800 10,167 9,239 8,606 393 -------- ---------- ---------- ---------- ---------- ---------- ---------- Operating Income (Loss)................ 31,658 8,969 (1,688)(c) 45,558(d) 100,578 31,605 75,044 Interest--Net.......... 23,681 22,770 47,883 63,373 53,701 40,606 28,964 -------- ---------- ---------- ---------- ---------- ---------- ---------- Income (Loss) Before Taxes and Cumulative Effect of Accounting Changes............... 7,977 (13,801) (49,571) (17,815) 46,877 (9,001) 46,080 Taxes (Benefit) on In- come.................. 242 (5,286) (18,990) (19,270) 16,360 (9,040) 12,600 -------- ---------- ---------- ---------- ---------- ---------- ---------- Income (Loss) Before Cumulative Effect of Accounting Changes.... 7,735 (8,515) (30,581) 1,455 30,517 39 33,480 Cumulative Effect Through July 31, 1992 of Accounting Changes--Net of Taxes(e).............. -- (223,950) (223,950) -- -- -- -- -------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss)...... $ 7,735 $ (232,465) $ (254,531) $ 1,455 $ 30,517 $ 39 $ 33,480 ======== ========== ========== ========== ========== ========== ========== Net Income (Loss) Per Share: Income (Loss) Before Cumulative Effect of Accounting Changes.. $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 $ 0.00 $ 1.90 Cumulative Effect Through July 31, 1992 of Accounting Changes--Net of Taxes............... -- (12.52) (12.50) -- -- -- -- -------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss).... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 $ 0.00 $ 1.90 ======== ========== ========== ========== ========== ========== ========== BALANCE SHEET DATA AT PERIOD END: Working Capital........ $358,453 $ 447,476 $ 350,321 $ 700,774 $ 712,520 $ 640,461 $ 549,799 Property, Plant and Equipment, Net........ 230,849 245,948 239,045 270,283 237,434 234,166 204,911 Total Assets........... 967,566 1,130,164 1,017,786 1,363,958 1,411,498 1,329,308 1,166,828 Total Debt(f).......... 483,425 628,243 531,608 572,594 636,070 551,227 426,390 Total Shareholders' Equity................ 190,229 217,336 182,243 448,866 441,401 413,713 412,387 OTHER DATA: EBITDA(g).............. $ 43,351 $ 21,617 $ 48,890 $ 123,413 $ 128,299 $ 58,645 $ 99,880 Depreciation and Amor- tization.............. 11,693 12,648 25,578 27,855 27,721 27,040 24,836 Net Cash Provided by (Used in) Operating Activities.. 44,928 (35,571) 78,668 110,342 (62,770) (155,644) (106,747) Capital Expenditures(h)....... 2,949 18,878 27,536 62,933 32,383 28,923 39,005 Ratio of Earnings to Fixed Charges(i)...... 1.31x 0.40x 0.01x 0.72x 1.81x 0.83x 2.27x EBITDA to Interest Expense(g)............ 1.79x 0.93x 1.00x 1.84x 2.34x 1.09x 3.13x
20
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ------------------ ----------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993(A) 1992 1991 1990 1989 -------- -------- -------- -------- -------- -------- ------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) PRO FORMA DATA TO REFLECT ACCOUNTING CHANGES: (UNAUDITED)(j): Pro Forma Net Income (Loss)(j).................. $ 7,735 $(8,515) $(30,581) $(36,271) $(22,898) $(58,469) $(8,680) Pro Forma Net Income (Loss) per Share.................. $ 0.43 $ (0.48) $ (1.71) $ (2.05) $ (1.31) $ (3.29) $ (0.49) Pro Forma EBITDA(g)(k)...... $43,351 $21,617 $ 48,890 $ 62,269 $ 41,727 $(36,182) $31,549 Pro Forma EBITDA to Inter- est Expense................ 1.79x 0.93x 1.00x 0.93x 0.76x (l) 0.99x ADJUSTED DATA TO REFLECT OFFERINGS BEFORE CUMULA- TIVE EFFECT OF ACCOUNTING CHANGES: (UNAUDITED)(m) Net Income (Loss)(m)........ $ 4,412 $(36,495) Net Income (Loss) per Share...................... $ 0.24 $ (2.04) Ratio of Earnings to Fixed Charges(n)................. 1.07x 0.01x EBITDA to Interest Expense(g)................. 1.48x 0.85x
- -------- (a) Fiscal 1993 results reflect the Company's adoption, in the third quarter, of changes to certain elements in the application of accounting principles relating to long-term programs and contracts, including the expensing of general and administrative costs that were previously carried in inventory for amortization over future deliveries. The amounts also reflect the Company's adoption of SFAS No. 106, "Employers Accounting for Post- Retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes." The accounting changes described above were effective August 1, 1992. As a result, periods prior to August 1, 1992 are not comparable. (b) Fiscal 1993 results reflect the Company's changed accounting policy to expense general and administrative expenses as incurred; these expenses were previously inventoried. (c) Includes the impact of net provisions of $25.0 million for plant closure, inventory obsolescence and other asset valuations, other costs related to the planned consolidation process and various items of litigation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Fiscal 1993 Compared to Fiscal 1992." The impact of the accounting change on fiscal 1993 was a reduction to operating profit of $39.9 million. (d) Includes the impact of special provisions of approximately $50.0 million for the termination of the Lockheed C-5 spare pylon program, the Valsan 727 re-engining program, an investigation by government agencies concerning production of parts and a provision for the closing of the Auburn plant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Fiscal 1992 Compared to Fiscal 1991." (e) In the third quarter of fiscal 1993, the Company changed certain of its accounting principles as described in note (a) above. These changes required the Company to calculate the effect of the change in accounting principles on retained earnings as of the first day in the fiscal year of change. (f) Excludes off-balance sheet financing. See "Capitalization." (g) EBITDA is defined as earnings before the cumulative effect of the accounting changes, interest and other income, interest expense and taxes on income (benefit) and depreciation, amortization and the impact of the special provisions referred to in notes (b) and (c) above. EBITDA is presented here to provide additional information about the Company's ability to meet its future debt service, capital expenditure, and working capital requirements and should not be construed as substitute for or a better indicator of results of operations or liquidity than net income or cash flow from operating activities computed in accordance with generally accepted accounting principles. (h) Includes capitalized interest; excludes additions to property, plant and equipment financed by industrial revenue bonds and capital leases. (i) For purposes of determining the ratio of earnings to fixed charges, the term "earnings" represents income (loss) before cumulative effect of accounting changes, plus income tax (benefit) and fixed charges excluding capitalized interest. The term "fixed charges" represents interest expense, capitalized interest, amortization of debt issue expense and the portion of operating lease rental expense considered to be representative of an interest factor. Historical earnings were insufficient to cover fixed charges by $14,886 for the six months ended January 31, 1993 and $51,184 for fiscal 1993, $19,312 for fiscal 1992 and $9,604 for fiscal 1990. 21 (j) The Pro Forma Data to Reflect Accounting Changes (Unaudited), assumes the changes in the application of accounting principles for long-term programs and contracts adopted by the Company effective August 1, 1992, are applied retroactively. The pro forma amounts presented also reflect the retroactive application of SFAS No. 109, "Accounting for Income Taxes" to the periods presented--periods which predate both the Company's adoption of SFAS No. 109 and the release of that standard. Tax benefits arising pursuant to SFAS No. 109, "Accounting for Income Taxes," are allocated ratably over the pro forma restated periods. The pro forma restated effect of the Company's adoption of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions" are not material and are not presented. The pro forma financial data should not be considered indicative of actual results that would have been achieved had the accounting changes adopted by the Company effective August 1, 1992 been in effect for the periods indicated and do not purport to indicate result of operations as of any future date or for any future period. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", and the "Consolidated Financial Statements of Rohr, Inc. and Subsidiaries" and the Notes thereto, included elsewhere in this Prospectus.
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ------------------ ---------------------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 1990 1989 -------- -------- ---------- ---------- ---------- ---------- ---------- PRO FORMA INCOME STATEMENT DATA (UNAUDITED): Sales.................. $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677 Cost and Expenses...... 439,719 594,568 1,133,040 1,242,240 1,321,792 1,092,150 996,313 General and Administrative Expenses.............. 13,446 22,467 43,800 53,002 49,288 49,784 41,651 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Income (loss)................ 31,658 8,969 (1,688)(c) (15,586)(d) 14,006 (63,222) 6,713 Interest Net........... 23,681 22,770 47,883 63,373 53,701 40,606 28,964 -------- -------- ---------- ---------- ---------- ---------- ---------- Income (Loss) Before Taxes................. 7,977 (13,801) (49,571) (78,959) (39,695) (103,828) (22,251) Tax (Benefit) on Income................ 242 (5,286) (18,990) (42,688) (16,797) (45,359) (13,571) -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss)...... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680) ======== ======== ========== ========== ========== ========== ========== Pro Forma Ratio of Earnings to Fixed Charges............... 1.31x 0.40x 0.01x (l) 0.30x (l) 0.33x
(k) The calculation of pro forma EBITDA is shown below (unaudited):
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31, ----------------- --------------------------------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- -------- ------- Operating Income, as Re- ported................. $31,658 $ 8,969 $ (1,688)(c) $ 45,558(d) $100,578 $ 31,605 $75,044 Less Changes in the Ap- plication of Account- ing Principles for Long-Term Programs and Contracts............. -- -- -- 61,144 86,572 94,827 68,331 ------- ------- -------- -------- -------- -------- ------- Pro forma Operating In- come (Loss)............ 31,658 8,969 (1,688) (15,586) 14,006 (63,222) 6,713 Add Depreciation and Am- ortization............. 11,693 12,648 25,578 27,855 27,721 27,040 24,836 ------- ------- -------- -------- -------- -------- ------- Pro Forma Earnings...... 43,351 21,617 23,890 12,269 41,727 (36,182) 31,549 Add Special Provisions.. -- -- 25,000 50,000 -- -- -- ------- ------- -------- -------- -------- -------- ------- Pro Forma EBITDA........ $43,351 $21,617 $ 48,890 $ 62,269 $ 41,727 $(36,182) $31,549 ======= ======= ======== ======== ======== ======== =======
(l) Negative numbers as losses were incurred. (m) The unaudited adjusted data to reflect the Offerings assumes the financial data has been adjusted for the effect of the Offerings and the corresponding repayment of the outstanding balance under the Revolving Credit Agreement and short-term bank debt as of the first day of each fiscal period and assumes no exercise of the Underwriter's over-allotment option. (n) Ratio of earnings to fixed charges as adjusted to reflect the Offerings, reflect the issuance of the Senior Notes and the Convertible Subordinated Notes (assuming no exercise of the Underwriter's over-allotment option), and the application of the proceeds therefrom, as if the Offerings had been consummated as of the first day of each fiscal period. On such basis, earnings were insufficient to cover the pro forma fixed charges by $60,769 for fiscal 1993. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis presents management's assessment of material developments affecting the Company's results of operations, liquidity and capital resources for the three years ended July 31, 1993 and the six months ended January 30, 1994. These discussions should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto. Comparisons between periods may not be meaningful because of significant changes the Company made in certain of its accounting policies, effective August 1, 1992, as discussed in "--Accounting Changes," and the substantial provisions taken in the third quarters of fiscal 1992 and 1993. On certain long-term programs under which the Company sells spares directly to the airlines, the Company accounts for profit and loss under the program method of accounting. Under the program method of accounting, the quantity of units in the profit center includes existing and anticipated contracts and is predicated upon market forecasts, which have inherent uncertainties. Included within the program quantity are spares anticipated to be sold concurrent with production units which, as a percentage of total deliveries, increase as a program matures and historically have been sold at higher prices than production units. As spares and production units are both included in the program quantity, higher margins are reported in the early program years based upon anticipated production and spare orders in the future. Programs for which the Company uses the program method of accounting and for which spares are significant are as follows: V2500, CF6-80C, CFM56-5, A340 and MD-90. Market forecasts continue to support the reasonableness of the projected spares included in program quantities. See "Notes to Consolidated Financial Statements--Note 1b." COMPANY OUTLOOK As a result of the slow down in the commercial aerospace industry and reductions in the Company's military and space programs (see "Risk Factors-- Industry Cycles; Current Business Outlook" and "Business--Markets"), the Company's revenues decreased approximately 8% from fiscal 1991 to fiscal 1992 and approximately 8% from fiscal 1992 to fiscal 1993. Revenues for the first six months of fiscal 1994 were approximately 23% less than for the comparable period in fiscal 1993. In response to these conditions, management has taken aggressive actions to increase competitiveness, improve earnings, maximize cash flow and reduce debt. The Company has reduced its workforce from a peak of approximately 12,100 at July 31, 1989, to approximately 6,500 at July 31, 1993, and 5,154 at January 30, 1994. The Company's new management has also focused on reducing the ratio of indirect employees to direct employees. From April 30, 1993 to January 30, 1994, this ratio improved from 1-to-2.0 to 1-to-2.6. Management has targeted a ratio of 1-to-2.8 by July 31, 1994. Management has also established a total overhead expense budget equal to 29% of sales for fiscal 1994, which compares to a high of 41% of sales in fiscal 1989 and 32% of sales for the 12 months ended January 30, 1994. To reduce excess capacity and to increase overall production efficiencies through higher utilization of its remaining facilities, the Company has closed and sold its Auburn, Washington plant, is closing its Hagerstown, Maryland plant and has deferred completion of a new facility in Arkadelphia, Arkansas. The Company also has reduced capital expenditures from an average of $45 million per year over the last five fiscal years to a planned expenditure of $7 million in fiscal 1994. Average expenditures over the next four years are not expected to exceed $20 million per year. The Company has also increased its focus on its core business within the commercial aerospace industry--the design and manufacture of nacelle and pylon systems for large commercial aircraft. The Company intends to focus exclusively on these products and to be the low cost producer in this 23 segment. The Company is currently in negotiations to sell two non-core businesses, its business jet product line and its overhaul and repair business. These two businesses generated approximately $35 million of revenue in fiscal 1993. RESULTS OF OPERATIONS First Six Months Fiscal 1994 Compared to First Six Months Fiscal 1993 Total sales for the first six months of fiscal year 1994 were $484.8 million, down $141.2 million or 22.6% from the first six months of fiscal year 1993. Commercial sales during the first six months of fiscal year 1994 were down compared to the same period of fiscal year 1993 due primarily to reductions in deliveries. Government sales for the comparative period declined due primarily to a reduction in the delivery rate on the Titan program. Commercial sales aggregated 88% and government sales 12% of the Company's total sales in the first six months of fiscal year 1994. Operating income increased to $31.7 million for the first six months of fiscal year 1994, up from $9.0 million for the same period of fiscal year 1993. A significant contributor was reduced general and administrative expenses which declined $9.1 million from $22.5 million for the first six months of fiscal 1993 to $13.4 million for the first six months of fiscal 1994. The decline was primarily the result of work force reductions and other ongoing cost cutting efforts. Fiscal 1994 results were adversely impacted by a reduction in sales volume on several programs. Fiscal 1993 results were impacted by losses on tooling and design efforts and cost problems related to certain programs, a loss on the 727 re-engining program, and $5 million for additional provisions related to various litigation uncertainties. Operating income in the first six months of fiscal year 1994 was also impacted by a less favorable follow-on contract on the Titan program. Net interest expense was $23.7 million for the first six months of fiscal year 1994 compared to $22.8 million for the same period last year. While total financings have declined, interest rates paid by the Company have increased primarily due to the replacement of certain variable rate financings with long- term fixed rate financing. Earnings for the first six months of fiscal year 1994 were a positive $7.7 million or 43 cents per share compared to a loss of $8.5 million or 48 cents per share (before the cumulative effect of the accounting change) for the same period last year. The Omnibus Budget Reconciliation Act, adopted in August 1993, increased federal tax rates, thus causing the deferred tax asset shown on the balance sheet to increase and taxes on income to decrease for the first six-months of fiscal year 1994. This resulted in a one time increase in net income of $2.8 million and earnings per share of 16 cents. The first six-months of fiscal year 1993 were additionally impacted by a loss of $223.9 million, net of taxes, or $12.52 per share, due to the cumulative effect for the changes in the application of accounting principles through July 31, 1992, adopted on a retroactive basis in the third quarter of fiscal year 1993. Additional Items The Company is still experiencing softness in orders by airlines for spare components, which caused the Company to revise its spares delivery forecast in the near term on certain programs. See "--Fiscal 1993 Compared with Fiscal 1992." The Company has notified its customer on the V2500 program that it has exercised its contractual right to terminate the contract in 1995 so the Company will not be required to accept orders under the current contract terms after mid-year 1995. The Company is discussing possible alternative contractual arrangements with its customer under which it would continue with the program. In addition, anticipated spares deliveries for the V2500 program have been revised downward in the near term and the Company now expects to incur the total loss previously booked on this program. 24 The Company and its actuary are evaluating the extent to which the downsizing of personnel may necessitate the expensing of unamortized pension benefit past service costs related to the termination of employees. This evaluation and the recognition of its financial impact is expected to be complete by the end of the third quarter of fiscal 1994. See "Risk Factors--Underfunded Pension Plans." Fiscal 1993 Compared with Fiscal 1992 Sales declined from $1,279.7 million in fiscal 1992 to $1,175.2 million in fiscal 1993. Commercial sales benefited from deliveries on the Airbus A340 program, and start-up of the MD-90 program. However, commercial sales in fiscal 1993 were negatively impacted by reductions in the delivery rate of large commercial aircraft. See "Risk Factors--Industry Cycles; Current Business Outlook" and "Business--Markets." Government sales for the comparable period declined due to events in the previous year, including the termination of the C-5 spare pylon program and completion of F-14 production deliveries. Commercial sales aggregated 87% and government sales 13% of total sales. Total general and administrative expenditures declined $9.2 million from $53.0 million in fiscal 1992 to $43.8 million in fiscal 1993. The decline was primarily the result of work force reductions, postponement of annual wage increases, and other ongoing cost cutting efforts. General and administrative expenses in fiscal 1993 were charged as a period expense. General and administrative expenditures for fiscal 1992 were, in part, inventoried and relieved through cost of sales as units were delivered. This change was made as part of the change in application of accounting principles discussed in "-- Accounting Changes." The Company reported an operating loss of $1.7 million for fiscal 1993 compared to an operating profit of $45.6 million for fiscal 1992. Fiscal 1993 operating income was negatively impacted by $39.9 million due to the change in application of accounting principles relating to long-term programs and contracts. See "--Accounting Changes." These changes will also continue to impact results negatively in the near term, but are expected to positively impact operating results in the long-term. Results for the year were also adversely affected by net provisions aggregating $25.0 million for plant closure, inventory obsolescence and other asset valuations, other costs related to the planned consolidation process, and various items of litigation. In addition, results reflect a reduction in anticipated sale of spare parts on the V2500, CF6-80C, CFM56-5 and A340 programs. The Company generally attributes recent reductions in spares sales to the surplus aircraft in the current market place. As a result of such surplus, aircraft deliveries have declined and the initial spares sold to support newly delivered aircraft have also declined. In addition, airlines are maintaining lower spares levels; the existence of surplus aircraft has reduced the need for spares supplies sufficient to keep an airline's entire fleet in operation. Also, improved production quality appears to have reduced spares requirements. In addition, fiscal 1993 results reflected increased costs associated with assembly labor performance and subcontractor changes on the PW300 program and certain out-of-production spare programs. Operating results in fiscal 1992 were adversely impacted by a number of special provisions approximating $50 million. Paramount was a provision for potential losses arising as a result of the government's termination for default of the C-5 spare pylon program. See "Notes to the Consolidated Financial Statements-- Note 8." Operating results for fiscal 1992 were also impacted by provisions relating to the Company's investment in the Valsan 727 re-engining program, which was negatively impacted by delayed implementation of U.S. noise regulations, and by provisions for closure of the Company's Auburn facility and future settlement of possible criminal and civil proceedings concerning certain government programs. In fiscal year 1992, operating results were also impacted by cost problems on certain "out-of production" spares programs. In fiscal 1993, the Company achieved better labor performance than in fiscal 1992. This is attributed, in part, to the generally higher seniority level of the Company's work force as a result of the Company's recent downsizing activities. 25 Estimates of anticipated spare part sales were reduced on the McDonnell Douglas MD-90 program resulting in a decline of projected operating income from this program in future years. Negotiation of a new long-term agreement on the PW4000 program resulted in revised cash flow estimates that delayed recovery of the Company's investment on that program. Net interest expense was $47.9 million for the year ended July 31, 1993, as compared to $63.4 million for the same period the previous year. The 1992 period included a charge of $18.3 million during the third quarter of fiscal 1992 for interest cost attributed to the IRS audit adjustment to the Company's 1984 and 1985 federal tax returns. The 1993 period also includes interest expenses for income tax liabilities. Net of the interest for income tax liabilities, interest expense in 1993 was lower than in fiscal 1992 due to lower average borrowings and lower interest rates. Net loss was $254.5 million for the year ended July 31, 1993, as compared to income of $1.5 million for fiscal 1992, primarily as a result of the $224.0 million charge for the cumulative effect of the accounting changes described under "--Accounting Changes," the effect of the accounting change in 1993 of $39.9 million ($24.6 million after tax) and the $25.0 million ($15.4 million after tax) special provision. The net loss for the year ended July 31, 1993 is net of tax benefits totaling $158.0 million. These tax benefits offset existing deferred tax liabilities at July 31, 1992 and resulted in a net deferred tax asset of $103.0 million at July 31, 1993. Fiscal 1992 Compared With Fiscal 1991 Commercial sales declined during fiscal 1992 compared to fiscal 1991 due to a reduction in deliveries on certain programs reflecting changing economic conditions and a reduction in sales resulting from a subcontractor delivering directly to the customer. Government sales declined due to the termination of the C-5 spare pylon program and the completion of F-14 production deliveries. Commercial sales aggregated 86% and government sales 14% of total sales compared to 80% and 20% for fiscal 1991. The Company reported an operating profit of $45.6 million for fiscal 1992 compared to an operating profit of $100.6 million for fiscal 1991. Fiscal 1992 operating results were adversely impacted by a number of third quarter special provisions approximating $50.0 million, plus approximately $5.5 million during the third quarter related to the state franchise tax effect of special charges. The special provisions included charges for the termination of the Lockheed C-5 spare pylon program, the Valsan 727 re-engining program, an investigation by government agencies concerning production of parts, and a provision for the closing of the Auburn plant. In addition, commercial programs during fiscal 1992 benefited from some improved pricing and, based on aircraft orders and options placed by airlines, an increase in the program quantity and spare part sales estimates for the General Electric CF6-80C and CFM International CFM56-5 nacelle programs, which were in turn offset by a reduction in sales volume. Government programs during fiscal 1992 continued to be adversely impacted by disruption from redefined acceptance criteria by the government. Also of significance was the completion of the F-14 production program and the benefit from improved cost performance at the Space division. The Company revised its overhead cost rates used in its program cost estimates to reflect a declining production base anticipated in future years. Fiscal 1992 operating results included an estimate of recovery on the KC-135 program for constructive change claims related to government redefined acceptance criteria. Fiscal 1991 operating results included an additional estimate of recovery on the Boeing E3/E6 program and an initial estimate of recovery on the Lockheed C-5 production and spare pylon programs related to government redefined acceptance criteria, as well as an estimate of recovery on the PW4000 program related to tooling and design change activity. 26 Operating results were limited by the inability to achieve profitable results on several major programs. Among these were the V2500, MD-11 pylon and PW4000 programs, which have been impacted by delays and increased labor cost estimates for bonding and assembly operations plus tooling and design support services. An A320 order by United Airlines improved the market outlook for the V2500 program, although spares sales were still below original expectations delaying recovery of the Company's program investment. Negotiations on the PW4000 contract and the resolution of major design changes for the MD-11 program improved the financial status during the fourth quarter of fiscal 1992 of these major programs. Program estimates on the Airbus A340 nacelle program continued to be negatively influenced by delays in delivery of the initial program quantity, a reduction in anticipated spare part sales, increased start-up costs and higher than planned bonding and assembly costs. These revised estimates indicate a less than planned return in the future on investment for this program. Interest expense was increased $18.3 million during the third quarter of fiscal 1992 to reflect the interest cost of federal income tax adjustments. These tax adjustments have offset previously expected tax deductions, and the related interest income accrual. Interest on indebtedness was lower than for fiscal 1991 due to lower average borrowings and lower rates. An income tax benefit was recorded during fiscal 1992 as a result of the pretax loss. The benefit was higher than the amount computed at statutory tax rates due to additional benefits from tax planning items and, most importantly, utilization of tax reserves in connection with the federal income tax interest adjustment discussed above. The effective income tax rate, which is expressed as a ratio of tax expense to pretax income, was substantially higher in fiscal 1992 compared to fiscal 1991 because benefits from utilization of tax reserves and tax planning items increase the rate when there is a pretax loss. LIQUIDITY AND CAPITAL RESOURCES For the first six months of fiscal year 1994, net cash provided by operating activities totaled $44.9 million compared with a use of cash of $35.6 million for the same period of the prior year. Net cash provided by operating activities was $78.7 million in fiscal 1993 and $110.3 million in fiscal 1992. In recent periods, net cash provided by operating activities included one-time receipts by the Company for design and tooling efforts and similar non- recurring tasks. Net cash from operating activities also included accelerated payments for delivered production hardware in the first six months of fiscal 1994, and the receipt of certain amounts that had been deferred pending aircraft certification in fiscal 1993 and 1992. Net cash provided by operations is subject to significant variations from period to period. The Company's total financings (balance sheet debt plus off-balance sheet financings) aggregated $587 million at January 30, 1994, down $56.9 million from July 31, 1993. Total indebtedness as reflected on the Company's balance sheet decreased by $48.2 million from $531.6 million on July 31, 1993 to $483.4 million on January 30, 1994. During the first six months of fiscal year 1994, the Company repaid its $35 million medium term note and made the annual $12.5 million principal payment on its 9.35% senior notes. The Company's liquidity has improved over the last year, primarily as a result of cash flow generated from operating activities. However, as a result of its credit rating and the financial community's concerns about the aerospace industry, the Company has generally been unable to utilize uncommitted and certain other credit facilities which historically have been available to it. A bank that provided a letter of credit in support of certain Company obligations recently extended the letter of credit for an additional year. The Company is seeking the renewal of or replacement of another letter of credit which is scheduled to expire in July 1994. If the Company does not obtain a renewal or substitute letter of credit, it will be required to fund approximately $17 million of obligations currently supported by the letter of credit. 27 On January 30, 1994, the Company had $50 million of borrowings under its committed Revolving Credit Agreement, no change from borrowings of $50 million on July 31, 1993. Upon completion of the Offerings, the Revolving Credit Agreement will be amended to provide for a three-year commitment and will contain revised financial covenants which were negotiated to permit the Offerings contemplated by this Prospectus and the expected increases in underfunded pension liabilities (which are discussed in greater detail below). See "Risk Factors--Underfunded Pension Plans" and "Description of Certain Financings." The Company is a party to a $60 million accounts receivable facility under which it sells receivables from specified customers on an on-going basis. As a result of the slow-down in the aerospace industry, the amount of outstanding receivables from these customers has fallen below levels which existed at the start of the facility. As a result, the Company has deposited cash collateral from time to time as required to support the facility and has withdrawn such cash when it is no longer required to be deposited. At January 30, 1994, the Company had $7 million of cash collateral on deposit. The Company is also a party to certain equipment leases and has granted the lessors a security interest in selected customer receivables to secure $10 million of obligations. If the parties who lease this equipment to the Company do not assign approximately one-half of their beneficial interests in the leased equipment to other parties by January 1995, the equipment lessors may require the Company to prepay up to $10 million of its equipment lease obligations. The Company's existing debt level reflects the substantial investments made by the Company in the late 1980s and early 1990s to design and begin production on several major long-term programs. Except for the MD-90, the Company has substantially completed the large investments required by these programs and most are now well into production. The industry is expected to introduce relatively few new programs in the next several years and, accordingly, the Company believes that its financing requirements for new programs have been reduced as compared to prior periods. At July 31, 1993, the underfunded status (excess of projected benefit obligations over plan assets) of the Company's defined benefit plans had increased to $65.6 million. This underfunded status resulted from a combination of factors including benefit increases, increased levels of early retirements, less than the actuarially-assumed returns on plan assets and a reduction in the discount rate used to calculate the present value of future pension plan liabilities for financial reporting purposes. Considering current interest rate levels, the Company anticipates reducing its discount rate to 7.5% for its fiscal year 1994 valuation from the 8.5% used for its 1993 valuation, which will substantially increase the Company's accrued pension benefit obligation. In addition, the Company has continued to experience a higher level of early retirements than actuarially anticipated which is also expected to significantly increase the accrued pension benefit obligation. The Company anticipates that the expected increases in the underfunded pension liabilities will approximate $75 million and will result in a charge to shareholders' equity estimated at $45 million and an estimated $30 million increase to the Company's deferred tax asset account. The Company and its actuary are also evaluating the extent to which the downsizing of personnel may necessitate the expensing of unamortized pension benefit past service costs related to terminated employees. This matter does not affect the underfunded status of the plans but would result in a charge to earnings. The evaluation of all of these items and the recognition of the related financial impact is expected to be completed by the end of the third quarter of fiscal 1994. See "Risk Factors-- Underfunded Pension Plans." The Company's required minimum annual contribution to its defined benefit plan, which is directly impacted by the plans' funded status, has increased from $15.3 million for calendar year 1992 to $19.0 million for calendar year 1993. The Company expects that IRS regulations will require it to increase its annual cash contributions to the Pension Plans for several years. These regulations are designed to 28 substantially eliminate pension plan underfunding within five years. The Company expects to have sufficient liquidity to make these increased contributions. The Company's principal financing agreements have covenants pertaining to indebtedness (which is defined to include the underfunded pension liabilities), to shareholders' equity (which would be affected by any charge to equity caused by an increase in underfunded pension liabilities), and to the ratio of net income to fixed charges (which would be affected by any increase in pension expense). However, the Company and the lenders under these agreements have agreed on revised financial covenants to accommodate the financial effect of the pension issues described above. The revised financial covenants will become effective upon the sale of the Securities. On January 21, 1994, the Company announced that it had signed letters of intent to sell its business jet product line and certain assets of a wholly owned subsidiary, Rohr Aero Services, Inc. The revenue generated from these operations has approximated $35 million in each of the last two fiscal years. In preparation for the sale of the assets of Rohr Aero Services, Inc., the Company adjusted carrying values of assets downward by $0.7 million during the second quarter of fiscal 1994. In the aggregate, a net gain is anticipated upon sale of these assets. In March 1994, the purchaser of these two lines of business placed a $7.8 million deposit in escrow. One-half of this deposit is nonrefundable under certain circumstances. The Company recently sold its Auburn, Washington plant (which was closed in fiscal year 1993) and is seeking to sell its Hagerstown, Maryland manufacturing facility which is excess to projected capacity needs. The Company's net inventory decreased to $412.2 million at January 30, 1994 from $439.7 million at July 31, 1993. Excess-over-average and production inventory declined reflecting the increased maturity of newer programs, the reduced sales volume and the efforts of management to control inventory levels through shorter lead times and just-in-time contracts. These reductions were partially offset by an increase in pre-production inventory, primarily in the MD-90 and A340 programs and in a new application of the V2500 program. The changes in the application of accounting principles adopted by the Company in fiscal 1993 substantially decreased net inventory from its level at July 31, 1992. See "--Accounting Changes" and "Notes to the Consolidated Financial Statements--Note 2." The Company's receivables decreased from $133.2 million on July 31, 1992 to $94.1 million at both July 31, 1993, and January 30, 1994, due to several large receipts by the Company for tooling, design changes and similar non-recurring tasks, as well as the receipt of certain amounts deferred pending aircraft certification. This decrease was net of a $45 million reduction in the receivables sales arrangement which, by itself, would have increased receivables by $45 million. See "Notes to the Consolidated Financial Statements--Note 3." Capital expenditures (including expenditures funded by industrial revenue bonds and capital leases) averaged $45 million per year over the past five fiscal years. Capital expenditures for property, plant and equipment totaled $2.9 million for the first six months of fiscal year 1994, down from $18.9 million in the first six months of fiscal year 1993. Capital expenditures in the first six months of fiscal year 1993 were higher due in large part to expenditures for new office and manufacturing facilities. In addition, the Company has substantially curtailed its previously planned capital expenditures for the balance of fiscal year 1994 in line with other cost cutting efforts and anticipates such expenditures will not exceed an average of $20 million per year over the subsequent four years. Given its substantial recent investments, the Company believes that the amount it plans to spend on capital expenditures over the next several years will be sufficient to meet the Company's production requirements. The Company's firm backlog, which includes the sales price of all undelivered units covered by customers' orders for which the Company has production authorization, was approximately $1.3 billion at January 30, 1994 compared to $1.4 billion at July 31, 1993. Approximately $0.4 billion of the $1.3 billion backlog is expected to be delivered in the remainder of fiscal year 1994. (Sales during any period 29 include sales which were not part of backlog at the end of the prior period.) Customer orders in firm backlog are subject to rescheduling and/or termination for customer convenience; however, in certain cases the Company is entitled to an adjustment in contract amounts. The Company has an additional $2.7 billion in anticipated backlog, which represents the sales price of units which the Company expects that its customers will order under existing contracts and the Company will deliver within seven years. The Company believes that, after the completion of the Offerings, its principal sources of liquidity over the next several years will be cash flow from operations, available cash, borrowings under the Revolving Credit Agreement and the pending asset sales. Based upon current levels of operations and anticipated future business, the Company believes that these sources will be adequate to meet its anticipated requirements for working capital, capital expenditures and debt service during that period. ENVIRONMENTAL MATTERS The Company has been identified as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), and under certain analogous state laws for the cleanup of contamination resulting from past disposal of hazardous substances at several sites to which the Company, among others, sent such substances in the past. CERCLA requires the cleanup of sites from which there has been a release or threatened release of hazardous substances, and authorizes the Environmental Protection Agency ("EPA") to take any necessary response actions at such sites, including ordering PRPs to cleanup or contribute to the cleanup of a Superfund site. Courts have interpreted CERCLA to impose strict, joint and several liability upon all persons liable for response cost. In June 1987, the U.S. District Court of Los Angeles, in U.S. et al, vs. Stringfellow, granted partial summary judgment against the Company and 14 other defendants on the issue of liability under CERCLA. On November 30, 1993, the special master released his "Findings of Fact, Conclusions of Law and Reporting Recommendations of the Special Master Regarding the State Share Fact Finding Hearing," allocating liability between the State of California and other parties. See "Legal and Environmental Proceedings--Stringfellow." The most recent estimate the Company has made of its liability, assuming the court order allocating substantial liability to the State of California is upheld, assuming the 1989 EPA estimate of total cleanup costs is not exceeded (although the EPA cautioned the actual costs could have a variation of 30% less or 50% higher than its estimate), and assuming tentative allocations among the Company and all other users of the site will approximate the final allocation of aggregate user liability, shows a Company expenditure ranging from $5 to $8 million over and above sums spent to date. This amount is within the sums accrued on the books of the Company for potential offsite environmental liability. However, the Company estimates further assume that the EPA selects a final remedial action of moderate technology and cost, rather than one of several more radical ones previously suggested, but apparently discarded at this point, by the EPA. The decision on the final remedial action is still being studied and may be made in 1994 or later. Expenditures by the Company for cleanup of this site during fiscal 1993 were not material, although cleanup costs for Stringfellow are expected to be approximately $1 million during fiscal 1994. From inception to July 31, 1993, the Company has expended approximately $2.5 million on cleanup costs for this site. Amounts within the above estimated $5 to $8 million range of future liability are expected to be paid for remedial work over the next several years under agreements and consent decrees entered into between the EPA, the Company and numerous other PRPs. Applicable law provides for continuing liability for future remedial work beyond these agreements and consent decrees, although the Company believes its reserves are adequate for its portion of such liability if all of the above assumptions are correct. The Company also has claims against its comprehensive general liability insurers for insurance reimbursement, for past and future costs, none of which has yet been recorded in the financial records of the Company except for sums actually paid in certain insurance settlements and certain legal fees which the insurers have been reimbursing. Based on the foregoing analysis, the Company believes that costs of remedial actions for the Stringfellow site will not have a material effect on the Company's financial condition, liquidity or results of operation. 30 The Company is also involved in several other proceedings and investigations related to waste disposal sites and other environmental matters. The Company has made claims against its insurance carriers for certain of these items, and has received claims acknowledgment letters reserving the rights of such carriers. As in the case of the Stringfellow site, the insurers have alleged or may allege defenses to coverage, although no litigation has been commenced. It is difficult to estimate the ultimate level of environmental expenditures for these various other environmental matters due to a number of uncertainties at this early stage, including the complexity of the related laws and their interpretation, alternative cleanup technologies and methods, insurance and other recoveries, and in some cases the extent or uncertainty of the Company's involvement. See "Legal and Environmental Proceedings" for a more detailed discussion of the range of the Company's potential liability. During the year ended July 31, 1993, the Company expended, for the environmental items described above and also for other environmental matters (including environmental protection activities in the normal operation of its plants), a total of approximately $6 million. These expenditures covered various environmental elements, including hazardous waste treatment and disposal costs, environmental permits, environmental consultants, fines or donations (which were not material, either individually or in the aggregate) and environmental remediation (including Stringfellow), no significant part of which was capitalized. Assuming the usage of all of these various environmental elements remains substantially the same for fiscal 1994 as in fiscal 1993, which the Company anticipates, costs for these elements in fiscal year 1994 should be comparable to the expenditures for fiscal 1993, except for the indicated higher sum expected to be paid for Stringfellow remediation in fiscal 1994. Based upon presently available information, the Company believes that aggregate costs in relation to all environmental matters of the Company will not have a material adverse effect on the Company's financial condition, liquidity, results of operations or capital expenditures. ACCOUNTING CHANGES In the third quarter of fiscal 1993, the Company changed certain elements of its application of accounting principles relating to long-term programs and contracts, effective August 1, 1992. As a result of these changes, certain costs previously carried in inventory for amortization over future deliveries are now being expensed. These costs include certain pre-certification costs, consisting primarily of tooling and design expenses in excess of negotiated contractual values, that are now expensed as identified. In addition, general and administrative costs that were previously capitalized are now being expensed as incurred. Following a thorough review of its accounting policies, the Company concluded there was a need, particularly in light of the current aerospace environment, to have financial results more closely reflect near-term program economics (cash flow and internal rate of return). As a result, these changes generally reduce the number of production units and spares used in the calculation of overall profit margins. While the previous methods of applying the Company's accounting principles were in accordance with generally accepted accounting principles (GAAP), the changed policies are preferable. The application of these policies produces program and contract estimates that are based on shorter delivery periods, allowing a better matching of revenues and expenses. The cumulative effect of these changes for the periods through July 31, 1992 was a charge of $219.7 million, net of income tax benefits of $136.3 million. The effect of these changes on the year ended July 31, 1993 was to increase the net loss before the cumulative effect of the changes in accounting principles by $24.6 million ($1.37 per average common share), net of income tax benefits of $15.3 million. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," pro forma amounts are shown for net loss and net loss per average share of common stock for all prior periods presented. The pro forma amounts presented in the Consolidated Statements of Operations reflect the retroactive application of these accounting changes, net of income tax benefits (which were allocated ratably over the pro forma restated periods) for each period presented. Primarily as a result of these changes, excess-over-average inventory decreased from $323.7 million at July 31, 1992 to $75.4 million at July 31, 1993. Pre-production inventory also decreased from $258.4 million at July 31, 1992 to $181.0 million at July 31, 1993, primarily as a result of the accounting changes. See "Notes to the Consolidated Financial Statements--Note 4." 31 In the third quarter of fiscal 1993, the Company also adopted, effective August 1, 1992, SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other than Pensions." The accumulated post-retirement benefit obligation for active employees and retirees was recorded using the immediate recognition transition option. See "Notes to the Consolidated Financial Statements--Note 9b." This standard requires companies to accrue the expected cost of providing health care benefits to retired employees and their dependents during the employees' service periods. The Company previously charged the cost of providing these benefits on a pay-as-you-go basis. The cumulative effect of this change for the periods through July 31, 1992, was a charge of $4.3 million, net of income tax benefits of $2.7 million. The effect of the change on the year ended July 31, 1993 was not material. In the third quarter of fiscal 1993, the Company also adopted, effective August 1, 1992, SFAS No. 109, "Accounting for Income Taxes." See "Notes to the Consolidated Financial Statements--Note 6." The cumulative effect of this change for periods through July 31, 1992, was not material by itself. However, under this standard, the Company recorded a substantial net deferred tax asset as a result of the other changes in accounting principles and certain other charges recorded in the year ended July 31, 1993. See "Notes to the Consolidated Financial Statements--Note 6." The combined effect of adopting the new accounting changes for the year ended July 31, 1993 was a charge to net income of $24.6 million ($1.37 per average common share). The cumulative effect through July 31, 1992 of adopting the new accounting changes was a one-time charge of $224.0 million, net of income taxes ($12.50 per average common share), with a corresponding reduction in shareholders' equity. As a result of adopting the accounting changes, combined with the results of operations for the year ended July 31, 1993, the Company reported a loss of $254.5 million ($14.21 per average common share). The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) No. 112, Employers' Accounting for Post-Employment Benefits. The new standard is effective for fiscal years beginning after December 15, 1993 and requires employers to recognize the obligation to provide post-employment benefits to former or inactive employees, their beneficiaries, and covered dependents, when certain conditions are met. The Company does not expect there to be a material adverse effect on its financial position or results of operations in the year of adoption. INCOME TAXES First Six Months of Fiscal 1994 The Company provided $3.1 million for income taxes during the first six months of fiscal year 1994, offset by a tax benefit of $2.8 million due to the change in federal tax rates under the Omnibus Budget Reconciliation Act of 1993. The Company's deferred tax asset of $102.6 million remained substantially unchanged from the amount at July 31, 1993 but is expected to increase by approximately $30 million due to increased pension liability by the end of fiscal year 1994. See "Risk Factors--Underfunded Pension Plans," "Risk Factors--Deferred Tax Asset" and "--Liquidity and Capital Resources." Based on currently available information, the Company believes that sufficient future taxable income will be generated to fully utilize the increased deferred tax asset. The Company's ability to utilize its deferred tax asset is discussed in greater detail below. The IRS has audited the Company's tax returns through fiscal 1985. In fiscal 1993, the IRS issued a Revenue Agent's Report challenging the Company's adoption in 1984 of the completed contract method of accounting ("CCMA"), the Company's tax deduction for funding liabilities related to a Voluntary Employee Benefit Association ("VEBA") and certain other matters. The Company filed a protest with the Appeals Office of the IRS and, subsequent to the end of the second quarter of fiscal 1994, the IRS conceded that the Company was entitled to use CCMA. The Company is negotiating a resolution of the remaining adjustment issues with the IRS. The Company believes that the resolution 32 of these remaining issues will not have a material adverse effect on the Company and its financial position, even if the IRS were to prevail with respect to all of such issues. Fiscal 1993 In the third quarter of fiscal 1993, the Company adopted, effective August 1, 1992, SFAS No. 109, "Accounting for Income Taxes." This standard requires the recognition of future tax benefits, predicated upon current tax law, attributable to tax credit carryforwards, temporary differences, and NOLs that will result in deductible amounts in the future. The value of the tax asset is effectively reduced through the establishment of a valuation allowance if, based on the weight of available evidence, it is "more likely than not" that some or all of the deferred tax asset will not be realized. When tax effected at July 31, 1993 tax rates, the Company's deductible temporary differences, tax credit carryforwards and NOLs result in a deferred tax asset of $103.0 million, consisting of $85.3 million for federal tax purposes and $17.7 million for state tax purposes. Based on tax rates in effect on July 31, 1993, the Company must generate approximately $271 million of future taxable income (net of $233 million of taxable income that the Company will report as a result of the automatic reversal of existing taxable temporary differences between asset and liability values for financial reporting and income tax purposes) prior to the expiration of the Company's NOLs in 2003 through 2008 for full realization of the net deferred tax asset. The Company believes it will be able to generate, on average, at least $27 million in net income for each of the next 10 years, in order to fully utilize the deferred tax asset (assuming all temporary differences between asset and liability values for financial reporting and income tax purposes reverse during that period). This level of net income would be $57.6 million in excess of reported fiscal 1993 net loss of $30.6 million before the effect of the accounting changes. The ultimate realization of the Company's deferred tax asset is dependent upon the generation of sufficient future taxable income during the available federal and state NOL carryforward periods. Although the Company has reported taxable losses during recent fiscal years primarily as a result of the significant non-recurring events described below, management expects that a sufficient level of taxable income will result in years subsequent to fiscal 1993 and prior to the expiration of the NOLs to realize the deferred tax asset recorded at July 31, 1993. The Company's long-term contracts and programs require long range sales and profit forecasts, but also provide the Company opportunities to generate future taxable income necessary to realize the deferred tax asset recorded. Following is a summary of the positive evidence which leads the Company to believe that a valuation allowance is not necessary, as it is more likely than not that the deferred tax assets will be realized: . During fiscal years 1990 through 1993, there were a number of highly unusual and unpredictable events and other industry factors that caused the Company to have poor financial results. These items are generally described below. The aerospace industry was experiencing unprecedented growth in the late 1980s and through 1991. The Company was required to deliver its products more rapidly and was involved in several new product development efforts for a number of engine nacelles and pylons. The Company added a significant number of engineers to handle design changes for new products under development, and experienced even greater engineering demands due mostly to difficulties in changing the PW4000 nacelle from the Airbus A300/A310 configuration to the new MD- 11 configuration and in developing the MD-11 pylon. The Company's rapid expansion of its work force, introduction of new programs and start-up of satellite facilities were extremely disruptive and cost consuming. As the Company worked to produce initial units under new programs, a substantial portion of work was being performed by relatively inexperienced employees. Additionally, there were significant start-up costs in relocating production among facilities. The Company also experienced difficulties on its government programs as a result of disagreements over redefined acceptance criteria. 33 . The conditions leading to an expanding work force, transfers to satellite plants and heavy use of engineers on new programs have drastically changed. Currently, the Company and the industry are in a downturn with orders being delayed and/or cancelled. The Company has been downsizing and will continue to do so in response to the market. Management has implemented and will continue to make significant cost reductions in response to the industry downturn in order to enhance overall profitability. Additionally, the Company should be able to utilize its resources in a more balanced and stable manner. Engineering needs have been drastically reduced as most of the programs that were in the development stage throughout the late 1980s and early 1990s have been introduced to the market. Significant design costs for new product development are not anticipated over the next several years. . The Company's direct sales of spare parts to the airlines are expected to increase as nacelle programs on which the Company sells spare parts directly to the airlines mature. Generally, the Company earns a higher margin on the direct sales of spare parts to airlines than it does on the sales of spare parts to prime contractors (for resale to the airlines). Prices for direct spare part sales are higher than prices for spare parts sold to prime contracts, in part, because of additional costs related to the technical and customer support activities provided to the airlines. . The Company's assets present significant opportunities to accelerate taxable income into the NOL carryforward period. Tax planning strategies such as leveraged lease transactions, the sale-leaseback of certain property, the revision of depreciation methods for tax purposes and reductions in foreign sales corporation commissions could generate taxable income of approximately $16 million, $32 million, $28 million and $35 million, respectively. The following table shows the taxable income that will need to be generated over the next 20 years in order to realize the deferred tax asset:
5-YEAR TIME INTERVAL --------------------------------------- 1994-98 1999-2003 2004-08 2009 & BEYOND ------- --------- ------- ------------- (DOLLAR AMOUNTS IN MILLIONS) NOLs................................... $ 0 $27 $159 $ 0 Tax credits............................ 0 14 8 0 Future deductible temporary differ- ences................................. 0 0 0 296 --- --- ---- ---- Total.............................. $ 0 $41 $167 $296 === === ==== ====
Future deductible temporary differences begin to reverse in fiscal 1994. Taxable income needed to realize the portion of the deferred tax asset related to future deductible temporary differences will need to be generated before the end of the 15-year period following the reversal of those temporary differences. The availability of the Company's NOLs may be limited under the Tax Reform Act of 1986 as a result of changes that may occur in the ownership of the Company's stock in the future, principally relating to a change in control. Management has considered this factor in reaching its conclusion that it is "more likely than not" that future taxable income will be sufficient to realize fully the deferred tax asset reflected on the Balance Sheet. 34 BUSINESS GENERAL The Company designs, develops, manufactures, sells and supports complete nacelle and pylon systems for large aircraft engines. The Company has over 50 years of experience in the aerospace industry and is the leading independent supplier of nacelle and pylon systems to the world's major commercial airframe and engine manufactures ("OEMs"). Rohr manages projects from the early design stage through production and systems integration to lifetime customer support. In addition, the Company has the right to provide customer and product support directly to approximately 145 airlines around the world, including on-site field services and the sale of spare parts. Nacelles are aerodynamic structures which surround and attach jet engines to aircraft. A nacelle system generally includes the nose cowl or inlet, fan cowl, nozzle systems, thrust reverser and engine build-up. Pylons (sometimes referred to as struts) are structures that attach the jet engines to the aircraft. Nacelle and pylon systems are highly engineered, critical to fuel efficiency and integral to all of the key interfaces between the jet engine and the airframe. The Company believes that it is competitively well-positioned in its core business. Management estimates that the Company supplied, by value, approximately 45% of the nacelle systems and 25% of the pylons for all large commercial aircraft produced worldwide in 1993, including products represented on the Boeing 737, 747, 757 and 767, the Airbus A300, A310, A320, A321, A330 and A340, and the McDonnell Douglas MD-80, and MD-11. The Company attributes its strong market position to its leading technologies, its focus on a narrow product line and its competitive cost structure. Management believes that this market position is protected by (i) long-term contracts including some life-of- program agreements, (ii) substantial costs for the airframe or engine OEMs to change supply sources, (iii) significant up-front design, development, tooling and certification costs which must be borne before production on a program may begin and (iv) a strong reluctance by airlines to support different nacelle systems manufactured by more than one supplier in their fleets. MARKETS Commercial Airline Industry Commercial airlines' demand for new aircraft is highly dependent upon consumer demand for air travel, stability of fuel and ticket prices, replacement of older aircraft (which is influenced by the time required for, and the economics of, compliance with noise and maintenance regulations), the availability of temporarily deactivated aircraft, and the financial capabilities of the airlines and leasing companies to accept ordered aircraft and to exercise aircraft purchase options. Such demands and capabilities historically have been related to the stability and health of the United States and world economies. Since the production of aircraft can take up to two years, production in the aircraft manufacturing industry (including production by subcontractors such as the Company) can lag behind changes in the general economy. In 1990 through 1992, airlines' passenger capacity increased rapidly as the commercial aircraft industry produced record numbers of aircraft, peaking with 830 aircraft in 1991. During this same period, the United States and world economies experienced recession and slow growth, United States scheduled airlines reported operating losses averaging approximately $2 billion per year, while non-United States scheduled airlines reported significantly reduced profits. In 1991, United States and world airline passenger traffic decreased by 1.9% and 2.8%, respectively. This was the first year in the history of the industry that world airline passenger traffic had decreased. As a result of these conditions, orders for new aircraft slowed substantially and some existing orders and options for new commercial aircraft were cancelled or rescheduled to later dates. 35 In 1993, United States scheduled airlines achieved approximately $1 billion of operating profit. In addition, world airline passenger traffic grew by 6.9% in 1992 and 4.5% in 1993. Industry analysts have predicted that worldwide airline passenger traffic will grow approximately 5% to 6% per year over the long-term. The following table sets forth the worldwide revenue passenger miles ("RPMs") and the percentage growth in RPMs, as reported in the March 1993 Boeing Current Market Outlook--World Market Demand and Airplane Supply Requirements, and the number of commercial aircraft (over 100 passengers), as reflected in Boeing World Jet Airplane Inventory Year-End 1992 (after adjustment for deliveries of aircraft to the military), delivered during each of the last 15 calendar years.
COMMERCIAL AIRCRAFT PERCENT (OVER 100 WORLD RPMS GROWTH PASSENGERS) YEAR (IN BILLIONS) IN RPMS DELIVERED ---- ------------- ------- ----------- 1979................................... 645.4 12.0% 407 1980................................... 652.0 1.0 442 1981................................... 662.4 1.6 431 1982................................... 683.7 3.2 287 1983................................... 714.9 4.6 320 1984................................... 771.2 7.9 265 1985................................... 831.1 7.8 346 1986................................... 888.0 6.8 393 1987................................... 983.9 10.8 418 1988................................... 1061.2 7.9 511 1989................................... 1097.6 3.4 563 1990................................... 1165.7 6.2 671 1991................................... 1133.6 (2.8) 830 1992................................... 1211.8 6.9 785 1993................................... 1298.7(a) 4.5(a) 628(b)
- -------- (a) Estimated by the Company based upon data for the first eight months of fiscal 1993 as reported by The Airline Monitor. (b) Based upon Company estimates. Commercial Aircraft Manufacturing Industry As shown above, aircraft deliveries have been declining. The industry delivered 830 new commercial transport aircraft in 1991, 785 in 1992 and 628 in 1993. In response to the deferral and cancellation of orders from their customers, airframe and engine manufacturers have rescheduled future production levels, laid off workers, shortened employee work periods, and passed production slowdowns on to their suppliers, including the Company. Although aircraft order backlog remains relatively high, excess capacity currently exists in the airline industry due to the high number of deliveries in the early 1990s, unused aircraft which were previously delivered and the weakened condition of the airline industry. In connection with the current contraction in the commercial aircraft industry, subcontractors such as the Company have been experiencing pressures from their customers to reduce prices. The Company, in turn, is exerting similar pressure on its own suppliers to reduce prices and thus enable the Company to manufacture products at lower costs. The Company's commercial airline customers have also reduced their spare parts inventory levels. The Company expects that orders for and deliveries of commercial aircraft will continue to be affected through calendar 1995 by the adverse United States and world economic conditions which existed in recent periods. 36 Government Sales The Company's government business is declining as a result of the completion of older production programs and, in the case of the Titan rocket motor casing program, reduced demand. Government business represented 12% of the Company's sales for the six months ended January 30, 1994, as compared to 13% in fiscal 1993, 14% in fiscal 1992 and 20% in fiscal 1991. CONTRACTS Most of the Company's major commercial contracts establish a firm unit price, subject to cost escalation, over a number of years or, in certain cases, over the life of the related program. Life-of-program agreements generally entitle the Company to work as a subcontractor in the program during the entire period the customer produces its aircraft or engine. While the customer retains the right to terminate these long-term and life-of-program arrangements, there are generally significant costs for doing so. The Company's long-term contracts generally contain escalation clauses for revising prices based on published indices which reflect increases in material and labor costs. Furthermore, in almost all cases, when a customer orders production schedule revisions (outside of a range provided in the contract) or design changes, the contract price is subject to adjustment. These long-term contracts provide the Company with an opportunity to obtain increased profits if the Company can improve production efficiencies over time, and the potential for significant losses if it cannot produce the product for the agreed upon price. The Company's other commercial contracts generally provide a fixed price for a specified number of units which, in many cases, are to be delivered over a specified period of time. Under these contracts, prices are re-negotiated for each new order. As a result, the Company has the opportunity to negotiate price increases for subsequent units ordered if production costs are higher than expected. The Company's customers, however, may seek price reductions from the Company in connection with any new orders they place. On its longer-term contracts, the Company bases initial production prices on estimates of the average cost for a portion of the units which it and its customer believe will be ordered. Generally, production costs on initial units are substantially higher during the early years of a new contract or program, when the efficiencies resulting from learning are not yet fully realized, and decline as the program matures. Learning typically occurs on a program as tasks and production techniques become more efficient through repetition of the same manufacturing operation and as management implements actions to simplify product design and improve tooling and manufacturing techniques. If the customer orders fewer than the expected number of units within a specified time period, certain of the Company's contracts have repricing clauses which increase the prices for units that have already been delivered. However, other contracts do not include such repricing provisions and force the Company to bear certain market risks. The Company analyzed the potential market for the products under such contracts and agreed to prices based on its estimate of the average costs for the units it expected to deliver under the program. Many of the Company's contracts have provided for the recovery of a specified amount of nonrecurring, pre-production costs, consisting primarily of design and tooling costs. In some cases, a significant portion of such pre-production costs have been advanced by the customer. However, in negotiating some contracts, the Company has agreed to defer recovery of pre-production costs and instead to recover a certain amount of such costs with the sale of each production unit over an agreed number of production units plus spare equivalents. In addition, on some of these contracts, based on its analysis of the potential market for the products covered by such contracts, the Company agreed to amortize pre-production costs over a number of units which was larger than the anticipated initial fabrication orders without the protection of a repricing clause or guaranteed quantities of orders. On 37 other commercial contracts, the Company receives advance payments with orders, or other progress or advance payments, which assist the Company in meeting its working capital requirements for inventories. In government contracts, the Company receives progress payments for both pre-production and inventory costs. To reduce its pre-production and inventory requirements and market risks, the Company has subcontracted substantial portions of several of its programs. See "--Subcontractors." In accordance with practices in the aircraft industry, most of the Company's commercial orders and contracts are subject to termination at the convenience of the customer and on many programs the tooling and design prepared by the Company are either owned by the customer or may be purchased by it at a nominal cost. The contracts generally provide, upon termination of firm orders, for reimbursement of costs incurred by the Company, plus a reasonable profit on the work performed. The costs of terminating an entire contract or program can be significantly greater for the customer than the costs of terminating specific firm orders. All of the Company's government contracts are subject to termination at the convenience of the government. In such a situation, the Company is entitled to recover the costs it incurred prior to termination, plus a reasonable profit on the work performed. If a government contract is terminated for default, the government's remedies against the Company are similar to those for breach of a commercial contract. PRODUCTS General The Company designs and manufactures nacelle systems, nacelle components, pylons, non-rotating components for jet engines, and other components for commercial, military and business aircraft. A nacelle system generally includes the nose cowl or inlet, fan cowl, nozzle systems, thrust reverser and EBU. The nacelle houses electrical, mechanical, fluid and pneumatic systems together with various panels, firewalls and supporting structures; the aircraft engine (which is provided by the customer); and engine equipment such as electrical generators, starters, fuel pumps and oil coolers (which are purchased or customer-furnished). The Company also performs EBU by assembling nacelle systems and the related electrical, mechanical, fluid and pneumatic systems onto core aircraft engines. The following page contains a picture of major propulsion system components, including the nacelle system, jet engine and pylon. 38 PROPULSION SYSTEM COMPONENTS 39 During fiscal 1993, sales to the commercial (including business jets) and government (military and space) aerospace industries were approximately 87% and 13% of sales, respectively. Commercial The Company manufactures nacelle systems (including thrust reversers), nacelle components and related parts for commercial aircraft pursuant to the customer's design or to the Company's design based on the customer's specifications. In addition, beginning in approximately 1985, the Company expanded its role and became a systems integrator for nacelle systems on several programs, with responsibility for the integration and management of the design, tooling, manufacture and delivery of the complete nacelle system. Approximately 85% of the existing commercial aircraft fleet contain one or more Company products as part of their nacelle, thrust reverser or pylon systems. The following tables identify all of the large commercial aircraft currently in production or committed to production, list all of the engine options available on such aircraft, and identify with an "X" the components which the Company delivers on each aircraft and engine combination. CURRENT NARROW-BODY AIRCRAFT
NACELLE - ------------------------------------------------------------------------------------- NOSE FAN CORE NOZZLE THRUST AIRCRAFT ENGINE COWL COWL COWL & PLUG EBU REVERSER PYLON - ------------------------------------------------------------------------------------- Boeing 737-3/4/500 CFM56-3 X X . - ------------------------------------------------------------------------------------- Boeing 737-700 CFM56-7 * * . - ------------------------------------------------------------------------------------- Boeing 757 RB211-535 X . X X X ------------------------------------------------------ PW2037 X - ------------------------------------------------------------------------------------- McDonnell Douglas MD-80/-87 JT8D-209/-217 X X . . X X X - ------------------------------------------------------------------------------------- McDonnell Douglas MD-90 V2500 X X . X X X - ------------------------------------------------------------------------------------- Airbus A319 CFM56-5 X X . X X X ------------------------------------------------------ V2500 X X . X X X - ------------------------------------------------------------------------------------- Airbus A320 CFM56-5 X X . X X X ------------------------------------------------------ V2500 X X . X X X - ------------------------------------------------------------------------------------- Airbus A321 CFM56-5 X X . X X X ------------------------------------------------------ V2500 X X . X X X - ------------------------------------------------------------------------------------- British Aerospace BAe 146 ALF502 - ------------------------------------------------------------------------------------- Fokker 100 RR TAY
* The Company is negotiating with Boeing to supply these components under a directed procurement. . This nacelle configuration does not contain this component. 40 CURRENT WIDE-BODY AIRCRAFT ------------------------
NACELLE - ------------------------------------------------------------------------------ NOSE FAN CORE NOZZLE THRUST AIRCRAFT ENGINE COWL COWL COWL & PLUG EBU REVERSER PYLON - ------------------------------------------------------------------------------ Boeing 747 CF6-80C X X X --------------------------------------------------- PW4000 --------------------------------------------------- RB211-524G X - ------------------------------------------------------------------------------ Boeing 767 CF6-80C X X X --------------------------------------------------- PW4000 --------------------------------------------------- RB211-524H X - ------------------------------------------------------------------------------ Boeing 777 GE90 X --------------------------------------------------- PW4084 --------------------------------------------------- TRENT 800 - ------------------------------------------------------------------------------ Airbus A300 CF6-80C X X X X --------------------------------------------------- PW4000 X X . X X X - ------------------------------------------------------------------------------ Airbus A310 CF6-80C X X X X --------------------------------------------------- PW4000 X X . X X X - ------------------------------------------------------------------------------ Airbus A330 CF6-80E X X X X --------------------------------------------------- PW4168 --------------------------------------------------- TRENT 700 X - ------------------------------------------------------------------------------ Airbus A340 CFM56-5C2 X X . X X X - ------------------------------------------------------------------------------ McDonnell Douglas MD-11 CF6-80C2 X X X X X --------------------------------------------------- PW4000 X X . X X X X
This nacelle configuration does not contain this component. 41 Principal Programs - ------------------ The following descriptions provide more information on certain of the Company's major programs. For more detailed financial data (including the amounts of pre-production and excess-over average inventories at January 30, 1994) for certain programs, see "Notes to the Consolidated Financial Statements--Note 4." A340 The Company's 1989 contract with CFM International, the manufacturer of the jet engine used on the Airbus A340, is a life-of-program contract. The Company has delivered 182 production units to CFM International through January 30, 1994. The Company's contract establishes prices for the entire contract period, subject to adjustment based on labor and material cost changes in the industry, for each nacelle delivered. If the Company does not recover a contractually specified amount of its nonrecurring costs by June 1997, CFM International will reimburse it for the unamortized portion of such costs (and, correspondingly, the Company will reimburse its subcontractors for the unamortized portions of their investments, to contractually specified amounts, in nonrecurring tooling and design). Although the contract provides for the recovery of recurring costs over 600 units, CFM International only guaranteed the recovery of such costs for the first 200 units. Accordingly, if the Company sells fewer than 600 units, it would not have manufactured enough units to bring its costs down to anticipated levels and in such case would not recover all of its recurring manufacturing costs. This is the only nacelle installed on the A340 aircraft. The Company acts as the systems integrator on this program and has subcontracted most of the A340 nacelle production to third parties. Generally, the Company's subcontractors have assumed the market risk associated with the failure to sell sufficient units to permit full recovery of all of their manufacturing costs if less than 600 units are delivered. The Company performs engine build-up for the CFM International engine used with this nacelle at its factory in Toulouse, France. The Company has the right to sell A340 nacelle spare parts directly to the airlines. CF6-80C Under the contract for the CF6-80C nacelle program entered in 1982 with General Electric, the Company supplies the nacelle system, excluding the thrust reverser, nozzle and plug, for installation with the General Electric CF6-80C engine on the Airbus A300 and A310 and the McDonnell Douglas MD-11. In total, the Company has delivered 1,499 production units through January 30, 1994. This is a life-of-program agreement, although General Electric retains the right to seek bids on the design and production of significantly modified CF6-80C components. In addition, since 1983, the Company has sold CF6-80C nacelle components directly to Boeing (under a license agreement with General Electric) for installation with General Electric engines on Boeing 747 and 767 aircraft. The Company's contract with Boeing runs through 1995; Boeing has an option to renew the contract at that time. The sales prices to General Electric and Boeing are established for the life of the program, subject to adjustment based on material and labor cost changes in the industry. The Company has the right to sell CF6-80C spare parts directly to the airlines. Although the Company subcontracts some portion of this contract, most of the production effort is performed by the Company. CFM56 The Company acts as a systems integrator to provide the nacelle system to Airbus for the CFM International engine installed on the A320 and A321 aircraft and to be installed on the future A319 aircraft. Since entering the contract in 1984, the Company has delivered 626 production CFM56 nacelles through January 30, 1994. As on other programs in which the Company acts as systems integrator, the Company subcontracts a major portion of the CFM56 nacelle system effort to third parties. The Company also manufactures the inlet barrels for the nacelle. It also performs engine build-up for this engine and nacelle combination at its factory in Toulouse, France and intends to perform 42 engine build-up for a version of this engine and nacelle combination at its factory in Hamburg, Germany. The Company's sales prices to Airbus are determined for a combined total of 2,000 units, subject to adjustment based on labor and material cost changes in the industry. The Company has the right to sell CFM56 nacelle system spare parts directly to airlines. MD-11 Under its 1988 contract with McDonnell Douglas for the MD-11 pylon, the Company supplies the wing and tail pylons that attach the General Electric CF6- 80C and Pratt & Whitney PW4000 nacelles onto the McDonnell Douglas MD-11 jumbo jet. In total, the Company has delivered 364 production units through January 30, 1994. The contract entitles the Company to supply the first 900 pylons (i.e. 300 shipsets) required by McDonnell Douglas. The contract establishes prices for the units to be delivered, subject to adjustment based on labor and material cost changes in the industry. On the basis of its market analysis of demand for the MD-11 aircraft, the Company accepted certain market risks with respect to the engineering, development and flight test costs on the MD-11 pylon program. The Company subcontracts the wing pylon structure and aerodynamic pylon fairings. The Company's subcontractor assumed the market risk associated with the pre-production costs for the subcontracted work. The Company produces the tail pylon structure, installs all electrical, hydraulic and pneumatic systems on the wing and tail pylons and provides pylon product support (including the sale of spare parts) directly to the airlines who purchase the MD-11. MD-90 The Company acts as a systems integrator for the nacelle used with the International Aero Engines V2500 engine on the McDonnell Douglas MD-90, an aircraft currently undergoing flight certification. The Company has delivered only the initial certification units on this program. The first production units are scheduled for delivery in mid-1994. As with other programs on which it acts as a systems integrator, the Company subcontracts a substantial portion of the MD-90 nacelle effort to third parties, retaining production of the nozzle and other parts and engine build-up services. The Company's 1990 contract with International Aero Engines specifies that the Company shall be the sole source for the first 750 MD-90 nacelles. The Company's contract establishes prices, subject to adjustments based on labor and material cost changes in the industry, for MD-90 nacelles through the year 2010. This is the only engine and nacelle combination used on the MD-90. Based upon its analysis of the market for the MD-90, the Company accepted certain market risks in the contract for this nacelle. As a result, if the Company sells fewer MD-90 nacelles than it assumed for pricing purposes, it would not receive sufficient payments from International Aero Engines to offset its pre-production costs and would not receive retroactive price increases to compensate it for production costs on delivered units that are higher than expected average production costs over the life of the program. The Company's subcontractors on the MD-90 nacelle have assumed those market risks associated with pre-production and higher-than- average initial production costs on the components they manufacture. The Company has the right to sell MD-90 nacelle spare parts directly to the airlines. PW4000 Under the PW4000 nacelle program, the Company produces substantially the entire nacelle system, including thrust reverser (except for the tail fan cowl for the MD-11, which is subcontracted). An existing contract was amended in 1985 to include this program, and the Company has delivered 556 production units to its customer, Pratt & Whitney, through January 30, 1994. The Company is currently developing design changes intended to result in cost savings on this program. The PW4000 nacelle is installed on the Airbus A300 and A310 and the McDonnell Douglas MD-11. The Company has the right to produce PW4000 nacelles through 2002 and has negotiated prices, subject to adjustment based on cost changes in the industry, through the 1,117th unit (or through the year 2002, 43 if sooner). The contract provides for an equitable price adjustment if 500 units are not delivered after January 1993 and prior to December 31, 2002. The Company sells PW4000 spare parts to Pratt & Whitney, which remarkets them to the airlines. RB211-535 Since entering a production contract with Rolls-Royce in 1978, the Company has delivered approximately 708 production units of the RB211-535 nacelle through January 30, 1994. The Company manufactures substantially all of the components under this program, which includes the fan cowl, nozzle and plug and thrust reverser for installation on Boeing 757 aircraft. Under the contract, the Company has the right to produce the nacelle through the earlier of January 2001 or the delivery of 1,000 units. The Company's contract gives it the right to compete to produce variations of RB211-535 nacelle components for installation on other aircraft. It is possible that the RB211-535 engine and nacelle may be installed as replacement equipment on the Tupolov 204 to improve its performance and efficiency. The Company's contract with Rolls-Royce establishes prices for the entire contract period, subject to adjustment based on labor and material cost changes in the industry. The Company has the right to sell RB211-535 nacelle spare parts directly to the airlines. V2500 The Company also acts as a systems integrator on the nacelle it provides for the International Aero Engines V2500 engine. It subcontracts a major portion of the V2500 nacelle effort to third parties. The Company manufactures the thrust reverser inner fixed structure and the nozzle and plug, and performs engine build-up for this engine and nacelle combination at its factories in Toulouse, France and Hamburg, Germany. This engine and nacelle combination is installed on the Airbus A320 and A321 aircraft. Since entering the contract in 1985, the Company has delivered 327 production V2500 nacelles to International Aero Engines through January 30, 1994. The Company's sales prices to International Aero Engines are established for the entire contract period, subject to adjustment based on labor and material cost changes in the industry. Based upon its analysis of the market for this engine and nacelle combination, the Company accepted certain market risks in the contract for this nacelle. As a result, if the Company sells fewer V2500 nacelles than it assumed for pricing purposes, it may not receive sufficient payments from International Aero Engines to offset its pre-production costs (primarily tooling and design). In addition, the Company would have delivered units at prices below the expected average production costs over the life of the program and may not receive retroactive price increases on the delivered units to reflect their actual costs. The Company's subcontractors on the V2500 nacelle have assumed those market risks associated with pre-production and higher-than-average initial production costs for the components they manufacture. The contract, which was entered into in March of 1985, provides that it may be terminated by either party upon two years' written notice, but not earlier than ten years from the contract date. In accordance with that provision, the Company has notified International Aero Engines that it will not continue the program under the current contractual terms for orders received after mid-year 1995. The Company and International Aero Engines are discussing possible alternative contractual arrangements under which the Company would continue on this program. The Company has the right to sell V2500 nacelle spare parts directly to the airlines. Government (Military and Space) For military aircraft, the Company manufactures nacelles for the Lockheed Corporation ("Lockheed") C-130 propjet transport aircraft and nacelle components for re-engining of existing Boeing KC-135 military aerial refueling tankers. For the U.S. space program, the Company is delivering solid fuel rocket motor nozzles and insulated casings for boosters which are used on the Titan Space Launch Vehicle. 44 Spare Parts The Company sells spare parts for both commercial and military aircraft, including those for aircraft in use but no longer in production. Such sales were approximately $227 million in fiscal 1991, $192 million in fiscal 1992, $169 million in fiscal 1993 and $66 million in the first six months of fiscal 1994. The Company generally attributes recent reductions in spares sales to the surplus aircraft in the current marketplace. As a result of such surplus, aircraft deliveries have declined and the initial spares sold to support newly delivered aircraft have also declined. In addition, airlines are maintaining lower spares levels; the existence of surplus aircraft has reduced the need for spares supplies sufficient to keep an airline's entire fleet in operation. Also, improved production quality appears to have reduced spares requirements. Historically, the Company has sold spare parts for commercial programs to airframe or engine manufacturers which then resold them to the end user. However, in recent years, under certain programs, the Company has acquired the right from its customers to sell spare parts directly to airlines (although on certain programs royalty payments to its customers are required). The contracts that grant these rights to the Company generally require that the Company provide technical and product support directly to the airlines. Thus, the Company has the right to provide customer and product support directly to approximately 145 airlines worldwide. The Company's direct sales of spare parts to the airlines are expected to increase in the future as nacelle programs on which the Company sells spare parts directly to the airlines mature and as the aircraft using those nacelles age. Generally, the Company earns a higher margin on the direct sale of spare parts to airlines than it does on the sale of spare parts to prime contractors (for resale to the airlines). Prices for direct spare part sales are higher than prices for spare parts sold to prime contractors, in part, because of additional costs related to the technical and customer support activities provided to the airlines. The Company's direct sales of spare parts as a percentage of total sales of spare parts were 48.7%, 36.6%, 27.4% and 18.8% in the first half of fiscal 1994 and in fiscal 1993, 1992 and 1991, respectively. PROGRAM FUNDING The highly competitive nature of the aerospace market has required the Company to commit substantial financial resources, largely for working capital, to participate with its customers on certain long-term programs. Those working capital requirements consist primarily of nonrecurring pre-production costs such as design and tooling, recurring costs for inventories and accounts receivable. In some cases, a significant portion of the pre-production costs have been advanced by the customer. However, in negotiating some contracts, the Company has agreed to defer recovery of pre-production costs and instead to recover a certain amount of such costs with the sale of each production unit over an agreed number of production units plus spares equivalents. On some commercial contracts, the Company receives advance payments with orders, or other progress or advance payments, which assist the Company in meeting its working capital requirements for inventories. In government contracts, the Company receives progress payments for both pre-production and inventory costs. To reduce both its pre-production funding requirements and the build-up of program inventories, the Company has entered into agreements with subcontractors to provide a portion of the program funding needs and has subcontracted to these entities substantial portions of many of its programs. See "--Subcontractors." Advances and progress payments have varied in the past and are subject to change in the future based on changes in both commercial and government procurement practices and governmental regulations. Any future change could affect the Company's need for program funding. Accounts receivable balances vary in accordance with various payment terms and other factors including the periodic receipt of large payments from customers for reimbursement of nonrecurring costs or for amounts which had been deferred pending aircraft certification. 45 Given the large number of major commercial aircraft programs introduced since 1985, and the present industry environment, the Company expects few new programs to be introduced within the next several years and, accordingly, the Company believes that its financing requirements for new programs have been reduced as compared to prior periods. The Company's primary sources of program funding have been funds generated from operations and borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." MANUFACTURING The Company's products are manufactured and assembled at its facilities in the United States and Europe by an experienced workforce. The Company considers its facilities and equipment generally to be in good operating condition and adequate for the purpose for which they are being used. In addition, it has a substantial number of raw material suppliers and numerous subcontractors to produce components, and in some cases, major assemblies. The Company has state-of-the-art capabilities, and one of the largest capacities in the aircraft industry, for metal and composite bonding of lightweight honeycomb panels used in its nacelles, pylons and thrust reversers. In its bonding process, the Company uses autoclaves (industrial ovens), which are up to 20 feet in diameter and 35 feet long, to cure adhesives and composites under controlled pressures up to 20 atmospheres and temperatures up to 850 degrees Fahrenheit. The Company also employs other heavy equipment, such as fluid forming presses which use highly pressurized oil to form sheet metal against single-sided dies at pressures up to 20,000 pounds per square inch and other traditional hydraulic forming equipment, to create the highly specialized parts used in its products. The Company uses state-of-the-art superplastic forming to heat metal until it is pliable and then to form it under gas pressure into a complex part; utilizes advanced laser cutting in a variety of applications; and has established modern assembly operations in its satellite plants. The Company's European final assembly sites, which are located adjacent to the Company's major European customer, Airbus, allow the Company to respond quickly to this customer's needs. The Company believes that these European sites provide it with advantages in obtaining certain contracts with Airbus because they allow the Company to perform a portion of the required work in Europe. PRINCIPAL CUSTOMERS Rohr conducts substantial business with each of the three major commercial airframe manufacturers: Boeing, Airbus and McDonnell Douglas. In addition, Rohr conducts business with each of the major commercial jet engine manufacturers: General Electric, Rolls-Royce, Pratt & Whitney, CFM International (a corporation jointly owned by General Electric and Societe Nationale d'Etude et de Construction de Moteurs d'Aviation) and International Aero Engines (a corporation owned by Rolls-Royce, Pratt & Whitney, Fiat Aviazione, SpA, Japanese Aero Engines Corporation and MTU Motoren und Turbinen Union Munchen GmbH). With respect to government (military and spares) sales, the Company's major customers include Boeing, Lockheed, United Technologies Corporation (Chemical Systems Division) and the United States government. 46 The Company's direct sales to its major customers, including related program spares, expressed as a percentage of total sales, during the following periods are summarized below:
YEAR ENDED SIX MONTHS ENDED JULY 31, ----------------------- ---------------- JANUARY 30, JANUARY 31, 1994 1993 1993 1992 1991 ----------- ----------- ---- ---- ---- Pratt & Whitney....................... 17% 19% 17% 15% 16% General Electric...................... 16 12 14 12 12 International Aero Engines............ 15 8 9 7 4 CFM International..................... 9 8 8 2 -- McDonnell Douglas..................... 8 13 11 18 14 Boeing................................ 8 11 11 15 14 Rolls-Royce........................... 8 6 8 7 8 Lockheed.............................. 4 2 3 3 3 Airbus Industrie...................... 2 8 6 8 12 U.S. Government*...................... 1 1 1 2 4 Grumman............................... 0 0 0 1 6 Other................................. 12 12 12 10 7 --- --- --- --- --- 100% 100% 100% 100% 100%
- -------- * Total sales to the U.S. Government (including direct sales and indirect sales through prime contractors) accounted for 12%, 11%, 13%, 14% and 20% for the first six months in fiscal 1994 and 1993, and in fiscal 1993, 1992 and 1991, respectively. The Company's percentage of total sales by customer varies from period to period based upon the mix of products delivered in such periods. Commercial products sold by the Company to jet engine manufacturers are ultimately installed on aircraft produced by one of the three major commercial airframe manufacturers. Sales to foreign customers accounted for 23%, 25%, 25%, 22% and 21% for the first six months of fiscal 1994 and 1993, and for fiscal 1993, 1992 and 1991, respectively. BACKLOG The Company's backlog is significant to its business because the production of most Company products involves a long lead time from order to shipment date. Firm backlog represents the sales price of all undelivered units for which the Company has fabrication authority. Firm backlog includes units ordered by a customer although the Company and the customer have not yet agreed upon a sales price. In such cases, the Company records in backlog an amount it believes (based upon all available information) is a reasonable price estimate. The Company also reports anticipated backlog, which represents the sales price of units which the Company expects (based upon all available information) that its customers will order under existing contracts and the Company will deliver within the next seven years. The Company's firm backlog at January 30, 1994, was approximately $1.3 billion, compared to $1.4 billion at July 31, 1993. Of such backlog, approximately $0.4 billion is scheduled for delivery on or before July 31, 1994, with the balance to be delivered in subsequent periods. A portion of the Company's expected sales from January 30, 1994, through July 31, 1994, is not included in firm backlog. Anticipated backlog approximated $2.7 billion at January 30, 1994 compared to $2.6 billion at July 31, 1993. All of the Company's firm and anticipated backlog is subject to termination or rescheduling at the customer's convenience. The Company's contracts generally provide for reimbursement of costs incurred, plus a reasonable profit on such costs, with respect to any firm orders that are terminated. Historically, it has been rare for a customer to cancel units in firm backlog because of its obligations to the Company with respect to such units and its obligations to suppliers of components other than nacelles and pylons, who frequently are producing concurrently components for use with the units ordered from the Company. 47 MARKET SHARE AND COMPETITION The Company believes that, based upon its estimates of market values, it supplied approximately 45% of the nacelle, thrust reverser and engine build-up products (approximately 70% excluding products produced by Boeing for its own aircraft), and over 25% of the jet engine pylons (approximately 90% excluding pylons produced by Boeing and a partner of Airbus for Boeing and Airbus aircraft, respectively), delivered to the commercial aircraft market in 1993. The Company's share of these market segments includes the value of products produced by the Company's subcontractors and is subject to fluctuation each year depending upon the mix of aircraft models delivered to customers. Approximately 85% of the existing commercial aircraft fleet contain one or more Company products on their nacelle, thrust reverser or pylon systems. The Company sells products and services to the three major commercial airframe manufacturers, to the five major jet engine manufacturers and, in the case of spare parts and certain product support services, to a substantial number of airlines. The Company's commercial products represented 87% of its business in the fiscal year ended July 31, 1993. Market discussions and references to aircraft production exclude consideration of the markets in the former U.S.S.R. Over the next several years, the Company expects its key subcontractors to produce components and, in some cases, major assemblies, representing approximately one-third of the value of the products and services to be delivered by the Company during such period. See "Subcontractors." The Company's principal competition is Boeing (which in addition to being a Company customer also manufactures nacelle systems and pylons for its own aircraft), other significant aerospace corporations who have development and production experience with respect to portions of the nacelle system and the companies to whom the Company has subcontracted various components and who could (and have) bid on contracts in competition with the Company. See "-- Subcontractors." Military aerospace contractors are also potential competitors, as excess capacity created by reductions in defense spending could cause some of these contractors to look to expand in commercial markets. The Company believes that its capabilities and technology, which range from research and development through component design and testing, flight certification assistance, component production and integration and airframe production line assistance, contribute significantly to its market position. The Company also believes that its contractual rights to participate on programs for long periods of time or, in some cases, over the life of programs also contribute to the maintenance of its market position. See "--Contracts." Even with respect to its shorter term contracts, the Company is very likely to continue working as a subcontractor for the prime contractors well beyond the end of the existing shorter term contracts. The Company has long standing relationships with all of its significant customers. The Company's continued participation on existing programs provides cost advantages to the prime contractors because it avoids the cost of disassembling, moving, reassembling and recalibrating the customized tooling used to manufacture aerospace products which would be necessary if a program were transferred to a new subcontractor at the end of a short-term contract. In addition, the delays inherent in such transfer are likely to disrupt the prime contractor's own production schedule as the flow of deliveries from the subcontractor is interrupted during the transfer. It is also generally more expensive for a new subcontractor to begin producing products in the middle of an existing program than it is for the Company to continue producing the required products. A new subcontractor's employees must learn program specific tasks with which the Company's employees will already be familiar. See "Contracts." As a result of all of these factors, it is very unusual for a prime contractor to shift a major aerospace subcontract from one manufacturer to another at the end of a short-term contract. Competitive factors include price, quality of product, design and development capability, ability to consistently achieve scheduled delivery dates, manufacturing capabilities and capacity, technical 48 expertise of employees, the desire or lack thereof of airframe and engine manufacturers to produce certain components in-house, and the willingness, and increasingly the ability, of the Company and other nacelle manufacturers to accept financial and other risks in connection with new programs. RESEARCH AND DEVELOPMENT The Company's research and development activities are designed to improve its existing products and manufacturing processes, to enhance the competitiveness of its new products, and to broaden the Company's aerospace product base. Most of its product development is funded through regular production contracts. The Company developed the world's first all composite nacelle and its large cascade thrust reverser technology under such contracts. The Company also performs self-funded research and development through which it developed proprietary products which control noise and prevent ice formation on nacelles. The Company seeks research and development contracts from the U.S. government and from commercial customers in targeted areas of interest such as composite materials and advanced low-cost processing and joining of new materials. From time to time, the Company also enters into joint research and development programs with its customers, such as its existing laminar flow nacelle study, which seeks to significantly reduce the aerodynamic drag of nacelles and thereby reduce fuel consumption. PATENTS AND PROPRIETARY INFORMATION The Company has obtained patents and developed proprietary information which it believes provide it with a competitive advantage. For example, the Company holds patents on the DynaRohr family of honeycomb sound attenuation structures, the state-of-the-art RohrSwirl system which prevents ice formation on the leading edges of nacelles and bonding processes for titanium and other metals. In addition, the Company has developed proprietary information covering such matters as nacelle design, sound attenuation, bonding of metallic and advanced composite structures, material specifications and manufacturing processes. The Company protects this information through invention agreements and confidentiality agreements with its employees and other third parties. Although the Company believes that its patents and proprietary information allow it to produce superior products, it also believes that the loss of any such patent or disclosure of any item of proprietary information would not have a material adverse effect on the Company. RAW MATERIALS AND SUPPLIERS The principal raw materials used by the Company are sheet, plate, rod, bar, tubing, and extrusions made of aluminum, steel, Inconel and titanium; electrical wire; rubber; adhesives; and advanced composite products. The principal purchased components are aircraft engine equipment, custom machined parts, sheet metal details, and castings and forgings. All of these items are procured from commercial sources. Supplies of raw materials and purchased parts historically have been adequate to meet the requirements of the Company. However, from time to time, shortages have been encountered, particularly during high industry production and demand. While the Company endeavors to assure the availability of multiple sources of supply, there are many instances in which, either because of a customer requirement or the complexity of the item, the Company may rely on a single source. The failure of any of these single source suppliers or subcontractors to meet the Company's needs could seriously delay production on a program. The Company monitors the delivery performance, product quality and financial health of its critical suppliers, including all of its single source suppliers. Over the last ten years, which includes the period from 1987 through 1991 when the Company's sales grew rapidly, there have been occasions of periodic, short-term delays from suppliers, but none of these delays has had a material adverse effect on the Company or its ability to deliver products to its customers. 49 SUBCONTRACTORS Both to reduce the burden and risk of program investments, and also in some cases to participate in foreign programs, the Company has subcontracted the design, development and production of substantial portions of several of its major contracts to other foreign and domestic corporations. In return, those companies provided a portion of the investment and assumed a portion of the risk associated with various of the Company's contracts. See "--Products-- Commercial," "--Market Share and Competition" and "--Program Funding." The Company's performance and ultimate profitability on these programs is dependent on the performance of its subcontractors, including the timeliness and quality of their work, as well as the ability of the Company to monitor and manage its subcontractors. EMPLOYEES At January 30, 1994, the Company had approximately 5,150 full-time employees, of whom approximately 1,710 were represented by the International Association of Machinists and Aerospace Workers, and approximately 190 were represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America. Collective bargaining agreements between the Company and these labor unions expire on February 11, 1996 and October 29, 1995, respectively. The Company considers its relationship with its employees generally to be satisfactory. PROPERTIES All owned and leased properties of the Company are generally well maintained, in good operating condition, and adequate and sufficient for the Company's business. The Company's properties are substantially utilized; however, due to the downturn in the aerospace industry, the Company has excess manufacturing capacity. All significant leases (except for leases associated with industrial revenue bond financings) are renewable at the Company's option on substantially similar terms, except for increases of rent which must be negotiated in some cases. See "Notes to the Consolidated Financial Statements--Note 8." 50 The following table sets forth the location, principal use, approximate size and acreage of the Company's major production facilities. Those which are owned by the Company and it subsidiaries are owned free of material encumbrances, except as noted below:
OWNED LEASED ----------------------- ----------------------- APPROXIMATE APPROXIMATE TYPE OF SQUARE FEET APPROXIMATE SQUARE FEET APPROXIMATE FACILITY(1) OF FACILITY ACREAGE OF FACILITY ACREAGE ----------- ----------- ----------- ----------- ----------- Alabama Fairhope(2)(3)........ A,B 123,000 70.6 -- -- Foley(2).............. A,B 341,000 163.7 -- -- Arkansas Arkadelphia(4)........ A,B 225,000 65.2 -- -- Heber Springs(2)...... A,B 161,000 70.5 -- -- Sheridan(2)........... A,B 155,000 79.4 -- -- California Chula Vista........... A,B,C,D 2,789,000 98.5 215,000 78.4 Moreno Valley......... A,B,C 244,000 37.5 -- -- Riverside............. A,B,C,D 1,150,000 75.3 152,000 15.1 France Toulouse/St. Martin... A,B 132,000 7.0 18,000 3.2 Toulouse/Gramont(2)... A,B 170,000 23.0 -- -- Germany Hamburg............... A,B 28,000 5.3 -- -- Maryland Hagerstown(3)(5)...... A,B 423,000 56.8 6,200 -- Texas San Marcos............ A,B 169,000 55.0 -- -- Washington Auburn(6)............. A,B 87,000 23.8 -- -- --------- ----- ------- ---- Approximate Totals.... 6,197,000 831.6 391,200 96.7 ========= ===== ======= ====
- -------- (1) The letters indicated for each location describe the principal activities conducted at that location: A-Office; B-Manufacturing; C-Warehouse; and D- Research and Testing. (2) Subject to a capital lease. (3) The Company is in the process of selling or seeking to sell this facility. (4) The completion of construction of this facility has been deferred. (5) The Company has announced that it will close this facility. (6) The Company has sold this facility. 51 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The names, ages and positions of the directors and officers of the Company are set forth below:
NAME AGE POSITION - ---- --- -------- James J. Kerley........... 71 Chairman of the Board Robert H. Rau............. 57 President, Chief Executive Officer and Director Wallace Barnes............ 68 Director Wallace W. Booth.......... 71 Director Prof. Eugene E. Covert.... 68 Director Wayne M. Hoffman.......... 71 Director Dr. D. Larry Moore........ 57 Director Robert M. Price........... 63 Director Dr. William P. Sommers.... 60 Director Dr. Jack D. Steele........ 69 Director Laurence A. Chapman....... 45 Senior Vice President and Chief Financial Officer John R. Johnson........... 56 Senior Vice President, Programs and Support Graydon A. Wetzler........ 52 Senior Vice President, Operations Richard W. Madsen......... 55 Vice President, General Counsel and Secretary Alvin L. Majors........... 53 Vice President and Controller Ronald M. Miller.......... 49 Vice President and Treasurer
MR. KERLEY became Chairman of the Board, Chief Executive Officer and Chief Financial Officer on January 7, 1993. On April 19, 1993, he relinquished the title of Chief Executive Officer and on October 31, 1993, he relinquished the title of Chief Financial Officer when he ceased being an employee of the Company. He chairs the Finance Committee of the Company's Board of Directors, is a member of its Nomination and Management Succession Committee, and, as the non-employee Chairman of the Board, serves on all other committees of the Board as an ad-hoc, non-voting, member. He retired as Vice Chairman of Emerson Electric Company, St. Louis, Missouri, at the end of 1985, and from its Board of Directors in February 1987, positions he had held since September 1981. He also served as the Chief Financial Officer at Emerson Electric Company from September 1981 to March 1984 and as the Chief Financial Officer of Monsanto Company from September 1971 to August 1981. He has served on the Board of Directors of approximately 25 publicly held companies during his career and currently serves as a director of Sterling Chemicals, Inc.; Kellwood Company; ESCO Electronics Corporation, Borg Warner Automotive, Inc. and DTI Industries, Inc. He has been a director of Rohr since October 1980, and previously served as a director from June 1976 to February 1980. MR. RAU was elected President and Chief Executive Officer of the Company in April 1993. Prior to joining the Company, Mr. Rau was an Executive Vice President of Parker Hannifin Corporation and for the past ten years served as President of the Parker Bertea Aerospace segment of Parker Hannifin. Parker Bertea designs and produces a broad line of hydraulic, fuel and pneumatic systems and components for commercial, military and general aviation aircraft. He joined Parker Hannifin in 1969, and held positions in finance, program management and general management. Mr. Rau has extensive experience in the aerospace industry. In addition, Mr. Rau is a member of the Board of Governors of the Aerospace Industries Association. He was appointed a director of the Company in April 1993. MR. BARNES has been the Chairman of Barnes Group Inc. since March 1977, was Chief Executive Officer from 1977 to 1991, and served as President of that company from 1964 to 1977. Barnes Group, headquartered in Bristol, Connecticut, is a publicly traded Fortune 500 company with three groups involved in automotive maintenance and repair parts, precision springs and custom metal parts, and aerospace components for gas turbine engines. He was appointed a director of the Company in February 1989. He is also a director of Aetna Life & Casualty Co., Loctite Corporation, Rogers Corp., and BGI. He serves on the Audit and Ethics Committee of the Company's Board of Directors, its Compensation and Benefits Committee and its Technology Committee. 52 MR. BOOTH retired as Chairman of the Board of Ducommun Incorporated, Los Angeles, California, in December 1988. From June 1978 until July 1988 he served as Chairman of the Board, President and Chief Executive Officer and a director of that company. Mr. Booth has been a director of Rohr since February 1982. He is also a director of Litton Industries, Inc.; First Interstate Bank of California; and Navistar International Corporation. He is a Trustee of the University of Chicago. Mr. Booth is also a director of the Children's Bureau Foundation of Southern California. He serves on the Compensation and Benefits Committee of the Company's Board of Directors and its Finance Committee. PROFESSOR COVERT has been a Professor in the Department of Aeronautics and Astronautics of the Massachusetts Institute of Technology, Cambridge, Massachusetts, since 1968, and from 1985 to 1990, he served as Department Head. Professor Covert is also a consultant to a number of major corporations as well as to agencies of the United States and foreign governments. He is a director of Allied-Signal Corp. and Physical Sciences, Inc., and a member of the American Institute of Aeronautics and Astronautics. He has been a director of Rohr since December 1986, and serves on the Audit and Ethics Committee of the Company's Board of Directors and its Technology Committee. MR. HOFFMAN is the former Chairman of Tiger International, Inc., and Flying Tiger Line, Los Angeles, California, having served in those positions beginning in September 1967 until his retirement in March 1986. Between March 1978 and August 1985, he also served as Chief Executive Officer and from August 1973 to August 1985, he served as President of Tiger International, Inc. He is also a director of SunAmerica, Inc., and trustee of Aerospace Corporation. He has been a director of Rohr since December 1982, and serves on the Audit and Ethics Committee of the Company's Board of Directors and its Nomination and Management Succession Committee. DR. MOORE has been the President and Chief Operating Officer of Honeywell, Inc., a provider of electronic automation and control systems located in Minneapolis, Minnesota, since April 1993. From December 1990, until assuming his current position, he served as Executive Vice President and Chief Operating Officer of that company. Dr. Moore has been employed by Honeywell, Inc., since December 1986 having also served as President of its Space Aviation Division. Dr. Moore was appointed a director of the Company on December 7, 1991. He is also a director of Honeywell, Inc.; the General Aviation Manufacturing Association; the Aerospace Industries Association; the National Association of Manufacturers; and Abbott Northwestern Hospital in Minneapolis, Minnesota. He serves on the Finance Committee of the Company's Board of Directors and its Nomination and Management Succession Committee. MR. PRICE has been a business consultant to a number of major American corporations since January 1990, when he retired as Chairman of Control Data Corporation (now renamed Ceridian), Minneapolis, Minnesota. He was named President and Chief Operating Officer of Control Data Corporation in 1980, and Chairman and Chief Executive Officer in 1986, continuing as President until 1988. He is also a director of International Multifoods, Premark International, and Public Service Co. of New Mexico. Additionally, he is a Chairman of the Alpha Center for Public and Private Initiatives and serves on the boards of the Minnesota Opera, the Minneapolis United Way, and the Duke University's Fuqua School of Business Board of Visitors. He was appointed a director of the Company on June 7, 1991. He serves on the Compensation and Benefits Committee of the Company's Board of Directors and its Technology Committee. DR. SOMMERS has served as the President and Chief Executive Officer of SRI International since January 1994. SRI International is one of the world largest contract research firms, employing more than 2,000 professionals engaged in research in areas including engineering, science and technology, business and policy. Prior to joining SRI International, Dr. Sommers was Executive Vice President of Iameter, Inc., a firm specializing in health care quality and cost control. From 1973 until joining Iameter in 1972, he served as a Senior Vice President, director and member of the Office of the Chairman of Booz.Allen & Hamilton, Inc., San Francisco, California, having served in other senior management positions with that firm since 1963. Dr. Sommers has extensive experience as a management 53 consultant to some of the world's largest technology-based manufacturing and service firms. He was appointed a director of the Company on September 9, 1992. He is a member of the board of trustees of the Kemper Mutual Funds and a director of Therapeutic Discovery Corp. He serves on the Finance Committee of the Company's Board of Directors and its Technology Committee. DR. STEELE is the former Chairman, Board Services Division, Korn Ferry International, Los Angeles, California, a position he assumed in June 1987. From 1975 to 1986, he was the Dean, School of Business Administration, University of Southern California, Los Angeles, California. He has held professorships at Texas Tech University, the University of Kansas, Stanford University, and Harvard University. He is an author in the marketing and business fields and a consultant to a number of major American corporations. He is also a director of Glendale Federal Bank; Storage Properties, Inc.; and Public Storage, Inc. He has been a director of Rohr since December 1976, and serves on the Finance Committee of the Company's Board of Directors and its Nomination and Management Succession Committee. MR. CHAPMAN has served as Senior Vice President and Chief Financial Officer since May 1, 1994. Prior to that and since 1981, he worked for Westinghouse Electric Company ("Westinghouse"). He had been the Vice President and Treasurer of Westinghouse since January 1992. He was previously the Chief Financial Officer of Westinghouse Financial Services, Inc., a wholly-owned subsidiary of Westinghouse. Prior to that assignment, Mr. Chapman held positions in Corporate Finance and Corporate Planning with Westinghouse. MR. JOHNSON has served as Senior Vice President, Programs and Support since March 1, 1993. Prior to that and since April 1982, he has served in other senior management positions. He joined the Company in September 1979. MR. WETZLER has served as Senior Vice President, Operations since January 1994. Prior to that and since April 1986, he has served as Vice President of Technology, Assembly Plant Operations and Information Systems at various times. He has been an employee of the Company since 1979. MR. MADSEN has served as Vice President, General Counsel and Secretary since December 5, 1987. Prior to that and since August 1979, he served as Secretary and Corporate Counsel and has been an employee of the Company since 1974. MR. MAJORS has served as Vice President and Controller (Chief Accounting Officer) since May 1989. Prior to that and since December 1987, he served as the Company's Controller. Prior to that and since 1971, he has served in other senior management positions. He has been an employee of the Company since 1971. MR. MILLER has served as Vice President and Treasurer since May 1989. Prior to that and since December 1987, he served as the Company's Treasurer and has been an employee of the Company since February 1969. 54 LEGAL AND ENVIRONMENTAL PROCEEDINGS C-5 LITIGATION During fiscal year 1992, the U.S. Air Force filed a termination notice for alleged default under the C-5 spare pylon contract, and the Company then commenced the appeal process to convert the termination to one for convenience of the government. Contemporaneously, the Company filed a notice of breach of contract with the government on the C-5 spare pylon contract. The Company also filed a variety of actions before the Armed Services Board of Contract Appeals ("ASBCA") requesting payment of sums owed the Company due to the government's imposition of redefined acceptance criteria under the C-5 pylon program and the KC-135 re-engining program. The Company also recorded special provisions for this matter in prior periods. Following the end of the Company's fiscal 1994 second quarter, the Company and the U.S. Air Force settled all of these disputes. The most significant aspects of this settlement were: (1) The C-5 spare pylon contract will be converted to termination for government convenience, and the Company will retain approximately $27.3 million of unliquidated progress payments previously made by the U.S. Air Force. (2) The Company will retain most of the C-5 spare pylon work-in-process and raw material inventories. (3) The Company will provide a warranty on certain, specified C-5 pylon panels which will end for each panel seven years after the original delivery date for such panel to the Air Force. The original delivery dates for the warranted panels range from 1989 to 1991. The Company has established a reserve for this warranty obligation. U.S. ATTORNEY INVESTIGATION Contemporaneously with the C-5 settlement with the U. S. Air Force discussed above, the Company and the United States Attorney for the Central District of California settled the civil and criminal aspects of an investigation, which had been on-going since 1990, concerning the production of parts, the recording of information which is a part of that production process, and the testing practices utilized by the Company on many programs. The Company cooperated fully in the investigation and does not believe there was any adverse effect on the safety or utilization of its products. The Company recorded special provisions in prior periods reflecting its assessment of the ultimate costs which it believed would be incurred. Under this settlement the Company paid $4 million to the U.S. Attorney's office for the civil claims. In connection with this settlement, a recently unsealed qui tam lawsuit filed by former employees against the Company on behalf of the U.S. Government with respect to certain of the activities that had been under investigation has been dismissed with prejudice. With regard to the criminal aspects of this matter, the Company admitted making eight false statements and paid approximately $3.7 million in fines. In connection with this matter, the Company is also engaged in discussions with government officials who have the discretion to temporarily suspend or to debar the Company from entering into government contracts in the future. The discussions are designed to demonstrate that the Company is a presently-responsible contractor and that it should be entitled to continue to be eligible to receive additional governmental contracts. RECEIVABLES AND INVENTORIES Accounts receivable and inventories include estimated recoveries on constructive change claims the Company has asserted against the United States Navy with respect to the F-14 and E3/E6 programs because of costs the Company incurred as a result of government imposed redefined acceptance criteria. Management believes that the amounts reflected in the financial statements are a reasonable estimate of the amount for which these matters will be settled. The resolution of these 55 matters may take several years. See "Notes to the Consolidated Financial Statements--Note 3." The Company is vigorously pursuing these claims and believes, based on currently available information, that the ultimate resolution will not have a material adverse effect on the financial position or results of operations of the Company. STRINGFELLOW SITE In June 1987, the U.S. District Court of Los Angeles, in U. S. et al. vs. Stringfellow (United States District Court for the Central District of California, Civil Action No. 83-2501 (JMI)), granted partial summary judgment against the Company and 14 other defendants on the issue of liability under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). This suit alleges that the defendants are jointly and severally liable for all damage in connection with the Stringfellow hazardous waste disposal site in Riverside County, California. In June 1989, a federal jury and a special master appointed by the federal court found the State of California also liable for the cleanup costs. On November 30, 1993, the special master released his "Findings of Fact, Conclusions of Law and Reporting Recommendations of the Special Master Regarding the State Share Fact Finding Hearing." In it, he allocated liability between the State of California and other parties. As this hearing did not involve the valuation of future tasks and responsibilities, the order did not specify dollar amounts of liability. The order, phrased in percentages of liability, recommended allocating liability on the CERCLA claims as follows: 65% to the State of California and 10% to the Stringfellow entities, leaving 25% for the generator/counterclaimants (including the Company) and other users of the site (or a maximum of up to 28% depending on the allocation of any Stringfellow entity orphan share). On the state law claims, the special master recommended a 95% share for the State of California, and 5% for the Stringfellow entities, leaving 0% for the generator/counterclaimants. The special master's finding is subject to a final decision and appeal. The Company and other defendants for the Stringfellow site, which include numerous companies with assets and equity significantly larger than the Company, are jointly and severally liable for the cleanup. Notwithstanding this, CERCLA liability is sometimes allocated among hazardous waste generators who used a waste disposal site based on the volume of hazardous substances they disposed at the site. The Company is the second largest generator of wastes by volume disposed at the site, although it and certain other generators have argued the final allocation of cleanup costs among generators should not be determined solely by volume. The largest volume generator of wastes disposed at the Stringfellow site has indicated it is significantly dependent on insurance to fund its share of any cleanup costs, and that it is in litigation with certain of its insurers. The Company and the other generators of wastes disposed at the Stringfellow site, which include numerous companies with assets and equity significantly greater than the Company, are jointly and severally liable for the share of cleanup costs for which the generators, as a group, may ultimately be responsible. The Company intends to continue to vigorously defend this matter and believes, based upon currently available information, that the ultimate resolution will not have a material adverse effect on the financial position or results of operations of the Company. The Company has claims against its comprehensive general liability insurers for reimbursement of its cleanup costs at the site. These claims are the subject of separate litigation, although the insurers nevertheless are paying substantially all of the Company's costs of defense in the CERCLA and State actions against the generators of wastes disposed at the site. Certain of these insurance policies have pollution exclusion clauses which are being argued as a defense and the insurers are alleging various other defenses to coverage. The Company has entered settlements with some of the insurance carriers and is engaged in settlement discussions with certain others. The Company intends to continue to vigorously defend this matter and believes, based upon currently available information, that the ultimate resolution will not have a material adverse effect on the financial position, liquidity or results of operations of the Company. SEC INQUIRY In 1990, the Division of Enforcement of the Securities and Exchange Commission (the "Enforcement Division") began conducting an informal inquiry regarding various Company production 56 programs, program and contract estimates at completion and related accounting practices. Following the filing of a registration statement with the Commission, the Company received on August 17, 1993, and shortly thereafter responded to, a request for documents from the Enforcement Division concerning its decision to change its accounting practices relating to long-term programs and contracts, and its previous practice of capitalizing pre-certification and certain general and administrative costs. There have been no further comments from the Enforcement Division since that date. The Enforcement Division's request for documents indicated that the inquiry "should not be construed as an indication by the Commission or its staff that any violation of the law has occurred; nor should it be considered a reflection on any person, entity, or security." The Company cooperated fully with the Enforcement Division's requests and cannot predict the ultimate result of the inquiry or its impact, if any, on the Company. The Company has been advised by the Division of Corporation Finance of the Commission that because the Company's use of program accounting is based in significant part on practices which it believes are generally followed and/or accepted, rather than on the basis of authoritative literature, the Staff is not in a position presently to object or concur with the Company's utilization of such accounting method. The Staff informed the Company last August that it intends to survey practice and conduct other inquiries regarding generally accepted practices relating to long-term contracts and program accounting. The Company has not received any indication from the Commission of the likely outcome of this survey. By declaring effective the Registration Statement of which this Prospectus is a part, the Commission is not passing upon the adequacy or accuracy of the information contained herein including, without limitation, the appropriateness of the Company's accounting methods and practices. MARYLAND CONSENT ORDER In December 1989, the Maryland Department of the Environment ("MDE") served the Company with a Letter and Consent Order No. CO-90-093. The Consent Order calls for investigation and remediation of chemicals detected in soil and ground water at the Company's bonding facility in Hagerstown, Maryland. The Company and MDE subsequently negotiated a mutually acceptable Consent Order under which the Company has developed a work plan to determine the nature and extent of the pollution at the bonding plant. The Company had acquired the bonding plant from Fairchild Industries, Inc. ("Fairchild"), in September 1987 and Fairchild had agreed to retain responsibility for and to indemnify the Company against any claims and fees in connection with any hazardous materials or pollutants released into the environment at or near the bonding plant or any other property before the closing date of the sale. In October 1990, after initially-unsuccessful negotiations with Fairchild, the Company filed a lawsuit in the United States District Court for the Central District of California requesting, among other things, a declaration that it is entitled to indemnification under the Purchase and Sale Agreement for the costs associated with conducting the work requested by MDE. On March 11, 1993, the Company and Fairchild executed a settlement agreement pursuant to which Fairchild substantially reimbursed the Company for past costs relating to environmental investigations at the bonding plant. The parties agreed to dismiss the lawsuit and agreed on a procedure to perform the work required under the MDE Consent Order. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operation of the Company. PROPOSITION 65 MATTERS On March 23, 1992, a Deputy Attorney General for the State of California advised the Company that it may be subject to suit pursuant to Proposition 65 on the basis of data contained in a health risk assessment ("HRA") of the Company's Chula Vista facility conducted pursuant to the Air Toxics Hot Spots Act, also known as California Assembly Bill AB-2588. Proposition 65 requires manufacturers who expose any person to a chemical resulting in an increased risk of cancer to issue a clear and reasonable warning to such person and imposes substantial penalties for non-compliance. AB-2588 requires manufacturers to inventory their air emissions and to submit an HRA to assess and quantify health risks associated with those emissions. On April 9, 1993, representatives of the Company met with the Deputy 57 Attorney General to discuss this matter and agreed to supply certain requested data to the government. The Company is presently working on the procedures required to produce this data. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operation of the Company. RIO BRAVO SITE In January 1993, the Department of Toxic Substances Control of the State of California Environmental Protection Agency ("DTSC") notified the Company and approximately 25 other individuals and companies that the DTSC expected a payment of approximately $1.1 million within thirty days of its notice. The demand for payment, which is joint and several, was for expenses allegedly incurred by DTSC personnel in the oversight of the cleanup of the Rio Bravo deep injection well disposal site in Shafter, California. The cleanup is currently being conducted by a group of cooperating potentially responsible parties ("PRPs"), including the Company ("the Cooperating PRPs"). The DTSC advised that failure to pay said sum within the specified time limit would result in a referral of the matter to its legal office for collection. The Company was further advised that it could submit objections to this action by contacting DTSC's Cost Recovery Unit. In February 1993, the Cooperating PRP group wrote to DTSC and advised them, among other things, of the Cooperating PRPs' continuing efforts at the site and suggested that DTSC seek recovery of the oversight funds from the non-cooperating PRPs. Since the demand of the DTSC was joint and several, and would arguably cover all generators including the non-cooperating PRPs, none of the $1.1 million demanded by the DTSC has been allocated to the Cooperating PRPs. Some PRPs estimate the potential cost of cleanup to be approximately $7 million and the Company's share (based on estimated, respective volumes of discharge into such site by all generators, all of which cannot now be known with certainty) could approximate $450,000. The Company and other PRPs could face joint and several liability for the entire amount of clean-up costs, regardless of Cooperating PRP or non- cooperating PRP status. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operation of the Company. CHATHAM SITE The Company previously reported that the DTSC informed the Company and approximately 100 other individuals and companies that DTSC considered the recipients to be potentially PRPs liable for cleanup at the Chatham Brothers Barrel Yard Site located in Escondido, California (the "Chatham Site"). By letter dated April 13, 1993, DTSC again notified the Company that it believed the Company was one of a number of companies who were liable for the cleanup of the Chatham Site. After a thorough review of the Company's records and information possessed by DTSC, and interviews of present and former Company employees, the Company remains convinced that it has no relationship whatsoever with the Chatham Site and, therefore, is not liable for the cleanup of that site. In addition, the Company has discussed this matter with a group of PRPs for the Chatham Site and has indicated its lack of involvement with the site. If the Company fails to persuade DTSC that it is not a PRP with regard to the Chatham Site, the Company could face joint and several liability for the amounts involved. The potential cost of cleanup for the Chatham Site is estimated by some PRPs to be approximately $30 million. If suit is filed against the Company, the Company intends to defend vigorously this matter. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operation of the Company. SCAQMD COMPLIANCE The Company's Riverside, California facility is working along with the California Aerospace Group ("CAG") to meet the South Coast Air Quality Management District ("SCAQMD") compliance deadline for adhesive bonding primers. The deadline for compliant primers was originally January 1, 1992. It has been extended and is now set for January 1, 1997. The Company and the CAG continue to work with 58 manufacturers of adhesive bonding primers to see if a compliant primer can be developed and tested, and although no compliant primers currently exist, five potential candidates have been identified for extensive testing. The Company believes the ultimate resolution of the matter will not have a material adverse impact on the financial condition or results of operations of the Company. CASMALIA SITE During the third quarter of fiscal year 1993, Region IX of the United States Environmental Protection Agency ("EPA") named the Company as a first-tier generator of hazardous wastes that were transported to the Casmalia Resources Hazardous Waste Management Facility (the "Casmalia Site") in Casmalia, California. Approximately 80 other companies and individuals have also been identified as first-tier generators. First-tier generators are the top 82 generators by volume of waste disposed of at the Casmalia Site. The size of this group was chosen by the EPA. The EPA has given the first-tier generators a list of work-related elements needing to be addressed in a good faith offer to investigate and remediate the site. The first-tier generators believe a collaborative approach early in the site cleanup and closure process offers all parties an opportunity to help determine a technical course of action at this site before the EPA has made final decisions on the matter. The Company has joined approximately 49 other companies in the Casmalia Resources Site Steering Committee which recently made a good faith offer to the EPA. The Company could be found jointly and severally liable for the total amount of cleanup cost. The Company does not yet know the ability of all other PRPs at this site, which include companies of substantial assets and equity, to fund their allocable share. Some PRPs have made preliminary estimates of cleanup costs at this site of approximately $60 to $70 million and the Company's share (based on estimated, respective volumes of discharge into such site by all generators, all of which cannot now be known with certainty) could approximate $1,750,000. Based on currently available information, the Company believes that the resolution of this matter will not have a material adverse effect on the financial position or results of operation of the Company. CHULA VISTA SITE From time to time, various environmental regulatory agencies request that the Company conduct certain investigations on the nature and extent of pollution, if any, at its various facilities. For example, such a request may follow the spill of a reportable quantity of certain chemicals. At other times, the request follows the removal, replacement or closure of an underground storage tank pursuant to applicable regulations. At present, the Company's Chula Vista facility is conducting certain investigations pursuant to discussions with the San Diego County Department of Health Services, Hazardous Materials Management Division and the San Diego Regional Water Quality Control Board. The Company intends to cooperate fully with the various regulatory agencies. GENERAL In addition to the litigation discussed above, from time to time the Company is a defendant in lawsuits involving claims based on the Company's alleged negligence or strict liability as a manufacturer in the design or manufacture of various products and also claims based upon environmental protection laws. The Company believes that in those types of cases now pending, or in claims known by the Company to be asserted against it whether or not reduced to a legal proceeding, it either has no material liability or any such liability is adequately covered by its reserves or its liability insurance, subject to certain deductible amounts. The Company is aware that various of its insurers may assert, and in some such cases have asserted, that their insurance coverage does not provide protection against punitive damages in any specific lawsuit. While there can be no assurances that the Company will not ultimately be found liable for material punitive damages, the Company does not now believe that it has an exposure to any material liability for punitive damages. 59 DESCRIPTION OF CERTAIN FINANCINGS The following is a summary of certain terms of the Company's principal financing agreements, effective on the Closing Date of the sale of the Securities. REVOLVING CREDIT AGREEMENT Effective upon the completion of the Offerings, the Company's unsecured Revolving Credit Agreement with a group of banks will provide the following loan commitments during the indicated periods:
PERIOD COMMITMENT ------ ------------ Through October 24, 1995..................................... $110 million October 25, 1995 to April 24, 1996........................... $100 million April 25, 1996 to October 24, 1996........................... $ 90 million October 25, 1996 to April 24, 1997........................... $ 80 million
This Revolving Credit Agreement is immediately available for borrowing (or to support the issuance of up to $30 million of letters of credit). Borrowings under this agreement incur interest at an annual rate equal to one of the following at the Company's option: (1) prime rate plus 0% to 2.25%; (2) London Interbank Offered Rate plus 0.75% to 3.25%; (3) or a Domestic Money Market Bid Rate plus 0.875% to 3.375%; or (4) competitive bid. The weighted average interest rate for borrowings under this credit agreement was 5.22% per annum during the second quarter of fiscal 1994. The agreement provides a facility fee payable on a monthly basis, at the rate of 0.35% to 0.75% on each lender's total commitment. The specific interest rate and facility fee payable at any time is based upon the Company's credit rating and various other factors. Effective upon the completion of the Offerings, the Revolving Credit Agreement will require the Company to maintain Consolidated Tangible Net Worth (as defined) of $125 million plus 50% of positive consolidated net income beginning on August 1, 1994. At January 30, 1994, the Company's Consolidated Tangible Net Worth was $184.6 million. Consolidated Tangible Net Worth is expected to decrease in the third quarter of fiscal 1994 in connection with anticipated increases in the Company's underfunded pension liabilities. See "Risk Factors--Underfunded Pension Plans." The agreement will also require the Company to maintain a ratio of Consolidated Net Income Available for Fixed Charges for each period of 365 days to Fixed Charges (each as defined) for such period, after completion of the offering, at least equal to the following:
MINIMUM PERIOD RATIO ------ ------- Through July 31, 1994............................................. 1.40:1 August 1, 1994 through July 31, 1995.............................. 1.55:1 August 1, 1995 through July 31, 1996.............................. 1.90:1 August 1, 1996 and thereafter..................................... 2.00:1
For purposes of this test, Consolidated Net Income Available for Fixed Charges is calculated without regard to the cumulative effect through May 2, 1993, of the accounting changes adopted by the Company effective August 1, 1992, and $38 million of provisions and charges taken by the Company in the third quarter of fiscal 1993. For the 365-day period ended at January 30, 1994, the Company's ratio of Consolidated Net Income Available for Fixed Charges to Fixed Charges was 2.04:1. 60 Effective upon the completion of the Offerings, the Revolving Credit Agreement will also require the Company to maintain a ratio of Debt (as defined) to Consolidated Tangible Net Worth not to exceed the following:
MAXIMUM PERIOD RATIO ------ ------- Through July 31, 1994............................................. 5.60:1 August 1, 1994 through July 31, 1995.............................. 5.00:1 August 1, 1995 through July 31, 1996.............................. 4.10:1 August 1, 1996 and thereafter..................................... 3.20:1
In calculating this ratio, Debt includes the Company's underfunded pension liabilities, but does not include the Company's off-balance sheet financings. See "Capitalization." At January 30, 1994, the Company's ratio of Debt to Consolidated Tangible Net Worth was 2.82:1. Other covenants in the Revolving Credit Agreement prohibit the Company from adding collateral to or otherwise supporting its existing debt, accelerating the maturity of such debt, or revising any covenant or other term of such debt to make it materially more restrictive for the Company or any of its subsidiaries. 9.35% SENIOR NOTES DUE 2000 AND 9.33% SENIOR NOTES DUE 2002 The Company's 9.35% senior notes due 2000 mature on January 29, 2000 and require principal payments of $12.5 million in January of each year until repaid. The Company's 9.33% senior notes due 2002 mature on December 15, 2002 and require principal payments of approximately $8.9 million in December of each year commencing in 1996 until repaid. With respect to each of these issues of senior notes, the Company may make principal prepayments at its option, which may include a premium for yield adjustment. The holders of these notes can require the Company to purchase the remaining principal amount of the respective notes, plus accrued interest and premium for yield adjustment, in the event of certain changes in control or ownership of the Company. A covenant in the agreements governing these two issuances of senior notes prohibits the Company from amending its Revolving Credit Agreement to reduce the amount or availability of the bank's commitment to lend to the Company under such agreement. Other covenants in these senior note agreements are substantially similar to the covenants in the Revolving Credit Agreement. 9.25% SUBORDINATED DEBENTURES The Company's 9.25% subordinated debentures mature in 2017. These debentures are subject to mandatory annual sinking-fund payments of $7.5 million beginning March 1998. The Company may redeem an additional $15 million on each sinking- fund date. The subordinated debentures are redeemable at the Company's option, at 106.5% of the outstanding principal amount at May 2, 1993, declining annually to 100.5% in 2006, plus accrued interest. However, no such redemption may be effected prior to March 1997, directly or indirectly, from borrowed money having an interest cost of less than 9.25% per annum. These debentures will be subordinated to the Senior Notes and pari passu with the Convertible Subordinated Notes. 7% CONVERTIBLE SUBORDINATED DEBENTURES The Company's 7% convertible subordinated debentures mature in 2012. These debentures are convertible prior to maturity, unless previously redeemed, at a conversion price of $43 per share, subject to adjustment under certain conditions. The debentures are redeemable at the option of the Company, in whole or in part, at a redemption price of 102.8% declining annually to 100.7% in 1996, together with accrued interest to the date of redemption. Annual sinking-fund payments of 5% of the aggregate principal amount of the debentures originally issued are to be applied to the redemption of debentures 61 at 100% of principal amount plus accrued interest, commencing October 1998. The Company has the option of delivering repurchased debentures to the sinking-fund in lieu of cash. The mandatory sinking-fund is calculated to retire 70% of the aggregate principal amount of the debentures originally issued prior to maturity. The debentures are subordinated to all existing or future senior debt of the Company and rank on equal terms with the Company's outstanding 9.25% subordinated debentures due 2017. These debentures will be subordinated to the Senior Notes and pari passu with the Convertible Subordinated Notes. ACCOUNTS RECEIVABLE FACILITY The Company is a party to an accounts receivable facility under which it sells all of its accounts receivable from specified customers through a subsidiary to a trust on an on-going basis. Investors purchased beneficial interests in the trust for $60 million, which was paid indirectly to the Company for the accounts receivable initially transferred to the trust. The Company sells additional accounts receivable through its subsidiary to the trust to maintain the investor's beneficial interest at $60 million. The Company's subsidiary holds the residual beneficial interest in the trust. Under the arrangement, the Company acts as an agent for the trust by performing all record keeping and collection functions with respect to the accounts receivable that have been sold. The investors' beneficial interest in the trust is reflected as a decrease in accounts receivable. The cost associated with the sale of accounts receivable under the facility is 7.57% per year (calculated as a percentage of the investors' $60 million beneficial interest) and is reflected as a reduction in sales. As a result of the slow-down in the aerospace industry, the amount of outstanding receivables owned by the trust has fallen below levels which existed at the start of the facility. If the outstanding receivables owned by the trust fall below levels required to support the investors' $60 million beneficial interest in the trust, the Company may deposit certain receivables collections and the proceeds of receivables sales in a reserve fund or may allow receivables collections to reduce the investors' interest in the trust. From time to time the Company has deposited amounts into the reserve fund and has withdrawn such amounts when they are no longer required to be deposited. The Company does not believe any changes in the receivables facility resulting from a decrease in the total amount of receivables sold to the trust or in the outstanding receivables balance will have a material adverse effect on the Company's liquidity or financial condition. SALE-LEASEBACK TRANSACTIONS The Company is also a party to a group of sale-leaseback transactions pursuant to which it sold furniture and certain significant items of the equipment utilized in its manufacturing processes for approximately $52.3 million and leased such furniture and equipment back from the investors who purchased it. The Company has granted the equipment lessors a security interest in all of the Company's accounts receivable from a particular customer and/or cash securing $10 million of obligations. At January 30, 1994, the balance of these accounts receivable was $15.8 million. The security interest will be released at such time as the existing equipment lessors assign approximately one-half of their beneficial interests in the leased equipment. If such assignments do not occur by January 1995, the existing equipment lessors may apply the collateral against the Company's then remaining lease obligations. The Company's leases are treated as operating leases for financial reporting purposes. The costs of the lease transactions average approximately 6.8% annually over the term of the leases (calculated as a percentage of the $52.3 million sales price of the leased furniture and equipment). The agreements governing the equipment lease transactions contain the same consolidated tangible net worth, fixed charge coverage ratio and debt to consolidated tangible net worth ratio covenants as are in the Revolving Credit Agreement. The agreements governing these transactions permit the Company to purchase the investors' interest in the equipment before the investors can repossess upon a default by the Company, subject to certain time limitations. The investors' repossession of any substantial portion of such equipment would have a material adverse effect on the Company's ability to meet its production contract commitments. 62 DESCRIPTION OF CAPITAL STOCK COMMON STOCK The Common Stock of the Company has a par value of $1 per share. Subject to the preferential dividend rights of the Preferred Stock (no shares of which are currently outstanding), the holders of Common Stock may from time to time receive out of assets legally available therefor dividends as and when declared by the Board of Directors. Several of the Company's principal financing agreements contain a covenant restricting the Company's right to pay dividends on, and to redeem, retire or acquire, its stock. See "Price Range of Common Stock and Dividends." Each share of Common Stock entitles the holder thereof to one vote, except that in any election of directors votes may be cumulated. The directors of the Company are divided into three classes and at each annual meeting of stockholders only one of these classes is subject to election. The board presently consists of ten directors, of whom three are subject to election at the annual meeting in 1994 and each three years thereafter, three at the annual meeting in 1995 and each three years thereafter and four at the annual meeting in 1996 and each three years thereafter. The division of the directors into three classes may make a proposed takeover of the Company which is not supported by the incumbent directors more difficult to achieve than if the directors constituted a single class. In the event of a proposed merger or consolidation with, or a sale of assets to, a company which itself, or with its affiliates, owns or controls 5% or more of the outstanding Common Stock of the Company, an affirmative vote of three- fourths of the total outstanding voting stock is required unless such merger, consolidation or sale of assets was approved by the Board of Directors prior to the acquisition of such 5% of Common Stock by such company or its affiliates. This provision is in the Restated Certificate of Incorporation, as amended (the "Certificate"), and the provisions for cumulative voting and a three-class Board of Directors may only be changed by a three-fourths vote of the total outstanding voting stock. Similarly, before the Company may enter into a merger or consolidation with, sell a substantial part of its assets to, or agree to certain other transactions with a company which itself, or with its affiliates, beneficially owns 10% or more of the Company's outstanding voting stock, the transaction must be approved by a three-fourths vote of the total outstanding voting stock and by a majority of the outstanding voting stock which is not beneficially owned by the other company and its affiliates; provided, however, that the voting requirements described in this sentence do not apply if the proposed transaction is approved by a majority of the continuing directors, as defined in the Certificate, or certain other provisions are met. PREFERRED STOCK The Certificate authorizes the Company to issue multiple classes of Preferred Stock, the substantive rights of which are to be fixed by the directors. The Board of Directors can authorize, without stockholder approval, the issuance of Preferred Stock with voting and conversion rights that could adversely affect the voting power of the holders of Common Stock. SHAREHOLDER RIGHTS PLAN The Company has adopted a shareholder rights plan, and on August 15, 1986, declared a dividend distribution of one purchase right for each outstanding share of Common Stock of the Company to shareholders of record at the close of business on August 26, 1986. The Company has issued one purchase right with each share of Common Stock issued after August 26, 1986, and subject to the expiration of the rights in 1996, will issue one such right for each share of Common Stock issued upon conversion of the Convertible Subordinated Notes. Each right generally entitles the holder thereof to purchase one one-hundredth of a preferred share from the Company for $100, subject to adjustment. Such preferred stock purchase rights, which expire on August 25, 1996 and are redeemable by the 63 Company, become exercisable and separated from the Common Stock under certain circumstances generally related to the acquisition (or the right to acquire) by a person or group of affiliated persons of 15% or more of the Company's outstanding Common Stock or where such a person or group has made a tender offer to acquire 15% or more of such stock. Under certain additional circumstances, each right would entitle the holder to purchase a certain number of shares of the Company's Common Stock at one-half of the Common Stock's fair market value. The provisions discussed above may make it more difficult for a third party to acquire control of the Company or could discourage such a party from attempting to acquire control. GENERAL Upon liquidation, dissolution or winding up of the Company, the assets legally available for distribution to stockholders shall be distributed ratably among the holders of Common Stock at the time outstanding, subject to the preferential rights of any series of Preferred Stock of the Company then outstanding. The Common Stock has no preemptive, conversion or redemption rights, and when fully paid is not subject to assessment. The outstanding Common Stock of the Company is listed on the New York Stock Exchange, the Pacific Stock Exchange and The Stock Exchange in London. The transfer agent and registrar for the Common Stock is the First Chicago Trust Co. of New York. 64 DESCRIPTION OF NOTES The Convertible Subordinated Notes will be issued under an indenture to be dated as of May 15, 1994 (the "Indenture") between the Company and The Bank of New York, a New York State banking corporation, as trustee (the "Trustee"), a form of which has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The terms of the Convertible Subordinated Notes will include those stated in the Indenture and those made a part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA"), as in effect on the date of the Indenture. The Convertible Subordinated Notes will be subject to all such terms, and holders of the Convertible Subordinated Notes are referred to the Indenture and the TIA for a statement of such terms. The following is a summary of important terms of the Convertible Subordinated Notes and does not purport to be complete. Reference should be made to all provisions of the Indenture, including the definitions therein of certain terms and all terms made a part of the Indenture by reference to the TIA. Certain definitions of terms used in the following summary are set forth under "--Certain Definitions" below. As used in this section, the "Company" means Rohr, Inc., but not any of its subsidiaries, unless the context requires otherwise. GENERAL The Convertible Subordinated Notes will be general unsecured subordinated obligations of the Company, will mature on , 2004, and will be limited to an aggregate principal amount of $50,000,000 (assuming no exercise of the Underwriter's over-allotment option). The Convertible Subordinated Notes will be issued in denominations of $1,000 and integral multiples of $1,000 in fully registered form. The Convertible Subordinated Notes are exchangeable and transfers thereof will be registrable without charge therefor, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge in connection therewith. The Convertible Subordinated Notes will accrue interest at a rate of % per annum from , 1994, or from the most recent interest payment date to which interest has been paid or duly provided for, and accrued and unpaid interest will be payable semi-annually on May 15 and November 15 of each year beginning November 15, 1994. Interest will be paid to the Person in whose name each Convertible Subordinated Note is registered at the close of business on the May 1 or November 1 immediately preceding the relevant interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on overdue principal and (to the extent permitted by law) on overdue installments of interest will accrue at a rate equal to % per annum. Initially, the Trustee will act as paying agent and registrar of the Convertible Subordinated Notes. The Company may change any paying agent and registrar without notice. CONVERSION The holders of Convertible Subordinated Notes will have the right, exercisable at any time prior to maturity, to convert the principal amount thereof (or any portion thereof that is an integral multiple of $1,000) into shares of Common Stock at a conversion price of $ per share of Common Stock, subject to adjustment as described below (the "Conversion Price"), except that if a Convertible Subordinated Note is called for redemption, the conversion right will terminate at the close of business on the date fixed for redemption (unless the Company defaults in making the redemption payment when due, in which case the conversion right will terminate at the close of business on the date such default is cured). Upon conversion, no adjustment or payment will be made for interest or dividends, but if any holder of a Convertible Subordinated Note surrenders a Convertible Subordinated Note for conversion after the close of business on the record date for the payment of an installment of interest and prior to 65 the opening of business on the next interest payment date (unless such Convertible Subordinated Note or portion thereof is called for redemption on a redemption date in that period), then, notwithstanding such conversion, the interest payable on such interest payment date will be paid to such registered holder. In such event, such Convertible Subordinated Note, when surrendered for conversion, must be accompanied by payment of an amount equal to the interest payable on such interest payment date on the portion so converted. No fractional shares will be issued upon conversion but a cash payment will be made for any fractional interest. The Conversion Price is subject to adjustment upon the occurrence of certain events, including (a) the issuance of shares of Common Stock as a dividend or distribution on the Common Stock; (b) the subdivision, combination or reclassification of the outstanding Common Stock; (c) the issuance to all or substantially all holders of Common Stock of rights or warrants to subscribe for or purchase Common Stock (or securities convertible into Common Stock) at a price per share less than the then current market price per share, as defined in the Indenture; (d) the distribution of shares of Capital Stock of the Company (other than Common Stock) to all holders of Common Stock, evidences of indebtedness or other assets (excluding dividends in cash); (e) the distribution to all or substantially all holders of Common Stock of rights or warrants to subscribe for securities (other than those referred to in clause (c) above) (f) the issuance of Common Stock to an Affiliate for a net price per share less than the current market price per share (determined as set forth below) on the date the Company fixes the offering price of such additional shares (other than issuances of Common Stock under certain employee benefit plans of the Company), (g) the distribution, by dividend or otherwise, of cash (including any cash that is distributed as part of a distribution described in (d) above) to all holders of Common Stock in an aggregate amount that, together with the aggregate of any other distributions of cash that did not trigger a Conversion Price adjustment to all holders of its Common Stock within the 12 months preceding the date fixed for determining the stockholders entitled to such distribution plus the aggregate of any cash and the fair market value of consideration that did not trigger a Conversion Price adjustment payable in respect of any tender offer by the Company or any of its subsidiaries for Common Stock (as described in (h) below) consummated within the 12 months preceding the date fixed for determining the stockholders entitled to such distribution, exceeds 15% of the product of the current market price per share (determined as set forth below) on the date fixed for the determination of stockholders entitled to receive such distribution times the number of shares of Common Stock outstanding on such date; and (h) the completion of a tender offer made by the Company or any of its subsidiaries for Common Stock involving an aggregate consideration that, together with the aggregate of any cash and the fair market value of any other consideration that did not trigger a Conversion Price adjustment paid or payable in respect of any previous tender offer by the Company or its subsidiary for Common Stock consummated with the 12 months preceding the consummation of such tender offer plus the aggregate amount of any distributions of cash that did not trigger a Conversion Price adjustment (as described in (g) above) to all holders of Common Stock within the 12 months preceding the consummation of such tender offer, exceeds 15% of the product of the current market price per share (determined as set forth below) immediately prior to the expiration of such offer times the number of shares of Common Stock outstanding at the expiration of such offer. In the event of a distribution to all or substantially all holders of Common Stock of rights to subscribe for additional shares of the Company's Capital Stock (other than those referred to in clause (c) above), the Company may, instead of making an adjustment in the Conversion Price, make proper provision so that each holder of a Convertible Subordinated Note who converts such Convertible Subordinated Note after the record date for such distribution and prior to the expiration or redemption of such rights shall be entitled to receive upon such conversion, in addition to shares of Common Stock, an appropriate number of such rights. No adjustment of the Conversion Price will be made until cumulative adjustments amount to one percent or more of the Conversion Price as last adjusted. No adjustment of the Conversion Price will be made for cash dividends. 66 In the Indenture, the "current market price" per share of Common Stock on any date shall be deemed to be the average of the Daily Market Prices (as defined in the Indenture) for the shorter of (i) 30 consecutive business days ending on the last full trading day on the exchange or market referred to in determining such Daily Market Prices prior to the time of determination or (ii) the period commencing on the date next succeeding the first public announcement of the issuance of such rights or warrants or such distribution through such last full trading day prior to the time of determination. If the Company reclassifies or otherwise changes its outstanding Common Stock, or consolidates with or merges into or transfers or leases all or substantially all its assets to any Person, or is a party to a merger that reclassifies or changes its outstanding Common Stock, the Convertible Subordinated Notes will become convertible into the kind and amount of securities, cash or other assets which the holders of Convertible Subordinated Notes would have owned immediately after the transaction if the holders had converted the Convertible Subordinated Notes immediately before the effective date of the transaction. SUBORDINATION The Convertible Subordinated Notes will be subordinate and junior in right of payment to all "Senior Indebtedness" of the Company to the extent and in the manner set forth below. The Indenture will define "Senior Indebtedness" generally as all present or future Indebtedness of the Company described in clauses (a)(i), (a)(ii), (a)(iv) and (c) of the definition of Indebtedness created, incurred, assumed or, except to the extent described below, guaranteed (to the extent of the guarantee) by the Company (and all renewals, modifications, extensions or refundings thereof), together with all other obligations owing in connection therewith, including principal, interest (including interest accruing on any such indebtedness which is Designated Senior Indebtedness after the filing of a petition by or against the Company under any bankruptcy law, whether or not the claim for such interest is allowed as a claim after such filing in any proceeding under such bankruptcy law), premium, if any, fees, costs, expenses and indemnities, unless the instrument under which such Indebtedness is created, incurred, assumed or guaranteed provides that such Indebtedness is not senior or superior in right of payment to the Convertible Subordinated Notes. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include (a) any Indebtedness of the Company owing to any of its subsidiaries, (b) Capitalized Lease Obligations (as defined in this section), (c) Indebtedness or other obligations in respect of the Pooling and Servicing Agreement, (d) the Company's 9.25% Subordinated Debentures due 2017 or its 7% Convertible Subordinated Debentures due 2012 and (e) any advances, deposits or partial progress payments, payables, unpaid wages and related employee obligations, trade accounts, and accrued liabilities. By reason of such subordination, in the event of a liquidation or dissolution of the Company or a bankruptcy, reorganization, insolvency, receivership or other similar proceeding or upon assignment for the benefit of creditors relating to the Company or its property, or a marshalling of assets or liabilities of the Company, upon any distribution of assets (a) holders of Senior Indebtedness will be entitled to be paid all obligations owing in respect thereof in full in cash or Cash Equivalents (as defined in this section) before payments may be made on or in respect of the Convertible Subordinated Notes, except to the extent that holders receive securities that are subordinated to Senior Indebtedness to at least the same extent as the Convertible Subordinated Notes (the "Other Subordinated Securities") and (b) holders of Convertible Subordinated Notes (or the Trustee on their behalf) will be required to pay over their share of any such distribution directly to any Representative of the holders of Senior Indebtedness for payment thereto or, if such holders have no Representative, directly to such holders of Senior Indebtness, until such Senior Indebtedness is paid in full in cash or Cash Equivalents, except to the extent that holders of Convertible Subordinated Notes receive Other Subordinated Securities. In the event of any acceleration of the Convertible Subordinated Notes, the holders of any Senior Indebtedness then outstanding would be entitled to payment in full in cash or Cash Equivalents of all amounts then due on or in respect of such Senior Indebtedness before the holders of the Convertible Subordinated Notes are entitled to receive any payment or distribution in respect thereof. 67 The Company may not make any direct or indirect payment on or in respect of the Convertible Subordinated Notes and may not acquire any Convertible Subordinated Notes for cash or property (other than Other Subordinated Securities) if (a) a default in the payment of any principal of or other obligation in respect of Designated Senior Indebtedness (as defined below) occurs and is continuing beyond any applicable grace period or (b) a default, other than a default, referred to in clause (a) above on any Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to accelerate the maturity and the Trustee receives a notice of the default from the agent under the Revolving Credit Agreement, or other person permitted to give such notice under the Indenture, requesting that payment on or in respect of the Convertible Subordinated Notes be prohibited. Notwithstanding the foregoing, and so long as the terms of the Indenture otherwise permit such payment, the Company may resume payments on the Convertible Subordinated Notes upon the earlier of (x) the date upon which such default is cured or waived or (y) in the case of a default referred to in (a) above, 179 days pass after notice is received by the Trustee (a "Payment Blockage Period"). Only one Payment Blockage Period may be commenced within any consecutive 365-day period with respect to the Convertible Subordinated Notes. "Designated Senior Indebtedness" will be defined in the Indenture to mean Senior Indebtedness of the Company now or hereafter outstanding under (i) the Revolving Credit Agreement; (ii) the Company's 9.35% Senior Notes due 2000 and 9.33% Senior Notes due 2002; (iii) the Senior Notes; and (iv) any other Senior Indebtedness issued in one or more substantially concurrent issuances on substantially similar terms, the aggregate principal amount which is $50 million or more. Neither the Trustee nor the holders of the Convertible Subordinated Notes are required to give notice to any holders of Senior Indebtedness (or their representatives) prior to acceleration of the obligations evidenced by the Convertible Subordinated Notes. Although the Convertible Subordinated Notes rank pari passu in right of payment to the Company's 9.25% Subordinated Debentures due 2017 and its 7% Convertible Subordinated Debentures due 2012, such indebtedness may be entitled to receive principal and interest payments at a time when such payments would be blocked in respect of the Convertible Subordinated Notes, unless the holders of the Convertible Subordinated Notes accelerate the maturity of the obligations owing on the Convertible Subordinated Notes. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company, whether in cash, property or securities (other than Other Subordinated Securities), shall be received by the Trustee [or the holders of] Convertible Subordinated Notes at a time when such payment or distribution is prohibited by the foregoing provisions, such payment or distribution shall be segregated and held in trust for the benefit of the holders of Senior Indebtedness of the Company, and shall be paid or delivered by the Trustee or such holders, as the case may be, to the Representative of the holders of Senior Indebtedness for payments thereto, or, if such holders have no Representative, directly to such holders of Senior Indebtedness, as their respective interests may appear, for application to the payment of all Senior Indebtedness of the Company remaining unpaid to the extent necessary to pay or to provide for the payment of all such Senior Indebtedness in full in cash and Cash Equivalents after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. As a result of these subordination provisions, in the event of a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding or an assignment for the benefit of the creditors of the Company or a marshalling of assets or liabilities of the Company, holders of Convertible Subordinated Notes may receive ratably less than other creditors. There are no restrictions in the Indenture on the creation of additional Senior Indebtedness (or any other Indebtedness) and, under certain circumstances, the incurrence of significant amounts of additional Indebtedness could have an adverse effect on the Company's ability to service its Indebtedness, including the Convertible Subordinated Notes. 68 OPTIONAL REDEMPTION The Convertible Subordinated Notes may be redeemed at the option of the Company, in whole or from time to time in part, on and after , 1998, on not less than 30 nor more than 60 days' prior written notice to the holders thereof by first class mail, at the following redemption prices (expressed as percentages of the principal amount), plus accrued and unpaid interest to the date fixed for redemption, if redeemed during the twelve-month period beginning of each year indicated below:
REDEMPTION YEAR PRICE ---- ---------- 1998........................................................... % 1999........................................................... % 2000........................................................... % 2001........................................................... % 2002........................................................... % 2003........................................................... % 2004........................................................... 100%
If less than all the Convertible Subordinated Notes are to be redeemed, the Trustee will select Convertible Subordinated Notes for redemption pro rata or by lot or by any other method that the Trustee considers fair and appropriate. The Trustee may select for redemption a portion of the principal of any Convertible Subordinated Note that has a denomination larger than $1,000. Convertible Subordinated Notes and portions thereof will be redeemed in the amount of $1,000 or integral multiples of $1,000. The Trustee will make the selection from Subordinated Notes outstanding and not previously called for redemption. Provisions of the Indenture that apply to Convertible Subordinated Notes called for redemption also apply to portions of Convertible Subordinated Notes called for redemption. If any Convertible Subordinated Note is to be redeemed in part, the notice of redemption will state the portion of the principal amount to be redeemed. Upon surrender of a Convertible Subordinated Note that is redeemed in part only, the Company will execute and the Trustee will authenticate and deliver to the holder a new Convertible Subordinated Note equal in principal amount to the unredeemed portion of the Convertible Subordinated Note surrendered. On and after the redemption date, unless the Company shall default in the payment of the redemption price, interest will cease to accrue on the principal amount of the Convertible Subordinated Notes or portions thereof called for redemption and for which funds have been set apart for payment. CHANGE OF CONTROL Following a Change of Control (as defined below), the Company shall comply with each of the procedures set forth in the Indenture in respect of such event, and pursuant to the Indenture shall make an offer (a "Change of Control Offer") to purchase all Convertible Subordinated Notes then outstanding at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of such purchase. Notice of a Change of Control shall be mailed by or at the direction of the Company to the holders of record of Convertible Subordinated Notes as shown on the register of such holders maintained by the registrar not less than 15 days nor more than 30 days after the date of such Change of Control (the "Change of Control Date") at the addresses as shown on the register of holders maintained by the registrar, with a copy to the Trustee and the paying agent. The Change of Control Offer shall remain open until a specified date (the "Change of Control Offer Termination Date") which is at least 20 business days from the date such notice is mailed. During the period specified in such notice, holders of Convertible Subordinated Notes may elect to tender their Convertible Subordinated Notes in whole or in part in integral multiples of $1,000 in exchange for cash. Payment shall be made by the Company in respect of Convertible Subordinated Notes properly tendered as set forth herein on a specified business day which shall be no earlier than 3 business days after the applicable Change of Control Offer Termination Date and no later than 60 days after the applicable Change of Control Date. 69 "Change of Control" means the occurrence of one or more of the following events (whether or not approved by the Board of Directors of the Company): (a) an event or series of events by which any Person or other entity or group of Persons or other entities acting in concert as determined in accordance with Section 13(d) of the Exchange Act, whether or not applicable (a "Group of Persons"), shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases, merger or otherwise (i) be or become, directly or indirectly, the beneficial owner (within the meaning of Rule 13d-3 and Rule 13d-5 under the Exchange Act, whether or not applicable) of 50% or more of the combined voting power of the then outstanding Voting Stock of the Company or (ii) have or has the ability to elect, directly or indirectly, a majority of the members of the Board of Directors of the Company or other equivalent governing body thereof, (b) the shareholders of the Company shall approve any Plan of Liquidation of the Company (whether or not otherwise in compliance with the provisions of the Indenture), (c) individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors of the Company (together with any new directors whose election or appointment by the Board of Directors of the Company or whose nomination for election by the Company's shareholders was approved by a vote of at least a majority of the members of the Board of Directors of the Company then still in office who either were members of the Board of Directors of the Company at the beginning of such period or whose election, appointment or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors of the Company then in office or (d) the direct or indirect sale, lease, exchange or other transfer, in one transaction or a series of related transactions, of all or substantially all of the property or assets of the Company to any Person or Group of Persons (whether or not otherwise in compliance with the provisions of the Indenture). If an offer is made to redeem Convertible Subordinated Notes as a result of a Change of Control, the Company will be required to comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. None of the provisions relating to a purchase upon a Change of Control is waivable by the Board of Directors of the Company or the Trustee. In the event that the Company is required to purchase outstanding Convertible Subordinated Notes pursuant to a Change of Control Offer, the Company expects that it would need to seek third-party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing. The occurrence of a Change of Control would constitute an event of default under the Revolving Credit Agreement and the agreements governing the Company's 9.33% Senior Notes and 9.35% Senior Notes, and would permit the holders of that Indebtedness to declare all amounts outstanding thereunder to be immediately due and payable. Further, in the event of a Change of Control, the Company would be required to make an offer to purchase all Senior Notes then outstanding at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of such purchase. On January 30, 1994, after giving pro forma effect to the Offerings and the use of proceeds thereof (assuming no exercise of the Underwriter's over-allotment option), there would have been $256.8 million outstanding of Senior Indebtedness. See "Capitalization." The Company could, in the future, enter into certain transactions, including certain recapitalizations of the Company, that would not constitute a Change of Control with respect to the Convertible Subordinated Notes, but would increase the amount of Indebtedness outstanding at such time. The rights of the holders of Convertible Subordinated Notes to receive the Change of Control purchase price for the Convertible Subordinated Notes or any other amount due on the Convertible Subordinated Notes are subordinated to the rights of the holders of Senior Indebtedness (including the Revolving Credit Agreement, the 9.33% Senior Notes, the 9.35% Senior Notes and the Senior Notes) in the manner set forth in the Indenture. See "-- Subordination" and "--Events of Default." Failure by the Company to purchase the Convertible Subordinated Notes when required constitutes an Event of Default with respect to the Convertible Subordinated Notes. If such an Event of Default resulted 70 in a default under any Senior Indebtedness of the Company, the right of the holders to receive the Change of Control purchase price (whether at the Change of Control Payment Date or upon acceleration) or any other amounts due on acceleration of the Convertible Subordinated Notes would be subordinated to the rights of the holders of Senior Indebtedness of the Company. See "--Events of Default." The Change of Control provision of the Convertible Subordinated Notes may in certain circumstances make more difficult or discourage a takeover of the Company and thus the removal of incumbent management. The Change of Control provision is not, however, the result of management's knowledge of any specific effort to obtain control of the Company by means of merger, tender offer, solicitation or otherwise, or part of a plan by management to adopt a series of anti-takeover provisions. LIMITATIONS ON SALE OF ASSETS The Company will not, and will not permit any of its subsidiaries to, consummate any Asset Sale (as defined in this section) unless such Asset Sale is for at least Fair Market Value and at least 80% of the consideration therefrom received by the Company or such subsidiary is in the form of cash or Cash Equivalents. Following any Asset Sale, an amount equal to the Net Cash Proceeds of such Asset Sale shall be applied by the Company or such subsidiary within 365 days of the date of the Asset Sale, at its election, to either (a) the payment of Senior Indebtedness provided, however, any Net Cash Proceeds which are applied to reduce Indebtedness under the Revolving Credit Agreement shall result in a permanent reduction of the borrowing availability thereunder; (b) make any Permitted Program Investment or any other investment in capital assets usable in the Company's or its subsidiaries' lines of business or in an asset or business in the same line of business as the Company; or (c) a combination of payment and investment permitted by the foregoing clauses (a) and (b). On the earlier of (A) the 366th day after the date of an Asset Sale or (B) such date as the Board of Directors of the Company or of such subsidiary determines (as evidenced by a written resolution of said Board of Directors) not to apply an amount equal to the Net Cash Proceeds relating to such Asset Sale as set forth in the immediately preceding sentence (each of (A) and (B), an "Asset Sale Offer Trigger Date"), the Company would be obligated to apply or cause its subsidiary to apply an amount equal to the aggregate amount of Net Cash Proceeds which have not been applied on or before such Asset Sale Offer Trigger Date as permitted by the foregoing clauses (a), (b) and (c) of the immediately preceding sentence (each an "Asset Sale Offer Amount") to make an offer to purchase for cash (an "Asset Sale Offer") from all holders on a pro rata basis that amount of Convertible Subordinated Notes equal to the Asset Sale Offer Amount at a price equal to 100% of the principal amount of the Convertible Subordinated Notes to be repurchased, plus accrued and unpaid interest thereon to the date of repurchase. Notwithstanding the foregoing, if an Asset Sale Offer Amount is less than $10 million, the application of such Asset Sale Offer Amount to an Asset Sale Offer may be deferred until such time as such Asset Sale Offer Amount plus the aggregate amount of all Asset Sale Offer Amounts arising subsequent to such Asset Sale Offer Trigger Date from all Asset Sales by the Company and its subsidiaries aggregates at least $10 million, at which time the Company or such subsidiary shall apply all Asset Sale Offer Amounts that have been so deferred to make an Asset Sale Offer (the first date the aggregate of all such deferred Asset Sale Offer Amounts is equal to $10 million or more shall be deemed to be an "Asset Sale Offer Trigger Date"). In the event of the transfer of substantially all (but not all) of the property and assets of the Company as an entirety to a Person in a transaction permitted under "--Merger and Consolidation" below, the successor Person shall be deemed to have sold the properties and assets of the Company not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. Each Asset Sale Offer will be mailed to the holders of the Convertible Subordinated Notes at the addresses shown on the register of holders maintained by the registrar, with a copy to the Trustee and 71 the paying agent, within ten days following the applicable Asset Sale Offer Trigger Date, and shall comply with each of the procedures for notice set forth in the Indenture. Each Asset Sale Offer shall remain open until a specified date (the "Asset Sale Offer Termination Date") which is at least 20 business days from the date such Asset Sale Offer is mailed. During the period specified in the Asset Sale Offer, holders may elect to tender their Convertible Subordinated Notes in whole or in part in integral multiples of $1,000 in exchange for cash. Payment shall be made by the Company (or applicable subsidiary) in respect of Convertible Subordinated Notes properly tendered pursuant to this section on a specified business day which shall be no earlier than 3 business days after the Asset Sale Offer Termination Date and no later than 60 days after such applicable Asset Sale Offer Trigger Date. To the extent holders properly tender Convertible Subordinated Notes in an amount exceeding the Asset Sale Offer Amount, Convertible Subordinated Notes of tendering holders will be repurchased on a pro rata basis (based on amounts tendered). If an offer is made to repurchase the Convertible Subordinated Notes pursuant to an Asset Sale Offer, the Company will and will cause its subsidiaries to comply with all tender offer rules under state and federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. Any event which would require the Company or its subsidiary to offer to purchase Convertible Subordinated Notes after an Asset Sale would also require the Company to repay amounts outstanding under its Revolving Credit Agreement, and to offer to repay its 9.33% Senior Notes due 2002 and 9.35% Senior Notes due 2000. The rights of the holders of the Convertible Subordinated Notes to receive the Asset Sale Offer Amount or any other amount due on the Convertible Subordinated Notes are subordinated to the rights of the holders of Senior Indebtedness (including Indebtedness under the Revolving Credit Agreement, the 9.35% Senior Notes due 2000 and the 9.33% Senior Notes due 2002) in the manner set forth in the Indenture. See "--Subordination" and "--Events of Default." The Company's and its subsidaries' ability to repurchase the Convertible Subordinated Notes in an Asset Sale Offer may also be restricted or otherwise limited by the terms of other then-existing borrowing agreements and by the Company's financial position. REPORTS So long as any Convertible Subordinated Note is outstanding, the Company shall file with the Commission and, within 15 days after it files them with the Commission, file with the Trustee and thereafter promptly mail or promptly cause the Trustee to mail to the holders of the Convertible Subordinated Notes at their addresses as set forth in the register of the Convertible Subordinated Notes, copies of the annual reports and of the information, documents and other reports which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act or which the Company would be required to file with the Commission if the Company then had a class of securities registered under the Exchange Act. In addition, the Company shall cause its annual report to stockholders and any quarterly or other financial reports furnished to its stockholders generally to be filed with the Trustee no later than the date such materials are mailed or made available to the Company's stockholders, and thereafter mailed promptly to the holders of the Convertible Subordinated Notes at their addresses as set forth in the register of Convertible Subordinated Notes. MERGER AND CONSOLIDATION Under the terms of the Indenture, the Company shall not, in a single transaction or series of related transactions, consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any Person or adopt a Plan of Liquidation unless: (a) either (i) the Company shall be the surviving or continuing corporation or (ii) the Person (if other than the Company) formed by such consolidation or into which the Company is merged, or the Person which acquires by conveyance, transfer or lease the properties and assets of the Company substantially as an 72 entirety or, in the case of a Plan of Liquidation, the Person to which all or substantially all of the assets of the Company have been transferred (1) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (2) shall expressly assume, by supplemental indenture, executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Convertible Subordinated Notes and the performance of every covenant of the Convertible Subordinated Notes and the Indenture on the part of the Company to be performed or observed; (b) immediately after giving effect to such transaction and any assumption contemplated by clause (a) (ii) (2) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company (in the case of clause (i) of the foregoing clause (a)) or such Person (in the case of clause (ii) thereof) shall have a Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments relating to such transaction) equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (c) immediately before and after giving effect to such transaction and any assumption contemplated by clause (a)(ii)(2) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of the transaction) no Default and no Event of Default shall have occurred and be continuing; and (d) the Company or such Person shall have delivered to the Trustee (i) an officers' certificate and an opinion of counsel (which counsel may be in-house counsel of the Company), each stating that such consolidation, merger, conveyance, transfer or lease or Plan of Liquidation and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied and (ii) a certification from the Company's independent certified public accountants stating that the Company has made the calculations required by clause (b) above in accordance with the terms of the Indenture. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Upon any such consolidation, merger, sale, assignment, conveyance, lease or transfer in accordance with the foregoing, the successor Person formed by such consolidation or into which the Company is merged or to which such sale, assignment, conveyance, lease or transfer is made will succeed to, and be substituted for, and any exercise every right and power of, the Company under the Indenture with the same effect as if such successor had been named as the Company therein, and thereafter (except in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under the Indenture and the Convertible Subordinated Notes. EVENTS OF DEFAULT The following are the Events of Default under the Indenture: a. default in the payment of principal of, or premium, if any, on the Convertible Subordinated Notes when due at maturity, upon repurchase, upon acceleration or otherwise, including, without limitation, failure of the Company to repurchase the Convertible Subordinated Notes on the date required pursuant to "--Limitation on Sale of Assets" above or following a Change of Control or failure to make any optional redemption payment when due, whether or not any such payment is prohibited by the provisions described under "--Subordination" above, or b. default in the payment of any installment of interest on the Convertible Subordinated Notes when due (including any interest payable in connection with any optional redemption payment) and 73 continuance of such default for more than 30 days, whether or not such payment is prohibited by the provisions described under "--Subordination" above, or c. failure of the Company to observe, perform or comply with any of the provisions described under "--Change of Control," "--Limitation on Sale of Assets" and "--Merger and Consolidation" above, and the failure to remedy such failure prior to the receipt of written notice from the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Convertible Subordinated Notes, or d. default (other than a default set forth in clauses (a), (b) and (c) above) in the performance of, or breach of, any other covenant or warranty of the Company in the Indenture or the Convertible Subordinated Notes and failure to remedy such default or breach within a period of 60 days after the receipt of written notice from the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Convertible Subordinated Notes, or e. if any Indebtedness (other than the Convertible Subordinated Notes) of the Company or of any subsidiary of the Company, whether such Indebtedness exists on the Issue Date or shall be incurred thereafter, having, individually or in the aggregate, an outstanding principal amount of $15 million or more, either (i) is declared due and payable prior to its stated maturity or (ii) is not paid upon the final maturity of such Indebtedness; or f. the entry by a court of competent jurisdiction of one or more judgments or orders against the Company or any subsidiary of the Company or any of their respective property or assets in an aggregate amount in excess of $15 million and that are not covered by insurance written by third parties, which judgments or orders have not been vacated, discharged, satisfied or stayed pending appeal within 60 days from the entry thereof, or g. certain events of bankruptcy, insolvency or reorganization involving the Company or any Material Subsidiary of the Company. If an Event of Default (other than an Event of Default specified in clause (g) above) occurs and is continuing, then and in every such case the Trustee, by written notice to the Company (with a copy to the Bank Agent and each of the holders of the Company's 9.33% Senior Notes and its 9.35% Senior Notes and any other representative of Designated Senior Indebtedness), or the holders of not less than 25% in aggregate principal amount of the then outstanding Convertible Subordinated Notes, by written notice to the Company and the Trustee (with a copy to the Bank Agent and each of the holders of the Company's 9.33% Senior Notes and its 9.35% Senior Notes and any other representative of Designated Senior Indebtedness), may declare the unpaid principal of, premium, if any, and accrued and unpaid interest on, all the Convertible Subordinated Notes then outstanding to be due and payable, provided, however, that failure to provide a copy of such notice to any party other than the Company and the Trustee shall have no effect on any such declaration. Upon such declaration such principal amount, premium, if any, and accrued and unpaid interest will become immediately due and payable, notwithstanding anything contained in the Indenture or the Convertible Subordinated Notes to the contrary, but subject to the provisions limiting payment described in "--Subordination" provided, further, that so long as any Designated Senior Indebtedness is outstanding, any such declaration shall not be effective until the earlier of (a) five business days after the delivery of such notice to the Company or (b) the acceleration of any Designated Senior Indebtedness. If any Event of Default specified in clause (g) above occurs, all unpaid principal of, and premium, if any, and accrued and unpaid interest on, the Convertible Subordinated Notes then outstanding will automatically become due and payable, subject to the provisions described in "-- Subordination", without any declaration or other act on the part of the Trustee or any holder of Convertible Subordinated Notes. Holders of the Convertible Subordinated Notes may not enforce the Indenture or the Convertible Subordinated Notes except as provided in the Indenture. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the holders, unless such holders have offered to 74 the Trustee an indemnity satisfactory to it against any loss, liability or expense. Subject to all provisions of the Indenture and applicable law, the holders of a majority in aggregate principal amount of the then outstanding Convertible Subordinated Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustees or exercising any trust or power conferred on the Trustee. If a Default or Event of Default occurs and is continuing and is known to the Trustee, the Indenture requires the Trustee to mail a notice of Default or Event of Default to each holder of Convertible Subordinated Notes within 60 days of the occurrence of such Default or Event of Default, provided, however, that the Trustee may withhold from such holders notice of any continuing Default or Event of Default (except a Default or Event of Default in the payment of principal of, or premium, if any, or interest on the Convertible Subordinated Notes) if it determines that withholding notice is in their interest. The holders of a majority in aggregate principal amount of the Convertible Subordinated Notes then outstanding by notice to the Trustee may rescind any acceleration of the Convertible Subordinated Notes and its consequences if all existing Events of Default (other than the nonpayment of principal of and premium, if any, and interest on the Convertible Subordinated Notes which has become due solely by virtue of such acceleration) have been cured or waived and if the rescission would not conflict with any judgment or decree of any court of competent jurisdiction. No such rescission shall affect any subsequent Default or Event of Default or impair any right consequent thereto. The holders of a majority in aggregate principal amount of the Convertible Subordinated Notes then outstanding may, on behalf of the holders of all the Convertible Subordinated Notes, waive any past Default or Event of Default under the Indenture and its consequences, except Default in the payment of principal of or premium, if any, or interest on the Convertible Subordinated Notes (other than the non-payment of principal of and premium, if any, and interest on the Convertible Subordinated Notes which has become due solely by virtue of an acceleration which has been duly rescinded as provided above) or in respect of a covenant or provision of the Indenture which cannot be modified or amended without the consent of all holders of Convertible Subordinated Notes. Under the Indenture, two officers of the Company are required to provide a certificate to the Trustee promptly upon any such officer obtaining knowledge of any Default or Event of Default (provided that such officers shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. In addition, for each fiscal year, the Company's independent certified public accountants are required to certify to the Trustee that they have reviewed the terms of the Indenture and the Convertible Subordinated Notes as they relate to accounting matters and whether, during the course of their audit examination, any Default or Event of Default has come to their attention, and specifying the nature and period of existence any such Default or Event of Default. AMENDMENT, SUPPLEMENT AND WAIVER The Indenture (including the terms and conditions of the Convertible Subordinated Notes) may be modified or amended by the Company and the Trustee, without the consent of the holder of any Convertible Subordinated Notes, for the purposes of (a) adding to the covenants of the Company for the benefit of the holders of Convertible Subordinated Notes; (b) surrendering any right or power conferred upon the Company; (c) providing for conversion rights of holders of Convertible Subordinated Notes in the event of consolidation, merger or sale of all or substantially all of the assets of the Company; (d) evidencing the succession of another Person to the Company and the assumption by such successor of the covenants and obligations of the Company thereunder and in the Convertible Subordinated Notes as permitted by the Indenture; (e) reducing the Conversion Price, provided that such reduction will not adversely affect the interests of holders of Convertible Subordinated Notes in any material respect; or (f) curing any ambiguity or correcting or supplementing any defective provision contained in the Indenture, or making any other changes in the provisions of the Indenture which the Company and the Trustee may deem necessary or desirable and which will not adversely affect the interests of the holders of Convertible Subordinated Notes in any material respect. 75 The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the then outstanding Convertible Subordinated Notes, to enter into any supplemental indenture for the purpose of adding, changing or eliminating any of the provisions of the Indenture, or of modifying in any manner the rights of the holders under the Indenture, provided that no such supplemental indenture may without the consent of the holder of each outstanding Convertible Subordinated Note affected thereby: (a) reduce the amount of Convertible Subordinated Notes whose holders must consent to an amendment or waiver; (b) reduce the rate of, or extend the time for payment of, interest, including defaulted interest, on any Convertible Subordinated Note; (c) reduce the principal of or premium on or change the fixed maturity of any Convertible Subordinated Note or alter the redemption provisions with respect thereto; (d) make the principal of, or premium, if any, or interest on, any Convertible Subordinated Note payable in money other than as provided for in the Indenture and the Convertible Subordinated Notes; (e) waive continuing default in the payment of the principal of or premium, if any, or interest on, or redemption or repurchase payment with respect to, any Convertible Subordinated Notes, including, without limitation, a continuing failure to make payment when required upon a Change of Control or after an Asset Sale Offer Trigger Date; (f) after the Company's obligation to purchase the Convertible Subordinated Notes arises under the Indenture amend, modify or change the obligation of the Company to make or consummate a Change of Control Offer in the event of a Change of Control or an Asset Sale Offer in the event of an Asset Sale Offer Trigger Date or waive any default in the performance thereof or modify any of the provisions or definitions with respect to any such offers; (g) modify the provisions of the Indenture relating to conversion of or subordination of the Convertible Subordinated Notes in a manner adverse to the holders thereof; or (h) make any change in provisions relating to waivers of defaults, the ability of holders to enforce their rights under the Indenture or the matters discussed in these clauses (a) through (h). An amendment to the Indenture may not adversely affect the rights under the subordination provisions thereof of the holders of any issue of Senior Indebtedness (including the Senior Notes) without the consent of such holders. DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Convertible Subordinated Notes ("legal defeasance") except for (i) the rights of holders of outstanding Convertible Subordinated Notes to receive payments in respect of the principal of, premium, if any, and interest on such Convertible Subordinated Notes when such payments are due, (ii) the Company's obligations with respect to the Convertible Subordinated Notes concerning issuing temporary Convertible Subordinated Notes, registration of Convertible Subordinated Notes, mutilated, destroyed, lost or stolen Convertible Subordinated Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the legal defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("covenant defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Convertible Subordinated Notes. In the event covenant defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Convertible Subordinated Notes. In order to exercise either legal defeasance or covenant defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Convertible Subordinated Notes, cash in U.S. dollars, non-callable government securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of the Chief Financial Officer of the Company, to pay 76 the principal of, premium, if any, and interest on the outstanding Convertible Subordinated Notes on the stated maturity or on the applicable redemption date, as the case may be, of such principal or installment of principal of, premium, if any, or interest on the outstanding Convertible Subordinated Notes; provided that such deposit does not violate the subordination provisions of the Indenture (ii) in the case of legal defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the IRS a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the outstanding Convertible Subordinated Notes will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (iii) in the case of covenant defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the holders of the outstanding Convertible Subordinated Notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (v) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the holders of Convertible Subordinated Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the legal defeasance or the covenant defeasance have been complied with. GOVERNING LAW The Indenture will provide that the Convertible Subordinated Notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law. THE TRUSTEE The Indenture will provide that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. In case an Event of Default shall occur (and shall not be cured) and holders of the Convertible Subordinated Notes have notified the Trustee, the Trustee will be required to exercise its powers with the degree of care and skill of a prudent person in the conduct of such person's own affairs. Subject to such provisions, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the holders of Convertible Subordinated Notes, unless they shall have offered to the Trustee security and indemnity satisfactory to it. The Indenture and the TIA will contain certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions, provided, however, that if it acquires any conflicting interest (as described in the TIA), it must eliminate such conflict or resign. 77 CERTAIN DEFINITIONS "Acquired Indebtedness" of any specified Person means Indebtedness of any other Person and its subsidiaries existing at the time such other Person merged with or into or became a subsidiary of such specified Person or assumed by the specified Person in connection with the acquisition of assets from such other Person including, without limitation, Indebtedness of such other Person and its subsidiaries incurred in connection with or in anticipation of (a) such other Person and its subsidiaries being merged with or into or becoming a subsidiary of such specified Person or (b) such acquisition by the specified Person. "Affiliate" means, when used with reference to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the referent Person, as the case may be, or any Person who beneficially owns (within the meaning of Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, 10% or more of the equity interests of the referent Person or warrants, options or other rights to acquire or hold more than 10% of any class of equity interests of the referent Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of management or policies of the referent Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "Asset Sale" means any sale, lease, transfer, exchange or other disposition by the Company or any subsidiary (or series of related sales, leases, transfers, exchanges or dispositions) in excess of $1,000,000, including, without limitation, dispositions pursuant to merger, consolidation or sale and leaseback transactions of (a) shares of Capital Stock of a subsidiary of the Company (pro-rated to the extent of the Company's interest therein), (b) all or substantially all of the properties and assets of any division or line of business of the Company or any subsidiary of the Company or (c) any other property or assets of the Company (pro-rated to the extent of the Company's interest therein) or of any subsidiary of the Company (pro-rated to the extent of the Company's interest therein), (each referred to for purposes of this definition as a "disposition") by the Company or by any of its subsidiaries (other than (i) dispositions by the Company to a wholly owned subsidiary of the Company or by a subsidiary of the Company to the Company or to a wholly owned subsidiary of the Company, (ii) sales or other dispositions of inventory, (iii) any disposition of properties or assets in connection with a Sale-Leaseback Financing or that is consummated in accordance with the provisions of "--Merger and Consolidation" above, (iv) any disposition of any account receivable pursuant to the Pooling and Servicing Agreement, (v) dispositions by the Company or any subsidiary of the Company of the business jet related product line, the overhaul and repair business as conducted by Rohr Aero Services, Inc. and Rohr Aero Services Europe, respectively, on the Issue Date, the Hagerstown, Maryland plant and the Auburn, Washington plant, in each case including related assets and (vi) the disposition by the Company or any subsidiary of the Company of interests owned on the Issue Date in two trusts which own an Airbus A300 aircraft and a McDonnell Douglas DC10 aircraft, respectively and (vii) the disposition of Building 107 (at the Company's facility in Chula Vista, California) to (a) any pension plan of the Company or (b) to any other Person if the net proceeds of such disposition are delivered to any pension plan referred to in clause (a) of this definition, in either case resulting in the full satisfaction (or in case the full amount of such net proceeds are so delivered and shall be insufficient to effect such full satisfaction, the partial satisfaction) of the Company's funding liabilities with respect to any such pension plan or plans). "Bank Agent" means, at any time, the then-acting agent under the Revolving Credit Agreement, which shall initially be Citicorp USA, Inc. "Capital Stock" means, with respect to any Person, any and all shares, interests, participation, rights in, or other equivalents (however designated and whether voting or non-voting) of such Person's capital stock, including each class of Common Stock or Preferred Stock of such Person, whether outstanding on the Issue Date or issued after the Issue Date, and any and all rights, warrants or options exchangeable for or convertible into such capital stock (but excluding any debt security that is exchangeable for or convertible into such capital stock). 78 "Capitalized Lease Obligation" means any obligation under a lease that is required to be classified and accounted for as a capital lease obligation under GAAP and, for purposes of the Indenture, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Cash Equivalents" means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation ("S & P") or Moody's Investors Service, Inc. ("Moody's"), (c) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S & P or at least P-1 from Moody's, (d) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United State of America or any state thereof or the District of Columbia or any United States branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $500 million, (e) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a) above entered into with any bank meeting the qualification specified in clause (d) above and (f) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (a) through (e) above. "Common Stock" of any Person means any and all shares, interests or other participation in, and other equivalents (however designated and whether voting or non-voting) of any Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated Net Worth" of a Person at any date means the Consolidated Stockholders' Equity for such Person less (a) the amount of any gain resulting, directly or indirectly, from the extinguishment, retirement or repurchase of any Indebtedness of such Person or any of its subsidiaries, (b) any revaluation or other write-ups subsequent to the Issue Date in the book value of any asset owned by such Person or a Consolidated Subsidiary and (c) any amounts attributable to the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of Capital Stock of such Person or of any of its subsidiaries. Notwithstanding any of the foregoing, net deferred income tax assets recorded in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), shall be calculated without regard to any valuation allowance with respect to such net deferred tax asset recorded by the Company in accordance with SFAS 109. "Consolidated Stockholders' Equity" as of any date means with respect to any Person the amount by which the assets of such Person and of its subsidiaries on a consolidated basis exceed (a) the total liabilities of such Person and of its subsidiaries on a consolidated basis plus (b) any redeemable Preferred Stock of such Person or any redeemable Preferred Stock of any of such Person issued to any Person other than to such Person or to a wholly owned subsidiary of such Person, in each case determined in accordance with GAAP. "Consolidated Subsidiary" of any Person means a subsidiary which for financial reporting purposes is or, in accordance with GAAP, should be accounted for by such Person as a consolidated subsidiary. 79 "Default" means any event that is, or after notice of passage of time or both would be, an Event of Default. "Event of Default" has the meaning set forth under "--Events of Default" herein. "Fair Market Value" or "fair value" means, with respect to any asset or property or Capital Stock, the price which could be negotiated in an arm's- length, free market transaction, for cash, between an informed and willing seller and an informed, willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a written resolution of said Board of Directors (certified by the Secretary or Assistant Secretary of the Company) delivered to the Trustee, provided that if the aggregate non-cash consideration to be received by the Company or any of its subsidiaries from any Asset Sale shall exceed $10,000,000 then Fair Market Value shall be determined by an Independent Financial Advisor. "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 or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "Indebtedness" means, with respect to any Person, at any date, any of the following, without duplication, (a) any liability, contingent or otherwise, of such Person (i) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) evidenced by a note, bond, debenture or similar instrument, (iii) for the payment of money relating to a Capitalized Lease Obligation or (iv) with respect to an obligation (whether issued or assumed) relating to the deferred purchase price of property but excluding advances, deposits, partial and progress payments, unpaid wages and related employee obligations, trade accounts payable and accrued liabilities in each case arising in the ordinary course of business that are not overdue by 180 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (b) all conditional sale obligations and all obligations under any title retention agreement (even if the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of such property); (c) reimbursement obligations of such Person with respect to letters of credit and all obligations of such Person in respect of any banker's acceptance or similar credit transaction entered into in the ordinary course of business; (d) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien on any asset or property (including, without limitation, leasehold interests and any other tangible or intangible property) of such Person, whether or not such Indebtedness is assumed by such Person or is not otherwise such Person's legal liability, provided that if the obligations so secured have not been assumed in full by such Person or are otherwise not such Person's legal liability in full, the amount of such Indebtedness for the purposes of this definition shall be limited to the lesser of the amount of such Indebtedness secured by such lien or the Fair Market Value of the assets or property securing such lien; and (e) all Indebtedness of others guaranteed (including all dividends of other Persons the payment of which is guaranteed), directly or indirectly, by such Person or that is otherwise its legal liability or which such Person has agreed to purchase or repurchase or in respect of which such Person has agreed contingently to supply or advance funds. "Independent Financial Advisor" means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the reasonable and good faith judgment of the Board of Directors of the Company, qualified to perform the task for which such firm has been engaged and disinterested and independent with respect to the Company and its Affiliates. 80 "Issue Date" means the date on which the Convertible Subordinated Notes are originally issued under the Indenture. "Material Subsidiary" means, at any date of determination, any subsidiary of the Company that, together with its subsidiaries, (i) for the most recent fiscal year of the Company accounted for more than 5% of the consolidated revenues of the Company or (ii) as of the end of such fiscal year, was the owner of more than 5% of the consolidated assets of the Company, all as set forth on the most recently available consolidated financial statements of the Company and its Consolidated Subsidiaries for such fiscal year prepared in conformity with generally accepted accounting principles as then in effect. "Maturity Date" means , 2004. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or Cash Equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or Cash Equivalents, net of (a) reasonable third-party brokerage commissions and other reasonable third-party fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (b) provisions for all taxes as a result of such Asset Sale computed on a consolidated basis reflecting the consolidated results of operations of the Company and its subsidiaries, taken as a whole, (c) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that was incurred in accordance with the Indenture and that either (i) is secured by a lien incurred in accordance with the Indenture on the property or assets sold or (ii) is required to be paid as a result of such sale, in each case to the extent actually repaid in cash and (d) appropriate amounts to be provided by the Company or any subsidiary of the Company as a reserve against liabilities associated with such Asset Sale, including without limitation pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with generally accepted accounting principles as then in effect. For purposes of this definition and "--Limitations on Sales of Assets" "cash" means U.S. dollars or such money as is freely and readily convertible into U.S. dollars. "Permitted Program Investment" means an investment in design, engineering, tooling or similar costs related to a program undertaken by the Company in the ordinary course of its business. "Person" means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Plan of Liquidation" means a plan (including by operation of law) that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of the Company to holders of Capital Stock of the Company. "Pooling and Servicing Agreement" means the Pooling and Servicing Agreement dated as of December 23, 1992, among the Company, the Company's wholly owned subsidiary, R.I. Receivables, Inc. and Bankers Trust Company, as trustee on behalf of the Certificateholders (as defined therein), and related documentation and any extension, renewal, modification, restatement or replacement thereof (in whole or in part), and as the same may be amended, supplemented or otherwise modified from time to time; provided, however, the investors in any such receivables program shall not obtain an 81 interest in receivables sold under such program which exceeds $70 million in aggregate principal amount at any one time. "Preferred Stock" means the Capital Stock of any Person (other than the Common Stock of such Person) of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding-up of such Person, to shares of Capital Stock of any other class of such Person. "Representative" means the Bank Agent and each trustee, agent or other representative of the holders of any class of Senior Indebtedness (or, with respect to any class of Senior Indebtedness which does not have any such trustee, agent or other representative, any holder of such Senior Indebtedness acting with the consent of the required lenders necessary to bind such class of Senior Indebtedness) who has been so identified in writing to the Trustee and the Company. "subsidiary" of any Person means (a) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person or (b) any other Person (other than a corporation) in which such Person, one or more subsidiaries of such Person or such Person and one or more subsidiaries of such Person, directly or indirectly, at the date of determination thereof, have (i) at least a majority ownership interest or (ii) the power to elect or direct the election of the directors or other governing body of such Person. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock of such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the board of directors or other governing body of such Person. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion is a summary of the federal income tax consequences expected to result to holders of the Convertible Subordinated Notes from the purchase, ownership and disposition of the Convertible Subordinated Notes. The summary is based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the IRS will not take a contrary view, and no ruling from the IRS has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. The following summary of federal income tax consequences is based on current law and is for general information only. The tax treatment of a holder of Convertible Subordinated Notes may vary depending upon his or her particular situation. Certain holders (including insurance companies, tax-exempt organizations, financial institutions or broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. EACH PURCHASER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF PURCHASING, HOLDING AND DISPOSING OF THE CONVERTIBLE SUBORDINATED NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. STATED INTEREST A holder of a Convertible Subordinated Note will be required to report as income for federal income tax purposes interest earned on a Convertible Subordinated Note in accordance with the holder's method of tax accounting. A holder of a Convertible Subordinated Note using the accrual method of accounting for tax purposes is, as a general rule, required to include interest in ordinary income as such interest accrues, while a cash basis holder must include interest in income when cash payments of interest are received (or made available for receipt). 82 TAX CONSEQUENCES OF A CONVERSION A holder of Convertible Subordinated Notes should not recognize gain or loss on the conversion of the Convertible Subordinated Notes into Common Stock except with respect to cash, if any, received in lieu of fractional shares. To the extent the Convertible Subordinated Notes converted are subject to accrued market discount, the amount of the accrued market discount will carry over to the Common Stock acquired on conversion and will be treated as interest income on disposition of that Common Stock. The holding period of the Common Stock received upon conversion of Convertible Subordinated Notes will include the period during which the Convertible Subordinated Notes were held (provided the Convertible Subordinated Notes were capital assets in the hands of the holder prior to conversion), and the holder's aggregate tax basis in that Common Stock will be equal to his or her tax basis in the Convertible Subordinated Notes so converted (less the portion of such tax basis allocable to fractional shares of Common Stock). A holder of Convertible Subordinated Notes will recognize taxable gain or loss on cash received in lieu of fractional shares of Common Stock equal to the difference between the amount of cash received and the portion of the holder's tax basis in the Convertible Subordinated Notes attributable to those fractional shares. Such gain or loss should be capital gain or loss so long as the converted Convertible Subordinated Notes constitute capital assets in the holder's hands and provided the receipt of the cash is not essentially equivalent to a dividend. Adjustments in the Conversion Price of the Convertible Subordinated Notes made pursuant to the anti-dilution provisions thereof to reflect taxable distributions of cash or property to holders of Common Stock may result in constructive distributions to holders of Convertible Subordinated Notes that could be taxable to them as dividends pursuant to Section 305 of the Code. MARKET DISCOUNT Purchasers of Convertible Subordinated Notes should be aware that the tax consequences of holding and disposing of Convertible Subordinated Notes may be affected by the market discount provisions of the Code. These rules generally provide that, subject to a statutorily defined de minimis exception, if a holder of a debt instrument purchases it for an amount less than its stated redemption price at maturity (which, in the case of a Convertible Subordinated Note, should equal its principal amount) (the difference being "market discount") and thereafter recognizes gain upon a disposition, full or partial redemption or gift of the debt instrument (or the Common Stock into which it was converted), the lesser of such gain (or appreciation, in the case of a gift) or the portion of the market discount that accrued while the debt instrument was held by such holder will be treated as ordinary interest income at the time of the disposition. The market discount rules also provide that a holder who acquires a debt instrument at a market discount (and who does not elect to include such market discount in income on a current basis) may be required to defer a portion of any interest expense that may otherwise be deductible on any indebtedness incurred or maintained to purchase or carry such debt instrument until the holder disposes of such debt instrument in a taxable transaction. The Convertible Subordinated Notes provide that they may be redeemed, in whole or in part, before maturity. If some or all of the Convertible Subordinated Notes are redeemed in part, each holder of a Convertible Subordinated Note acquired at a market discount would be required to treat the principal payment as ordinary interest income to the extent of any accrued market discount on such Convertible Subordinated Note. A holder of a debt instrument acquired at a market discount may elect to have market discount accrue on a constant interest rate basis (as opposed to a straight line basis). In addition, a holder of a debt instrument acquired at a market discount may elect to include the market discount in income as the discount thereon accrues, either on a straight line basis or, if elected, on a constant interest rate basis. The current inclusion election, once made, applies to all market discount obligations acquired by such holder on or after the first day of the first taxable year to which the election applies, and may not 83 be revoked without the consent of the IRS. If a holder of a Convertible Subordinated Note elects to include market discount in income as the market discount accrues, the foregoing rules with respect to the recognition of ordinary income on a sale or certain other dispositions of such Convertible Subordinated Note and the deferral of interest deductions on indebtedness related to such Convertible Subordinated Note would not apply, and the accrued market discount will be added to the holder's basis in such Convertible Subordinated Note. AMORTIZABLE BOND PREMIUM Generally, if the tax basis of an obligation held as a capital asset exceeds the amount payable at maturity of the obligation, such excess, to the extent it is not attributable to the conversion feature of the obligation, may constitute "amortizable bond premium" that the holder may elect to amortize under the constant interest rate method and deduct over the period from his or her acquisition date to the obligation's maturity date. A holder who elects to amortize bond premium must reduce his or her tax basis in the related obligation by the amount of the aggregate deductions allowable for amortizable bond premium. In the case of a debt instrument, such as a Convertible Subordinated Note, that may be redeemed at a premium prior to maturity, an earlier redemption date of the debt instrument is treated as the maturity date of the debt instrument and the amount of bond premium is determined by treating the amount payable on such redemption date as the amount payable at maturity if such a calculation produces a smaller amortizable bond premium for the period prior to the earlier call date than the method described in the preceding paragraph. If a holder of a debt instrument is required to amortize and deduct bond premium by reference to a certain redemption date, the debt instrument will be treated as maturing on such date for the amount payable, and, if not redeemed on such date, the debt instrument will be treated as reissued on such date for the amount so payable. If a debt instrument purchased at a premium is redeemed prior to its maturity, a purchaser who has elected to deduct bond premium may deduct any loss as an ordinary loss in the taxable year of redemption to the extent of any remaining unamortized bond premium. The amortizable bond premium deduction is treated as an offset to interest income on the related security for federal income tax purposes. Each prospective purchaser is urged to consult his or her tax advisor as to the consequences of the treatment of such bond premium as an offset to interest income for federal income tax purposes. DISPOSITION OF CONVERTIBLE SUBORDINATED NOTES OR COMMON STOCK In general, a holder of a Convertible Subordinated Note (or the Common Stock into which it was converted) will recognize gain or loss upon the sale, exchange, redemption, retirement or other taxable disposition of the Convertible Subordinated Note or Common Stock measured by the difference between (i) the amount of cash and the fair market value of property received and (ii) the holder's tax basis in the Convertible Subordinated Note or Common Stock (as increased by any market discount previously included in income and decreased by any amortizable bond premium deducted over the term of the Convertible Subordinated Note). Subject to the market discount and amortizable bond premium rules discussed above, any such gain or loss will generally be long-term capital or loss, provided the Convertible Subordinated Notes or Common Stock were capital assets in the hands of the holder and had been held for more than one year. As stated above, the holding period of Common Stock generally will include the holding period of the Convertible Subordinated Note that was converted into such Common Stock. BACKUP WITHHOLDING AND INFORMATION REPORTING A holder of Convertible Subordinated Notes or Common Stock may be subject to backup withholding at the rate of 31% with respect to interest paid on, dividends paid on and gross proceeds from the sale of the Convertible Subordinated Notes and Common Stock unless (a) such holder is a 84 corporation or comes within certain other exempt categories and, when required, demonstrates this fact or (b) provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A holder of Convertible Subordinated Notes or Common Stock who does not provide the Company with his or her correct taxpayer identification number may be subject to penalties imposed by the IRS. The Company will report to the holders of the Convertible Subordinated Notes and Common Stock and the IRS the amount of any "reportable payments" (including any interest paid on the Convertible Subordinated Notes) and any amount withheld with respect to the Convertible Subordinated Notes and Common Stock during the calendar year. THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PURCHASER OF CONVERTIBLE SUBORDINATED NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO HIM OR HER, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CONVERTIBLE SUBORDINATED NOTES. DESCRIPTION OF CONCURRENT FINANCING SENIOR NOTES DUE 2003 In connection with the Offering, the Company is concurrently offering, pursuant to a separate prospectus, the Senior Notes which will mature on , 2003. Interest on the Senior Notes is payable semiannually, on May 15 and November 15 of each year, commencing November 15, 1994. The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on and after , 1999, at the redemption prices specified in the Senior Notes, plus accrued interest. The Senior Notes do not provide for any sinking fund. Upon a Change of Control, the holders of the Senior Notes will have the right, subject to certain restrictions and conditions, to require the Company to purchase all or any part of the Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The Senior Notes will be general unsecured obligations of the Company, senior in right of payment to all existing and future subordinated indebtedness of the Company and pari passu in right of payment with all other indebtedness of the Company. UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement (the "Underwriting Agreement"), among the Company and the Underwriter, the Company has agreed to sell to the Underwriter, and the Underwriter has agreed to purchase, the principal amount of the Convertible Subordinated Notes set forth below:
PRINCIPAL AMOUNT OF CONVERTIBLE UNDERWRITER SUBORDINATED NOTES ----------- ------------------ Salomon Brothers Inc.................................. $50,000,000
In the Underwriting Agreement, the Underwriter has agreed, subject to the terms and conditions set forth therein, that the obligations of the Underwriter are subject to certain conditions precedent and that the Underwriter will be obligated to purchase the entire principal amount of the Convertible Subordinated Notes offered hereby if any Convertible Subordinated Notes are purchased. The Company has been advised by the Underwriter that it proposes to offer the Convertible Subordinated Notes directly to the public at the initial public offering price set forth on the cover of this 85 Prospectus and to certain dealers at such price less a concession of not more than % of the principal amount of the Convertible Subordinated Notes. The Underwriter may allow, and such dealers may reallow, a concession not in excess of % of the principal amount of the Convertible Subordinated Notes. After the initial public offering of the Convertible Subordinated Notes, the public offering price and such concessions may be changed. The Underwriting Agreement provides that the Company will indemnify the Underwriter against certain civil liabilities, including liabilities under the Security Act, or contribute to payments that the Underwriter may be required to make in respect thereof. Except for certain exceptions pertaining to certain employee benefit plans, outstanding options and warrants to purchase Common Stock and Securities convertible into Common Stock, the Company has agreed that it will not, without the prior written consent of the Underwriter, for a period of 180 days after the date on which the Underwriting Agreement is executed, directly or indirectly, offer to sell, sell, grant any option for the sale of or otherwise dispose of any shares of Common Stock or any securities convertible into or exchangeable or exercisable for any shares of Common Stock, or any right or option to acquire any such shares or securities. Sales by the Company to the Underwriter are exempt from such restriction. Application has been made to list the Convertible Subordinated Notes on the New York Stock Exchange. However, no assurance can be given that any market for the Securities will develop. See "Risk Factors--Absence of Public Market for the Securities." LEGAL MATTERS Certain legal matters in connection with the issuance of the Securities will be passed upon for the Company by Gibson, Dunn & Crutcher, San Diego, California, and for the Underwriter by Latham & Watkins, Los Angeles, California. EXPERTS The financial statements and the related financial statement schedules as of July 31, 1993 and 1992 and for each of the three years in the period ended July 31, 1993, included and incorporated by reference in this Prospectus, have been audited by Deloitte & Touche, independent auditors, as stated in their reports which are included and incorporated by reference herein, and have been so included and incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 86 ROHR, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Financial Statements: Independent Auditors' Report F-2 Consolidated Balance Sheets--January 30, 1994, July 31, 1993 and 1992 F-3 Consolidated Statements of Operations--For the Six Months Ended January 30, 1994 and January 31, 1993 and the Years Ended July 31, 1993, 1992 and 1991 F-4 Consolidated Statements of Shareholders' Equity--For the Six Months Ended January 30, 1994 and the Years Ended July 31, 1993 and 1992 F-5 Consolidated Statements of Cash Flows--For the Six Months Ended January 30, 1994 and January 31, 1993 and for the Years Ended July 31, 1993, 1992 and 1991 F-6 Notes to Consolidated Financial Statements F-7
F-1 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ROHR, INC.: We have audited the accompanying consolidated balance sheets of Rohr, Inc. and its subsidiaries as of July 31, 1993 and July 31, 1992, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended July 31, 1993. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Rohr, Inc. and its subsidiaries as of July 31, 1993 and July 31, 1992, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 1993, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, in fiscal year 1993 the Company changed certain elements in the application of accounting principles relating to long-term programs and contracts and changed its method of accounting for income taxes and for post-retirement benefits other than pensions. Deloitte & Touche San Diego, California September 17, 1993 (March 28, 1994 as to Notes 7 and 8) F-2 ROHR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT FOR SHARE DATA)
ASSETS JULY 31, ------ JAN. 30, ---------------------- 1994 1993 1992 ----------- ---------- ---------- (UNAUDITED) Cash and short-term investments............ $ 28,768 $ 42,186 $ 21,122 Accounts receivable........................ 94,126 94,140 133,153 Inventories: Work-in-process.......................... 516,483 560,139 972,003 Raw materials, purchased parts and sup- plies................................... 29,051 32,575 42,549 Less customers' progress payments and ad- vances.................................. (133,380) (152,976) (181,575) --------- ---------- ---------- Inventories--net......................... 412,154 439,738 832,977 Prepaid expenses and other current assets.. 15,539 16,861 21,118 Deferred tax asset......................... 13,723 13,654 -- --------- ---------- ---------- Total Current Assets................... 564,310 606,579 1,008,370 Property, Plant and Equipment.............. 499,388 496,452 531,239 Less accumulated depreciation and amorti- zation.................................. (268,539) (257,407) (260,956) --------- ---------- ---------- Property, plant and equipment--net....... 230,849 239,045 270,283 Investment in Leases....................... 37,735 38,233 39,446 Deferred Tax Asset......................... 88,915 89,348 -- Other Assets............................... 45,757 44,581 45,859 --------- ---------- ---------- $ 967,566 $1,017,786 $1,363,958 ========= ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Trade accounts and other payables.......... $ 155,691 $ 166,916 $ 162,638 Salaries, wages and benefits............... 33,955 38,623 67,194 Taxes on income............................ -- -- 30,247 Short-term debt............................ -- -- 20,000 Current portion of long-term debt.......... 16,211 50,719 27,517 --------- ---------- ---------- Total Current Liabilities.............. 205,857 256,258 307,596 Long-Term Deferred Taxes on Income......... -- -- 43,458 Long-Term Debt............................. 467,214 480,889 525,077 Pension and Post-Retirement Obligations.... 69,246 63,040 25,785 Other Obligations.......................... 35,020 35,356 13,176 Commitments and Contingencies (Note 8) Shareholders' Equity: Preferred stock, $1 par value per share, 10 million shares authorized, none is- sued.................................... -- -- -- Common stock, $1 par value per share, au- thorized 50,000,000 shares; issued and outstanding 18,017,930, 17,995,866 and 17,833,076 shares, respectively......... 18,018 17,996 17,833 Additional paid-in capital............... 102,541 102,312 101,261 Retained earnings........................ 82,976 75,241 329,772 Minimum pension liability adjustment..... (13,306) (13,306) -- --------- ---------- ---------- Total Shareholders' Equity............. 190,229 182,243 448,866 --------- ---------- ---------- $ 967,566 $1,017,786 $1,363,958 ========= ========== ==========
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. F-3 ROHR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED YEAR ENDED JULY 31, ------------------- ---------------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 -------- ---------- ---------- ---------- ---------- (UNAUDITED) Sales................... $484,823 $ 626,004 $1,175,152 $1,279,656 $1,385,086 Costs and Expenses...... 439,719 594,568 1,133,040 1,223,931 1,275,269 General and Administrative Expenses............... 13,446 22,467 43,800 10,167 9,239 -------- ---------- ---------- ---------- ---------- Operating Income (Loss). 31,658 8,969 (1,688) 45,558 100,578 Interest Income......... 520 405 928 3,666 1,119 Interest Expense........ 24,201 23,175 48,811 67,039 54,820 -------- ---------- ---------- ---------- ---------- Income (Loss) Before Taxes and Cumulative Effect of Accounting Changes..... 7,977 (13,801) (49,571) (17,815) 46,877 Taxes (Benefit) on Income................. 242 (5,286) (18,990) (19,270) 16,360 -------- ---------- ---------- ---------- ---------- Income (Loss) Before Cumulative Effect of Accounting Changes..... 7,735 (8,515) (30,581) 1,455 30,517 Cumulative Effect Through July 31, 1992, of Accounting Changes, Net of Taxes........... -- (223,950) (223,950) -- -- -------- ---------- ---------- ---------- ---------- Net Income (Loss)....... $ 7,735 $ (232,465) $ (254,531) $ 1,455 $ 30,517 ======== ========== ========== ========== ========== Net Income (Loss) per Average Share of Common Stock: Income (Loss) Before Cumulative Effect of Accounting Changes... $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 Cumulative Effect Through July 31, 1992 of Accounting Changes, Net of Taxes................ -- (12.52) (12.50) -- -- -------- ---------- ---------- ---------- ---------- Net Income (Loss)....... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 ======== ========== ========== ========== ========== Pro forma amounts assuming the changes in the application of accounting principles for long-term programs and contracts are applied retroactively (unaudited): Net (Loss)............ $ (30,581) $ (36,271) $ (22,898) Net (Loss) per Average Share of Common Stock................ $ (1.71) $ (2.05) $ (1.31)
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. F-4 ROHR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
MINIMUM COMMON STOCK ADDITIONAL PENSION PAR VALUE PAID-IN RETAINED LIABILITY $1 A SHARE CAPITAL EARNINGS ADJUSTMENT ------------ ---------- -------- ---------- Balance at August 1, 1991......... $17,497 $ 95,587 $328,317 $ -- Common stock issued to employee benefit plans.................. 319 4,995 Stock plans activity............ 17 679 Net income...................... 1,455 ------- -------- -------- -------- Balance at July 31, 1992.......... 17,833 101,261 329,772 -- Common stock issued to employee benefit plans.................. 67 673 Stock plans activity............ 96 378 Net loss........................ (254,531) Minimum Pension Liability Adjustment (See Note 9a)....... (13,306) ------- -------- -------- -------- Balance at July 31, 1993.......... 17,996 102,312 75,241 (13,306) Stock plans activity............ 22 229 Net Income...................... 7,735 ------- -------- -------- -------- Balance at Jan. 30, 1994 (unaudited)...................... $18,018 $102,541 $ 82,976 $(13,306) ======= ======== ======== ========
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. F-5 ROHR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED JULY 31, ------------------- ----------------------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 -------- --------- --------- -------- -------- (UNAUDITED) Operating Activities: Net Income (loss)......... $ 7,735 $(232,465) $(254,531) $ 1,455 $ 30,517 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Cumulative effect of accounting changes--net of taxes............... -- 223,950 223,950 -- -- Depreciation and amortization........... 11,693 12,648 25,578 27,855 27,721 Changes due to (increase) decrease in operating assets: Accounts receivable... 6,998 (34,527) 84,013 53,174 (38,791) Net inventories....... 27,584 9,954 34,447 5,990 (31,122) Prepaid expenses and other assets......... 1,322 8,106 4,514 10,910 (2,392) Changes due to increase (decrease) in operating liabilities: Trade accounts and other payables....... (11,817) (13,848) (17,478) 27,362 (47,757) Taxes on income and deferred taxes....... 364 (9,717) (29,432) (20,816) (2,684) Other................... 1,049 328 7,607 4,412 1,738 -------- --------- --------- -------- -------- Net Cash Provided by (Used in) Operating Activities.. 44,928 (35,571) 78,668 110,342 (62,770) -------- --------- --------- -------- -------- Investing Activities: Proceeds from sale-lease- back transactions........ -- 52,247 52,247 -- -- Purchase of property, plant and equipment...... (2,949) (18,878) (27,536) (62,933) (32,383) Other, including investment in leases..... (390) (2,522) (1,180) 21,789 13,528 -------- --------- --------- -------- -------- Net Cash Provided by (Used in) Investing Activities.. (3,339) 30,847 23,531 (41,144) (18,855) -------- --------- --------- -------- -------- Financing Activities: Issuance of 9.33% senior notes.................... -- 62,000 62,000 -- -- Annual principal payment on 9.35% senior notes.... (12,500) (12,500) (12,500) -- -- Issuance (repayment) of medium-term notes........ (35,000) (10,000) (10,000) (5,000) 50,000 Net short-term borrowings (repayments)............. -- 5,000 (20,000) (57,000) 17,000 Long-term borrowings under revolving credit agreement................ 81,000 80,000 90,000 300,000 180,000 Repayment of borrowings under revolving credit agreement................ (81,000) (50,000) (120,000) (290,000) (150,000) Repayment of other long- term borrowings.......... (649) (18,712) (36,387) (11,890) (11,883) Net repayment of receivable and equivalents.............. -- (45,000) (45,000) (15,000) -- Proceeds from cash values in insurance policies.... -- -- 9,984 -- -- Cash collateral for receivables sales program.................. (6,984) -- -- -- -- Stock contributions to employee benefit plans... -- 741 741 5,314 -- Repurchase of common stock on open market..... -- -- -- -- (3,375) Other..................... 126 11 27 (58) (77) -------- --------- --------- -------- -------- Net Cash Provided by (Used in) Financing Activities.. (55,007) 11,540 (81,135) (73,634) 81,665 -------- --------- --------- -------- -------- Increase (Decrease in Cash and Short-Term Investments............... (13,418) 6,816 21,064 (4,436) 40 Cash and Short-Term Investments, Beginning of Period.................... 42,186 21,122 21,122 25,558 25,518 -------- --------- --------- -------- -------- Cash and Short-Term Investments, End of Period.................... $ 28,768 $ 27,938 $ 42,186 $ 21,122 $ 25,558 ======== ========= ========= ======== ======== Supplemental Cash Flow Information: Cash paid for interest, net of amounts capitalized.............. $ 21,353 $ 20,422 $ 47,758 $ 53,936 $ 81,914 Cash paid (refunded) for income taxes............. (178) 4,392 9,802 2,243 19,501 Non-Cash Investing and Financing Activities: Sale of receivables..... 60,000 20,000 Repurchase of receivables or inventory equivalents.. (105,000) (20,000)
The accompanying notes to the Consolidated Financial Statements are an integral part of these statements. F-6 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIODS ENDED JANUARY 30, 1994 AND JANUARY 31, 1993, (UNAUDITED) AND THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 The consolidated balance sheets of the Company as of July 31, 1993 and 1992 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years ended July 31, 1993, 1992 and 1991 have been audited by Deloitte & Touche, independent auditors. The consolidated balance sheet as of January 30, 1994, the consolidated statements of operations and statements of cash flows for the six-month periods ended January 30, 1994, and January 31, 1993, and the consolidated statement of shareholders' equity for the six-month period ended January 30, 1994, are unaudited but reflect all adjustments (including normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods. In the third quarter of fiscal 1993, the Company changed, effective August 1, 1992, certain elements in the application of accounting principles relating to long-term programs and contracts, as described in Note 2--Accounting Changes. The Summary of Significant Accounting Policies (Note 1) reflects the changed accounting policies in effect on August 1, 1992. Financial results for interim periods are not necessarily indicative of results to be expected for the full year and, particularly in light of the accounting policy changes referred to above and the substantial provisions taken in the third quarters of fiscal 1992 and fiscal 1993, a comparison of the interim periods may not be meaningful. NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Principles of Consolidation The consolidated statements include the accounts of Rohr, Inc. and all subsidiaries ("Company"). Total assets and sales of foreign subsidiaries are not significant. Certain reclassifications have been made to prior years to conform to current year presentation. b. Sales and Earnings The Company follows the guidelines of Statement of Position 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" (the contract method of accounting) for certain commercial and all governmental contracts, except that the Company's contract accounting policies differ from the recommendations of SOP 81-1 with respect to the treatment of general and administrative costs (prior to the accounting change described in Note 2) and with respect to revisions of estimated profits on contracts which revisions are included in earnings by the Company under the reallocation method rather than the cumulative catch-up method recommended by SOP 81-1. Contract accounting generally places limitations on the combining of contracts and prohibits the anticipation of future contracts in determining the contract profit center. Approximately one-half of the Company's sales during the fiscal year 1993 are accounted for using the contract method of accounting. In the third quarter of fiscal 1993, the Company made significant changes, effective August 1, 1992, to certain elements of its application of accounting principles relating to its long-term contracts as described in Note 2. Several major commercial programs, under which spares and technical product support are sold directly to airlines, are accounted for under the program method of accounting, a method which existed in practice for many years prior to the issuance of SOP 81-1. Guidelines for use of program accounting have been developed in practice and are not codified by authoritative accounting literature. This method F-7 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of accounting is followed by relatively few public companies in a limited number of industries. It applies in situations where the economics of producing and marketing the program product extend beyond the initial production order. The most significant differences from contract accounting are that (1) the quantity of units included in the profit center under program accounting includes existing and anticipated contracts, and (2) program units may be sold to more than one customer. The Company uses program accounting in those circumstances where it is able to make reasonably dependable estimates of (1) the value of anticipated production units and spares sales in future contracts, (2) the length of time to produce and sell those additional production units and spares, and (3) the production costs and selling prices associated with such units and spares. Typically, the Company applies program accounting on programs for which the Company is responsible for total systems integration and continuing product support. The Company initially adopted the program method of accounting in 1988 in response to the changing characteristics of its contracting environment. Profit is estimated based on the difference between total estimated revenue and total estimated cost of a contract or program and is recognized evenly as a uniform percentage of sales value on all remaining units to be delivered. Current revenue does not anticipate higher or lower future prices, but includes units delivered at actual sales prices. A constant contract or program margin is achieved by deferring or accelerating a portion of the average unit cost on each unit delivered. Cost includes the estimated cost of the pre-production effort (primarily tooling and design), plus the cost of manufacturing both a specified number of production units and, under the program method of accounting, those spares which are expected to be delivered concurrently with such production units. The specified number of production units used to establish the profit margin is predicated upon market forecasts and does not exceed the lesser of those quantities assumed in original program pricing or those quantities which the Company now expects to deliver in the periods assumed in original program pricing. The number of units used to estimate profit margin is increased when firm orders exceed the number of units used for pricing purposes (a firm order authorizes the Company to commence production). Spares, as a percentage of total deliveries, increase as a program matures and historically have been sold at higher prices than production units. This higher price reflects, in part, additional costs related to technical and customer support activities. Under both the contract and program methods of accounting, the Company's sales are primarily under fixed-price contracts, many of which contain escalation clauses and require delivery of products over several years. Sales and profits on each contract or program are recognized primarily in accordance with the percentage-of-completion method of accounting, using the units-of- delivery method. Revisions of estimated profits on contracts or programs are included in earnings by the reallocation method, which spreads the change in estimate over current and future deliveries. Any anticipated losses on contracts or programs are charged to earnings when identified. Both the contract and program methods of accounting involve the use of various estimating techniques to project estimated costs at completion. These estimates involve various assumptions and projections relative to the outcome of future events. Paramount are assumptions relative to labor performance and anticipated future labor rates, and projections relative to material and overhead costs. These assumptions involve various levels of expected performance improvements. The Company reevaluates its estimates quarterly for all significant contracts and programs. Changes in estimates are reflected in the current and future periods. Included in sales are amounts arising from contract terms that provide for invoicing a portion of the contract price at a date after delivery. Also included are: negotiated values for units delivered; and F-8 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) anticipated price adjustments for contract changes, claims, escalation, and estimated earnings in excess of billing provisions resulting from the percentage-of-completion method of accounting. Certain contract costs are estimated based on the learning curve concept discussed in Note 1c. c. Inventories Inventories of raw materials, purchased parts and supplies are stated at the lower of average cost or estimated realizable value. Inventoried costs on long- term contracts and programs include certain pre-production costs, consisting primarily of tooling and design costs, and production costs, including applicable overhead. As the production costs for early units are charged to work-in-process inventory at an actual unit cost in excess of the estimated average cost for all units projected to be delivered over the entire contract or program, a segment of inventory described as the excess of production costs over estimated average unit cost (and referred to as excess-over-average inventory) is created. Generally, excess-over-average inventory, which may include production (but not pre-production) cost over-runs, builds during the early years of the contract or program when the efficiencies resulting from learning are not yet fully realized and declines as the program matures. Under the learning curve concept, an estimated decrease in unit labor hours is assumed as tasks and production techniques become more efficient through repetition of the same manufacturing operation and through management action such as simplifying product design, improving tooling, purchasing new capital equipment, improving manufacturing techniques, etc. For programs under the program method of accounting, excess-over-average inventory also builds until sales of spares, as a percentage of total sales, equal or exceed the percentage used for the overall profit margin calculation. Inventoried costs are reduced by the estimated average cost of deliveries computed as a uniform percentage of sales value. In the event that work-in-process inventory plus estimated costs to complete a specific contract or program exceeds the anticipated remaining sales value of such contract or program, such excess is charged to current earnings, thus reducing inventory to estimated realizable value. In accordance with industry practice, costs in inventory include amounts relating to programs and contracts with long production cycles, much of which is not expected to be realized within one year. See Note 2, which describes certain changes in the application of accounting principles and the effect of such changes on inventories. d. Property, Plant and Equipment Property, plant and equipment is recorded at cost or, in the case of assets under capital leases, the lower of the present value of minimum lease payments or fair market value. Depreciation and amortization is computed by the straight-line method over the estimated useful lives of the various classes of assets or, in the case of capitalized leased assets, over the lease term if shorter. When assets are retired or disposed of, the assets and related accumulated depreciation are eliminated and any resulting gain or loss is reflected in income. e. Pension and Health Plans Pension costs include current costs plus the amortization of transition assets over periods up to 14 years. The Company funds pension costs in accordance with plan and legal requirements. The Company adopted, effective August 1, 1992, the provisions of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Post-Retirement Benefits other than Pensions." This standard requires the Company to accrue the expected cost of subsidizing an employee's post-retirement health care benefits during the employee's service period. See Note 9b. F-9 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) f. Research and Development Research and development costs incurred for the development of proprietary products are expensed as incurred. These costs have not been material to operations during the periods presented. Design efforts performed under contract generally consist of the adaptation of an existing capability to a particular customer need and are accounted for as an element of contract costs. These design efforts do not fall within the definition of Research and Development as defined in SFAS No. 2, "Accounting for Research and Development Costs." g. Income Taxes The Company adopted, effective August 1, 1992, the provisions of SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are recognized based upon temporary differences between financial statement and tax bases of assets and liabilities using presently enacted tax rates. See Note 6. h. Net Income Per Average Share of Common Stock Net income per share was determined by dividing net income by the weighted average number of common shares and common share equivalents outstanding during the year. The assumed conversion of the Company's convertible debentures was anti-dilutive. As a result, only primary earnings per share is presented in the Company's Consolidated Statements of Operations. i. Cash Flows For purpose of the statement of cash flows, the Company considers all investments and highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. j. Industry Segments The Company considers itself to operate in one significant industry segment. NOTE 2--ACCOUNTING CHANGES a.Introduction In the third quarter of fiscal year 1993, the Company changed, effective August 1, 1992, certain elements in the application of accounting principles relating to long-term programs and contracts. In addition, the Company adopted the provisions of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other than Pensions," and SFAS No. 109, "Accounting for Income Taxes." Each change requires that the Company calculate the effect of the change in accounting principles on retained earnings as of the first day in the fiscal year of change. These changes do not affect the Company's cash flow. Each of these changes is discussed separately below. Prior year financial statements have not been restated to apply the provisions of adopting these standards. b. Long-term Contracts In fiscal 1993, the Company changed certain elements of its application of accounting principles relating to long-term programs and contracts, effective August 1, 1992. Certain costs previously carried in inventory for amortization over future deliveries will now be expensed. These costs include certain F-10 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) pre-certification costs, consisting primarily of tooling and design expenses in excess of negotiated contractual values, that will now be expensed as identified. In addition, prior to the accounting change, general and administrative expenses were expensed as period charges, except for (1) such expenses that were clearly related to production in accordance with Accounting Research Bulletin No. 43 and had contractual revenue coverage and (2) other amounts charged to commercial programs which did not have a material impact upon the results of operations. The financial result of capitalizing these latter amounts of general and administrative expense was not material due to the offsetting impact upon operations resulting from their inclusion as an element of total costs for purposes of determining contract and program gross margins. Following a thorough review of its accounting policies, the Company concluded there was a need, particularly in light of the current aerospace environment, to have financial results more closely reflect near-term program economics (cash flow and internal rate of return). As a result, these changes will generally reduce the number of production units and spares used in the calculation of overall profit margins. While the previous methods of applying the Company's accounting principles were in accordance with generally accepted accounting principles (GAAP), the changed policies are preferable. The application of these policies produces program and contract estimates that are based on shorter delivery periods, allowing a better matching of revenues and expenses. The cumulative effect of these changes for the periods through July 31, 1992, was a charge of $219.7 million, net of income tax benefits of $136.3 million. The effect of these changes on the year ended July 31, 1993, was to increase the net loss before the cumulative effect of the changes in accounting principles by $24.6 million ($1.37 per average common share), net of income tax benefits of $15.3 million. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes," pro forma amounts are shown for net loss and net loss per average share of common stock for all prior periods presented. The pro forma amounts presented in the Consolidated Statements of Operations reflect the retroactive application of these accounting changes, net of income tax benefits (which were allocated ratably over the pro forma restated periods) for each period presented. Primarily as a result of these changes, excess-over-average inventory decreased from $323.7 million at July 31, 1992 to $75.4 million at July 31, 1993. Pre-production inventory also decreased from $258.4 million at July 31, 1992 to $181.0 million at July 31, 1993 primarily as a result of the accounting changes. See Note 4. c. Post-Retirement Benefits Other Than Pensions The Company adopted, effective August 1, 1992, SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other than Pensions." The accumulated post-retirement benefit obligation for active employees and retirees was recorded using the immediate recognition transition option. See Note 9b. This standard requires companies to accrue the expected cost of providing health care benefits to retired employees and their dependents during the employees' service periods. The Company previously charged the cost of providing these benefits on a pay-as-you-go basis. The cumulative effect of this change for the periods through July 31, 1992 was a charge of $4.3 million, net of income tax benefits of $2.7 million. The effect of the change on the year ended July 31, 1993 was not material. d. Income Taxes The Company also adopted, effective August 1, 1992, SFAS No. 109, "Accounting for Income Taxes." See Note 6. The cumulative effect of this change for periods through July 31, 1992 was not material by itself. However, under this standard, the Company recorded a substantial deferred tax asset as a result of the other changes in accounting principles and certain other charges recorded in the year ended July 31, 1993. See Note 6. F-11 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) e. Effect of Changes The cumulative effect of the changes described in this Note 2, as of August 1, 1992 and the effect of the changes on net loss before the cumulative effect of the changes in accounting principles on the year ended July 31, 1993 were as follows ($ in millions except per share data):
CUMULATIVE EFFECT AT EFFECT ON THE YEAR AUGUST 1, 1992 ENDED JULY 31, 1993 ------------------------- ------------------------ (LOSS) PER (LOSS) PER NET AVERAGE SHARE OF NET AVERAGE SHARE OF (LOSS) COMMON STOCK (LOSS) COMMON STOCK ------- ---------------- ------ ---------------- Change in application of accounting principles relating to long-term programs and contracts--net of taxes................... $(219.7) $(12.26) $(24.6) $(1.37) Post-retirement benefits other than pensions--net of taxes...................... (4.3) (.24) -- -- ------- ------- ------ ------ $(224.0) $(12.50) $(24.6) $(1.37) ======= ======= ====== ======
The cumulative effect of adopting SFAS No. 109, "Accounting for Income Taxes," for periods through July 31, 1992 and the effect on the year ended July 31, 1993 was not material by itself. However, under this standard, the Company recorded a substantial deferred tax asset as a result of the other changes in accounting principles and certain other charges recorded in the year ended July 31, 1993. See Note 6. Quarterly earnings for 1993 have been restated as if the changes occurred at August 1, 1992. NOTE 3--ACCOUNTS RECEIVABLE Accounts receivable, which relate primarily to long-term programs and contracts, consist of the following (in thousands):
JULY 31, JAN. 30, ---------------- 1994 1993 1992 ----------- ------- -------- (UNAUDITED) Amount billed..................................... $49,962 $40,628 $ 62,405 Recoverable costs and accrued profit on units delivered but not billed......................... 9,474 13,436 20,903 Recoverable costs and accrued profit on progress completed but not billed......................... 499 810 3,273 Unrecovered costs and estimated profit subject to future negotiations.............................. 34,191 39,266 46,572 ------- ------- -------- $94,126 $94,140 $133,153 ======= ======= ========
"Recoverable costs and accrued profit on units delivered but not billed" represent revenue recognized on contracts for amounts not billable to customers at the balance sheet date. This amount principally represents delayed payment terms along with escalation and repricing predicated upon deliveries and final payment after acceptance. Some of these recoverable costs are expected to be billed and collected in the normal course of business beyond one year. F-12 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) "Recoverable costs and accrued profit on progress completed but not billed" represent revenue recognized on contracts based on the percentage-of-completion method of accounting and is anticipated to be billed and collected in accordance with contract terms, which may be longer than one year. "Unrecovered costs and estimated profit subject to future negotiations" consist of contract tasks completed for which a final price has not been negotiated with the customer. Amounts in excess of agreed upon contract prices are recognized when it is probable that the claim will result in additional contract revenue and the amounts can be reliably estimated. Included in this amount at January 30, 1994, July 31, 1993 and 1992 are estimated recoveries on constructive change claims related to government imposed redefined acceptance criteria on the Grumman F-14, Boeing E3/E6, and the Boeing KC-135 and Lockheed C-5 production programs. Management believes that amounts reflected in the financial statements, which in the aggregate are very substantial, are reasonable estimates of the ultimate settlements. The resolution of these items may take several years. The Company entered into an arrangement on December 23, 1992 under which it sells receivables through a subsidiary to a trust on an ongoing basis. Investors' beneficial interests in the trust are reported as a reduction to accounts receivable. Under the arrangement, the Company acts as an agent for the trust by performing all record keeping and collection functions with respect to the receivables that have been sold. At January 30, 1994 and July 31, 1993 the investors held a $60 million beneficial interest in the receivables transferred to the trust. The Company's subsidiary holds the remaining beneficial interest in the trust which fluctuates in value depending upon the amount of receivables owned by the trust from time to time. At July 31, 1993 the Company's subsidiary had a 9 percent beneficial interest in the trust and a zero percent interest at January 30, 1994. The Company has deposited cash collateral as required to support the facility and has withdrawn such cash when it is no longer required to be deposited. At January 30, 1994, the Company had $7 million of cash collateral on deposit. At July 31, 1992 and July 31, 1991 the investor in a now terminated predecessor facility held a $105 million and $120 million interest in Company receivables, respectively. The cost associated with the sales of receivables under the current facility is 7.57 percent per year. The costs and those of the predecessor facility, all of which have been reflected as a reduction in sales values, were $2.4 million, $5.3 million, $7.0 million, and $9.2 million for the six months ended January 30, 1994 and in fiscal years 1993, 1992 and 1991, respectively. Sales The Company's direct sales to major customers including related program spares, expressed as a percentage of total sales, during the following periods are summarized as follows:
YEAR ENDED SIX MONTHS ENDED JULY 31, ----------------- ---------------- JAN. 30, JAN. 31, 1994 1993 1993 1992 1991 -------- -------- ---- ---- ---- (UNAUDITED) Pratt & Whitney................................ 17% 19% 17% 15% 16% General Electric............................... 16 12 14 12 12 International Aero Engines..................... 15 8 9 7 4 CFM International.............................. 9 8 8 2 0 McDonnell Douglas.............................. 8 13 11 18 14 Boeing......................................... 8 11 11 15 14 Rolls Royce.................................... 8 6 8 7 8 Lockheed....................................... 4 2 3 3 3 Airbus Industrie............................... 2 8 6 8 12 U.S. Government................................ 1 1 1 2 4 Grumman........................................ 0 0 0 1 6 Other.......................................... 12 12 12 10 7
F-13 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Total sales to the U.S. Government (including direct sales and indirect sales through prime contractors) accounted for 12%, 11%, 13%, 14% and 20% for the six months ended January 30, 1994, and January 31, 1993, and for fiscal years 1993, 1992 and 1991, respectively. Commercial products sold by the Company to jet engine manufacturers are ultimately installed on aircraft produced by the major commercial airframe manufacturers, Airbus, Boeing and McDonnell Douglas. Sales to foreign customers accounted for 23%, 25%, 25%, 22% and 21% of total sales for the first six months of fiscal 1994 and 1993 and for fiscal years 1993, 1992 and 1991, respectively. Of the total sales 22%, 23%, 23%, 19% and 20% were to Europe for the first six months of fiscal 1994 and 1993 and for fiscal years 1993, 1992 and 1991, respectively. NOTE 4--INVENTORIES Work-in-process inventories, which relate primarily to long-term contracts and programs as of January 30, 1994, are summarized as follows (in thousands, except quantities): (Table and Notes are Unaudited)
AIRCRAFT ORDER COMPANY ORDER STATUS STATUS(3) WORK-IN-PROCESS INVENTORY ------------------------------- ------------------ -------------------------------------- AS OF 1/30/94 AS OF 12/31/93 FIRM --------------------- ------------------ EXCESS PROGRAM UNFILLED FISCAL YEAR UNFILLED UNFILLED PRE- OVER PROGRAM QUANTITY(1) ORDERS(2) DELIVERED COMPLETE(7) ORDERS OPTIONS PRODUCTION PRODUCTION AVERAGE TOTAL - ------- ----------- --------- --------- ----------- -------- -------- ---------- ---------- ------- -------- A340 nacelle(4)(6)... 117 28 45 1997 95 74 $ 15,409 $ 63,794 $ 7,386 $ 86,589 PW4000 nacelle for the A300/A310 and MD-11(4)........ 422 28 251 2000 51 72 27,397 6,920 19,898 54,215 MD-90(4)(6)...... 451 11 3 2006 77 102 8,478 69,518 3,885 81,881 V2500 nacelle for the A320/ A321(4)(6)...... 270 62 163 1997 155 198 25,245 22,068 0 47,313 CF6-80C nacelle for the 747/ 767, MD-11 and for the A300/ A310(5)(6)...... 694 117 577 1996 302 319 31,143 2,809 19,915 53,867 CFM56-5 nacelle for the A320/ A321(5)(6)...... 435 122 313 1999 150 145 23,121 2,723 4,535 30,379 MD-11(4)(6)...... 200 39 121 1997 60 127 6,549 0 0 6,549 PW300(4)(6)...... 164 63 76 1997 40(8) 0(8) 3,910 8,489 0 12,399 Others........... 118,769 23,032 1,490 143,291 -------- -------- ------- -------- Balance at Janu- ary 30, 1994.... $260,021 $199,353 $57,109 $516,483 ======== ======== ======= ========
- -------- (1) Represents the number of aircraft used to obtain average unit cost. Spares (which are not included in this quantity) anticipated to be delivered concurrently with the production units for the above aircraft are also used in calculating average unit cost. Total spares sales value used in calculating average unit cost at January 30, 1994 were $91,734 on the A340, $324,803 on the PW4000, $381,503 on the MD-90, $110,764 on the V2500, $154,007 on the CF6-80C, $255,179 on the CFM56-5 and $16,986 on the MD-11. Total spares sales value sold as of January 30, 1994 were $18,667 on the A340, $193,633 on the PW4000, $0 on the MD-90, $63,196 on the V2500, $112,295 on the CF6-80C, $113,219 on the CFM56-5 and $13,814 on the MD-11. (2) Represents the number of aircraft for which the Company has firm unfilled nacelle orders. F-14 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (3) Represents the aircraft order status as announced by the aircraft manufacturers for the related aircraft and engine option. The Company's orders frequently are less than the announced orders shown above. (4) Program quantity represents initial program quantities and does not exceed the lesser of those quantities assumed in original program pricing or those quantities which the Company now expects to deliver in the periods assumed in original program pricing. The Company does not have orders for all of these units at this time. (5) Program quantity represents initial plus follow-on program quantities. The Company has firm orders for all of these units. (6) Programs accounted for in accordance with the program method of accounting. (7) The year presented for each program or contract represents the fiscal year in which the final production and spares units included in the program quantity are expected to be delivered. (8) Aircraft order status as of July 31, 1993, subsequent order data not available. Work-in-process inventories, which relate primarily to long-term contracts and programs as of July 31, 1993, are summarized as follows (in thousands, except quantities):
AIRCRAFT ORDER COMPANY ORDER STATUS STATUS(3) ------------------------------- ----------------- AS OF 7/31/93 AS OF 6/30/93 WORK-IN-PROCESS INVENTORY --------------------- ----------------- --------------------------------------- FIRM EXCESS PROGRAM UNFILLED FISCAL YEAR UNFILLED UNFILLED PRE- OVER PROGRAM QUANTITY(1) ORDERS(2) DELIVERED COMPLETE(7) ORDERS OPTIONS PRODUCTION PRODUCTION AVERAGE TOTAL - ------- ----------- --------- --------- ----------- -------- -------- ---------- ---------- -------- -------- A340 nacelle(4)(6)... 124 38 35 1997 107 65 $ 24,611 $ 57,181 $ 4,443 $ 86,235 PW4000 nacelle for the A300/A310 and MD-11(4)........ 422 47 234 2002 79 71 45,808 0 33,623 79,431 MD-90(4)(6)...... 454 8 3 2006 77 102 4,670 63,180 4,169 72,019 V2500 nacelle for the A320/ A321(4)(6)...... 291 52 139 1998 187 202 45,385 18,235 0 63,620 CF6-80C nacelle for the 747/ 767, MD-11 and A300/ A310(5)(6)...... 647 105 542 1995 368 358 26,204 8,701 25,162 60,067 CFM56-5 nacelle for the A320/ A321(5)(6)...... 390 79 311 1997 183 175 18,741 4,593 3,535 26,869 MD-11(4)(6)...... 200 47 113 1998 74 143 12,612 0 1,642 14,254 PW300(4)(6)...... 193 63 64 1997 40 0 5,897 7,918 0 13,815 Others........... 119,858 21,180 2,791 143,829 -------- -------- -------- -------- Balance at July 31, 1993........ $303,786 $180,988 $ 75,365 $560,139 ======== ======== ======== ======== Balance at July 31, 1992........ $389,904 $258,416 $323,683 $972,003 ======== ======== ======== ========
- -------- (1) Represents the number of aircraft used to obtain average unit cost. Spares (which are not included in this quantity) anticipated to be delivered concurrently with the production units for the above aircraft are also used in calculating average unit cost. Total spares sales value used in calculating average unit cost at July 31, 1993 were $91,734 on the A340, $325,151 on the PW4000, $417,588 on the MD-90, $143,550 on the V2500, $152,664 on the CF6-80C, $190,601 on the CFM56-5 and $16,474 on the MD-11. Total spares sales value sold as of July 31, 1993 were $13,989 on the A340, $181,083 on the PW4000, $0 on the MD-90, $51,998 on the V2500, $103,553 on the CF6-80C, $108,856 on the CFM56-5 and $12,282 on the MD-11. (2) Represents the number of aircraft for which the Company has firm unfilled nacelle orders. F-15 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (3) Represents the aircraft order status as announced by the aircraft manufacturers for the related aircraft and engine option. The Company's orders frequently are less than the announced orders shown above. (4) Program quantity represents initial program quantities and does not exceed the lesser of those quantities assumed in original program pricing or those quantities which the Company now expects to deliver in the periods assumed in original program pricing. The Company does not have orders for all of these units at this time. (5) Program quantity represents initial plus follow-on program quantities. The Company has firm orders for all of these units. (6) Programs accounted for in accordance with the program method of accounting. (7) The year presented for each program or contract represents the fiscal year in which the final production and spares units included in the program quantity are expected to be delivered. The Company's inventories at July 31, 1993 have been significantly reduced as a result of the changes in the application of accounting principles for long- term programs and contracts, effective August 1, 1992. See Note 2b. On certain long-term programs, the Company has agreed to recover pre- production costs (primarily tooling and design) over an expected number of deliveries, including spare parts. The number of deliveries over which production costs are to be amortized is predicated upon initial pricing agreements and does not exceed the Company's overall assessment of the market for that program. Excess-over-average inventory represents the cost of in-process and delivered units less, for each such unit, the current estimated average cost of the units in the program. Recovery of these inventoried costs assumes (i) certain production efficiencies, (ii) the sale of the program quantity used in estimating the profit margin, (iii) a specified allocation of sales among production units and spare units, and (iv) the attainment of an estimated spares margin that is substantially higher than the margin of production units. Spares prices are higher than production unit prices, in part, due to additional costs related to technical and customer support activities. If these program assumptions are not attained, then substantial amounts of unrecoverable costs may be charged to expense in subsequent periods. To the extent that a forward loss is encountered on a program, the amount of such loss is offset against the inventory of such program (until such inventory has been depleted). The loss is offset first against excess-over-average, followed by pre-production, then production. Contractual terms on certain programs provide varying levels of recovery commitments for specified amounts of pre-production costs. Certain programs also provide for the repricing of units in the event that less than a specified quantity is sold, which allows for recovery of additional excess-over-average inventory in such circumstances. The Company, in turn, has provided certain subcontractors with similar recovery commitments and repricing provisions on these programs. The excess of deferred program costs over the total costs allocated to units in process and delivered (less recoveries from customers due to repricing provisions) that would not be recovered based on existing firm orders as of July 31, 1993 was $6.6 million on the A340, $72.0 million on the MD-90, $9.6 million on the V2500 and $7.9 million on the PW300 and, as of January 30, 1994, was $2.3 million on the A340, $81.9 million on the MD-90, $7.2 million on the V2500 and $8.5 million on the PW300. F-16 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company uses forward contracts to manage its exchange risk on a portion of its purchase commitments from vendors of aircraft components denominated in foreign currencies and to manage its exchange risk for sums paid to its French subsidiary for services. The extent to which the Company utilizes forward contracts varies and depends upon management's evaluation of current and projected foreign currency exchange rates, but the Company does not acquire forward contracts in excess of its current hedging requirements. At January 30, 1994 and July 31, 1993, $25 million and $34 million, respectively, of foreign exchange contracts were outstanding to purchase foreign currencies. The foreign exchange contracts generally have maturities which do not exceed 12 months. Gains and losses on contracts which hedge specific foreign currency denominated commitments are not recognized currently but are included in the determination of profit or loss on the contract or program to which they relate. The Company believes that the credit risk from these instruments is minimal as the contracts are placed with highly reputable financial institutions. As described in Note 2, effective August 1, 1992, the Company changed accounting principles and began expensing certain general and administrative expenses as incurred; these expenses were previously inventoried. Amounts charged to inventories as incurred (prior to the accounting change, effective August 1, 1992), for general and administrative expenses were $42.8 million and $40.0 million for the years ending July 31, 1992 and 1991. Included in work-in- process inventories at July 31, 1992 and 1991 were general and administrative costs aggregating $36.1 and $30.9 million, respectively. These costs were estimated assuming that they bear the same relationship to total general and administrative costs incurred during the year as the ending inventory bears to total costs charged to inventory during the year. NOTE 5--PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following (in thousands):
JULY 31, JAN. 30, -------------------- 1994 1993 1992 ----------- --------- --------- (UNAUDITED) Land......................................... $ 25,152 $ 24,833 $ 24,883 Buildings.................................... 208,329 188,643 143,809 Machinery and equipment...................... 253,153 251,298 295,627 Construction in progress..................... 12,754 31,678 66,920 --------- --------- --------- 499,388 496,452 531,239 Less accumulated depreciation and amortiza- tion........................................ (268,539) (257,407) (260,956) --------- --------- --------- Property, plant & equipment--net............. $ 230,849 $ 239,045 $ 270,283 ========= ========= =========
Included in the above categories are assets recorded under capital leases totaling $50.5 million, at January 30, 1994, and July 31, 1993 and 1992. NOTE 6--TAXES ON INCOME The Company changed, effective August 1, 1992, its method of accounting for income taxes from the provisions of APB No. 11 "Accounting for Income Taxes" to the provisions of SFAS No 109 "Accounting for Income Taxes." The cumulative effect from the adoption of this standard for periods through July 31, 1992 was not material by itself. However, under this standard, the Company recorded a substantial deferred tax asset as a result of the adoption of the other changes in accounting principles and certain other charges recorded in the year ended July 31, 1993. F-17 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (b) operating loss and tax credit carryforwards. The components of the Company's deferred tax asset reflect the tax effects of the Company's temporary differences, tax credit carryforwards and net operating loss carryforwards (NOLs) at July 31, 1993. The components of the Company's deferred tax asset are listed below (in thousands): Current: Inventories................................................... $ 11,557 Employee benefits............................................. 6,885 State taxes................................................... (4,788) -------- Net deferred tax asset--current............................... $ 13,654 ======== Long-term: Depreciation.................................................. $ 31,872 Deferred gain on sale/leaseback............................... 9,201 Minimum pension liability adjustment.......................... 8,259 Net operating loss carryforward............................... 73,053 Tax credit carryforward....................................... 7,949 Investment in leases.......................................... (41,237) Other--net.................................................... 251 -------- Net deferred tax asset--long-term............................. $ 89,348 ========
The Company has federal NOLs totaling approximately $186 million at July 31, 1993, which expire in the years 2003 through 2008. When tax effected at the rates in effect July 31, 1993, the net deductible temporary differences, tax credit carryforwards, and NOLs result in a deferred tax asset of $103.0 million, consisting of $85.3 million for federal tax purposes and $17.7 million for state tax purposes. As of January 30, 1994 and July 31, 1993, based upon rates in effect on such dates, approximately $286 million and $271 million of future taxable income, respectively, is required prior to expiration of the Company's NOLs and credits for full realization of the deferred tax asset as of those dates. The Company believes that its expected future taxable income will be sufficient for full realization of the deferred tax asset. During fiscal 1993, a tax benefit of $8.2 million was provided for the charge recorded as a reduction to shareholders' equity for the additional minimum liability for the pension plan. See Note 9a. The provision (benefit) for taxes on income is comprised of the following (in thousands):
LIABILITY METHOD DEFERRED METHOD --------- ----------------- JULY 31, JULY 31, ----------------- 1993 1992 1991 --------- -------- ------- Currently Payable: Federal income taxes........................ $ 400 $ 3,500 $ 1,100 Foreign income taxes........................ 1,000 1,700 600 State income taxes.......................... -- 2,300 1,200 Deferred: Federal income taxes........................ (16,420) (23,000) 10,760 State income taxes.......................... (3,970) (3,770) 2,700 -------- -------- ------- $(18,990) $(19,270) $16,360 ======== ======== =======
F-18 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The deferred portion of the federal income tax provision (benefit) is comprised of the following (in thousands):
DEFERRED METHOD ----------------- JULY 31, ----------------- 1992 1991 -------- ------- Contract profit and loss recognition........................ $ (400) $14,200 Employee benefits........................................... 5,900 (2,900) Depreciation................................................ (8,400) (9,700) California franchise tax.................................... 500 (1,400) General and administrative expenses......................... 2,300 800 Provision for estimated losses and expenses................. (19,800) 1,000 Pre-production costs........................................ -- (400) Rate differences............................................ (1,100) (280) Utilization of reserves previously provided for tax assessments................................................ (9,800) Offset of loss and credit carryforwards against deferred taxes...................................................... (3,100) (1,100) Utilization of loss and credit carryforwards................ 18,600 18,100 Leveraged leasing........................................... (7,900) (8,600) Other items--net............................................ 200 1,040 -------- ------- $(23,000) $10,760 ======== =======
The difference between the income tax provision (benefit) computed at the federal statutory rate and the actual tax provision (benefit) is accounted for as follows (in thousands):
LIABILITY METHOD DEFERRED METHOD --------- ----------------- JULY 31, JULY 31, ----------------- 1993 1992 1991 --------- -------- ------- Taxes (benefit) computed at the federal statutory tax rate......................................... $(16,854) $ (6,100) $15,900 Increase (reduction) resulting from: State income taxes, net of federal tax benefit.. (2,617) (500) 2,600 Leveraged leasing............................... (1,300) (1,900) Tax-exempt income from Foreign Sales Corporation.................................... (700) Rate differences................................ (1,100) (280) Utilization of reserves previously provided for tax assessments................................ (9,800) Other........................................... 481 230 40 -------- -------- ------- $(18,990) $(19,270) $16,360 ======== ======== =======
As a result of applying SFAS No. 109, and after effecting the other changes in accounting principles adopted by the Company, effective August 1, 1992, the Company has recognized the future tax effects attributable to deductible temporary differences, NOLs and tax credit carryforwards for financial statement purposes. Thus, under the provisions of SFAS No. 109, the Company has recorded a $19.0 million income tax benefit on the net loss for the year ended July 31, 1993 and a $139.0 million income tax benefit on the cumulative effect of accounting changes at a 38.3 percent effective tax rate. The Company's effective tax rate on its net loss was 108 percent for the year ended July 31, 1992 primarily as a result of the utilization of reserves previously provided for tax assessments. Net deferred tax liabilities, reduced by loss and credit carryforwards, approximating $34.5 million and $40.6 million are included in Taxes on Income in the Consolidated Balance Sheets at July 31, 1992 and 1991, respectively. F-19 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Internal Revenue Service (IRS) has completed its examination of fiscal years 1984 and 1985 and proposed additional taxes of $36.6 million, excluding interest. The most significant adjustments involve the Company's adoption in fiscal 1984 of the completed contract method of accounting for tax purposes (which was conceded by the IRS subsequent to the second quarter of fiscal 1994) and the timing of deductions for employee benefit payments. The Company intends to vigorously protest the proposed adjustments through the IRS appeals process. Based upon all the information available to it, the Company believes that the resolution of this matter will not have a material effect on the financial position or results of operations of the Company. The Company has provided $3.1 million for income taxes during the six months ended January 30, 1994, offset by a tax benefit of $2.8 million due to the change in federal tax rates under the Omnibus Budget Reconciliation Act of 1993. The Company's deferred tax asset of $102.6 million remains substantially unchanged from the amount at July 31, 1993 but is expected to increase due to increased pension liability by the end of fiscal 1994. NOTE 7--INDEBTEDNESS The maturity schedule of the Company's indebtedness, which includes debt and capital lease obligations, is summarized as follows (in thousands):
SCHEDULED MATURITIES TOTAL AT FISCAL YEAR ENDED JULY 31, TOTAL AT JULY 31, JAN. 30, ------------------------------------------------------ ------------------ 1994 1994 1995 1996 1997 1998 THEREAFTER 1993 1992 ----------- ------- ------- ------- ------- ------- ---------- -------- -------- (UNAUDITED) Short-Term Debt......... $ 20,000 Current portion of Long- Term Debt.............. $ 16,211 $50,719 $ 50,719 27,517 Long-Term Debt: Medium-Term Notes...... 0 35,000 Revolving Credit....... 50,000 $50,000 50,000 80,000 9.35% Senior Notes..... 62,500 $12,500 12,500 $12,500 $12,500 $ 25,000 75,000 87,500 9.33% Senior Notes..... 62,000 8,850 8,850 44,300 62,000 Other Debt............. 17,858 914 337 293 255 16,604 18,403 18,448 -------- ------- ------- ------- ------- -------- -------- -------- 192,358 13,414 62,837 21,643 21,605 85,904 205,403 220,948 Capital Leases.......... 14,154 1,849 1,762 1,674 1,588 8,395 15,268 76,876 Less Imputed Interest.. (4,298) (837) (754) (672) (591) (1,928) (4,782) (37,829) Direct Finance Leases.. 0 -- 82 -------- ------- ------- ------- ------- -------- -------- -------- 9,856 1,012 1,008 1,002 997 6,467 10,486 39,129 Subordinated Debentures: 9 1/4%, maturing in 2017.................. 150,000 7,500 142,500 150,000 150,000 7%, maturing in 2012... 115,000 115,000 115,000 115,000 -------- ------- -------- -------- -------- 265,000 7,500 257,500 265,000 265,000 -------- ------- -------- -------- -------- Total Long-Term Debt. 467,214 14,426 63,845 22,645 30,102 349,871 480,889 525,077 -------- ------- ------- ------- ------- ------- -------- -------- -------- Total Indebtedness... $483,425 $50,719 $14,426 $63,845 $22,645 $30,102 $349,871 $531,608 $572,594 ======== ======= ======= ======= ======= ======= ======== ======== ========
The Company's total financing includes: indebtedness, shown in the table above; the receivables sales program, in the amount of $60 million, which is reported as a reduction to accounts receivable (see Note 3); and two sale- leaseback transactions, accounted for as operating leases, through which the Company raised $52.3 million in fiscal 1993. The sale leaseback transactions resulted in a gain of $20.7 million which was deferred and is being amortized over the terms of the lease. The Company's total financings were $587.0 million, $643.9 million and $677.6 million at January 30, 1994, July 31, 1993 and July 31, 1992, respectively. These amounts exclude undrawn commitments under the revolving credit agreement. F-20 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company's unsecured revolving credit agreement with a group of banks provides a total loan commitment of $150 million, reduced annually by $50 million in April of each of 1994 through 1996. This revolving credit agreement consists of a bank line, of which a portion is immediately available for borrowing (or to support the issuance of up to $8.5 million of letters of credit), and the balance can be made available at the end of any month. Borrowings under this credit agreement incur interest at an annual rate equal to one of the following at the Company's option: (1) prime rate plus 0% to 2.25%; (2) London Interbank Offered Rate plus 0.75% to 3.25%; (3) or a Domestic Money Market Bid Rate plus 0.875% to 3.375%; or (4) competitive bid. The interest rate at January 30, 1994 and July 31, 1993 was approximately 5.3% and 4.9%, respectively. The agreement provides for a facility fee, payable on a monthly basis at the rate of 0.35 to 0.75 of 1% on each lender's total commitment. The specific interest rate and facility fee payable at any time is based upon the Company's credit rating and the amount drawn under the credit agreement. The Company's 9.35% Senior Notes mature in 2000 and require principal payments of $12.5 million in January of each year until repaid. The Company's 9.33% Senior Notes mature in 2002 and require principal payments of approximately $8.9 million in December of each year, beginning in 1996, until repaid. With respect to each of these two Senior Note transactions, the Company can make principal prepayments at its option, which may include a premium for yield adjustment. The note holders can require the Company to purchase the remaining principal amount of the notes plus accrued interest and premium for yield adjustment in the event of certain changes in control or ownership of the Company. The Company's 9 1/4 percent subordinated debentures mature in 2017. These debentures are subject to mandatory annual sinking-fund payments of $7.5 million beginning March 1998. The Company may redeem an additional $15 million on each sinking-fund date. The subordinated debentures are redeemable at the Company's option, at 106.5 percent of the outstanding principal amount at July 31, 1993, 106.01% at March 1, 1994, declining annually to 100.5 percent in 2006, plus accrued interest. However, no such redemption may be effected prior to March 1997, directly or indirectly, from borrowed money having an interest cost of less than 9 1/4 percent per annum. The Company's 7 percent convertible subordinated debentures mature in 2012. These debentures are convertible prior to maturity, unless previously redeemed, at a conversion price of $43 per share, subject to adjustment under certain conditions. The debentures are redeemable at the option of the Company, in whole or in part, at a redemption price of 102.8 percent declining annually to 100.7 percent in 1996, together with accrued interest to the date of redemption. Annual sinking-fund payments of 5 percent of the aggregate principal amount of the debentures originally issued are to be applied to the redemption of debentures at 100 percent of principal amount plus accrued interest, commencing October 1998. The Company has the option of delivering repurchased debentures to the sinking-fund in lieu of cash. The mandatory sinking-fund is calculated to retire 70 percent of the debentures prior to maturity. The debentures are subordinated to all existing or future senior debt of the Company and rank on equal terms with the Company's outstanding 9 1/4 percent subordinated debentures due 2017. The Company's medium term note, which was privately placed with a bank, was paid in October, 1993. In fiscal 1993, the Company's debt relating to the Foley, Alabama, Industrial Revenue Bonds totaling $5.3 million was removed from the balance sheet as a result of the Company's deposit of U.S. Government securities in an irrevocable trust. The principal and interest of the securities deposited with the trustee were sufficient to fund the scheduled principal and interest payments of the debt. Subsequent to July 31, 1993, the debt was extinguished in exchange for the securities deposited. F-21 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Several of the Company's principal financing agreements contain financial covenants that require it to maintain specified levels of Consolidated Tangible Net Worth (as defined), specified ratios of Consolidated Net Income Available for Fixed Charges (as defined) to Fixed Charges (as defined), and specified ratios of Debt to Consolidated Tangible Net Worth (as defined). Effective upon the sale of the Securities, these covenants require a Consolidated Tangible Net Worth of $125 million plus 50% of positive consolidated net income; a ratio of Consolidated Net Income Available for Fixed Charges (as defined) to Fixed Charges (as defined) of 1.40 to 1 through July 31, 1994, 1.55 to 1 from August 1, 1994 through July 31, 1995, 1.90 to 1 from August 1, 1995 through July 31, 1996, and 2.00 to 1 thereafter; and a ratio of Debt to Consolidated Tangible Net Worth (as defined) of 5.60 to 1 through July 31, 1994, 5.00 to 1 from August 1, 1994 through July 31, 1995, 4.10 to 1 from August 1, 1995 through July 31, 1996, and 3.20 to 1 thereafter. The Company's principal financing agreements also contain other restrictions, including restrictions on indebtedness, liens, lease obligations, mergers, sales of assets, investments and capital expenditures. If the Company were to breach a covenant in any of its principal financing agreements, the lenders under such agreement could, at their option, accelerate the maturity of the debt evidenced by such agreement. In addition, any such default (or, in some cases, an acceleration after the occurrence of such a default) would cause defaults under cross-default provisions (or cross-acceleration provisions) in other Company financing agreements. NOTE 8--COMMITMENTS AND CONTINGENCIES Minimum rental commitments under operating leases with non-cancelable terms of more than one year as of January 30, 1994 and July 31, 1993 are as follows (in thousands):
JAN. 30, JULY 31, 1994 1993 ----------- -------- (UNAUDITED) 1994--Six Months..................................... $ 5,700 $ -- 1994--Year........................................... -- 11,500 1995................................................. 9,300 8,700 1996................................................. 7,200 6,700 1997................................................. 6,400 6,200 1998................................................. 5,700 6,000 Thereafter........................................... 23,200 23,400 ------- ------- $57,500 $62,500 ======= =======
Generally, leases have provisions for rent escalation based on inflation. Certain leases provide for options to renew with substantially similar terms (except negotiable rent increases). The total expense under all operating leases was approximately $6.7 million, $7.7 million, $15.9 million, $15.3 million and $14.9 million for the first six months of fiscal 1994 and 1993 and for fiscal years 1993, 1992 and 1991, respectively. During fiscal year 1992, the U.S. Air Force filed a termination notice for alleged default under the C-5 spare pylon contract, and the Company then commenced the appeal process to convert the termination to one for convenience of the government. Contemporaneously, the Company filed a notice of breach of contract with the government on the C-5 spare pylon contract. The Company also filed a variety of actions before the Armed Services Board of Contract Appeals ("ASBCA") requesting payment of sums owed the Company due to the government's imposition of redefined acceptance criteria under the C-5 pylon program and the KC-135 re-engining program. The Company also recorded special provisions for this matter in prior periods. F-22 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Following the end of the Company's fiscal 1994 second quarter, the Company and the U.S. Air Force settled all of their disputes as well as certain constructive change claims of the Company against the U.S. Air Force for which estimated revenues were included in the accounts receivable of the Company at July 31, 1993. (See Note 3 Accounts Receivable). The most significant aspects of this settlement were: (1) The C-5 spare pylon contract will be converted to termination for government convenience. The Company will retain approximately $27.3 million of unliquidated progress payments previously made by the U.S. Air Force. (2) The Company will retain most of the C-5 spare pylon work-in-process and raw material inventories. (3) The Company will provide a warranty on certain, specified C-5 pylon panels. This will end seven years after the original delivery date of each applicable panel to the Air Force. The original delivery dates for the warranted panels range from 1989 to 1991. The Company has established a reserve for this warranty obligation. Contemporaneously with the settlement with the U.S. Air Force, the Company and the United States Attorney for the Central District of California settled the civil aspects of an investigation, which had been ongoing since 1990, concerning the production of parts, the recording of information which is a part of that production process, and the testing practices utilized by the Company on many programs. The Company cooperated fully in the investigation and does not believe there was any adverse effect on the safety or utilization of its products. The Company recorded special provisions in prior periods reflecting its assessment of the ultimate costs which it believed would be incurred. Under this settlement the Company will pay $4 million to the U.S. Attorney's office. In connection with these settlements, a recently unsealed qui tam lawsuit filed by former employees against the Company on behalf of the U.S. Government with respect to certain of the activities that had been under investigation has been dismissed with prejudice. The criminal aspects of this matter are pending a pre-sentencing report to a judge in the U.S. District Court in Los Angeles. The Company's plea of making eight false statements under which it has agreed to pay approximately $3.7 million, is conditioned upon judicial approval of the settlement agreement. In connection with this matter, the Company is also engaged in discussions with government officials who have the discretion to temporarily suspend or to debar the Company from entering into government contracts in the future. The discussions are designed to demonstrate that the Company is a presently-responsible contractor and that it should be entitled to continue to be eligible to receive additional governmental contracts. In June 1987, the U.S. District Court of Los Angeles, in U.S. et al, vs. Stringfellow, granted partial summary judgment against the Company and 14 other defendants on the issue of liability under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). This suit, along with related lawsuits, alleges that the defendants are jointly and severally liable for all damage in connection with the Stringfellow hazardous waste disposal site in Riverside County, California. In June 1989, a federal jury and a special master appointed by the federal court found the State of California also liable for the cleanup costs. On November 30, 1993, the special master released his "Findings of Fact, Conclusion of Law and Reporting Recommendations of the Special Master Regarding the State Share Fact Finding Hearing". In it, he allocates liability between the State of California and other parties. As this hearing did not involve the valuation of future tasks and responsibilities, the order did not specify dollar amounts of liability. The order, phrased in percentages of liability, recommended allocating liability on the CERCLA claims as follows: 65% to the State of California and 10% to the Stringfellow entities, leaving 25% to the generator/counter claimants (including the Company) and other users of the site (or a maximum of up to 28% depending on the allocation of any Stringfellow entity orphan share). On the state law claims, the special master recommended a 95% share for the State of California, and 5% F-23 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) for the Stringfellow entities, leaving 0% for the generator/counterclaimants. This special master's recommendation is subject to a final decision and appeal. The Company is the second largest generator of wastes by volume disposed at the site, although it and certain other generators have argued the final allocation of cleanup costs among generators should not be determined solely by volume. The largest volume generator of wastes disposed at the Stringfellow site has indicated it is significantly dependent on insurance to fund its share of any cleanup costs, and that it is in litigation with certain of its insurers. The Company and the other generators of wastes disposed at the Stringfellow site, which include numerous companies with assets and equity significantly greater than the Company, are jointly and severally liable for the share of cleanup costs for which the generators, as a group, ultimately are found to be responsible. The Company has claims against its comprehensive general liability insurers for reimbursement of its cleanup costs at the site. These claims are the subject of separate litigation, although the insurers nevertheless are paying substantially all of the Company's costs of defense in the EPA and State action against the generators of wastes disposed at the site. Certain of these insurance policies have pollution exclusion clauses which are being argued as a defense and the insurers are alleging various other defenses to coverage. The Company has entered settlements with some of the insurance carriers and is engaged in settlement discussions with certain others. The Company intends to continue to vigorously defend this matter and believes, based upon currently available information, that the ultimate resolution will not have a material adverse effect on the financial position, liquidity, or results of operations of the Company. The Company is also involved in several other proceedings and investigations related to environmental protection matters. It is difficult to estimate the ultimate level of environmental expenditures due to a number of uncertainties, including the complexity of the related laws and their interpretation, alternative cleanup technologies and methods, insurance and other recoveries, and in some cases, the extent and uncertainties of the Company's involvement. However, the Company has heard of very preliminary estimates of cleanup costs for the Rio Bravo, Chatham Brothers and Casmalia waste disposal sites as approximately $7 million, $30 million and $70 million, respectively, and the Company's share (based on estimated, respective volumes of discharges into such sites by all generators, all of which cannot now be known with certainty) could approximate $450,000 for the Rio Bravo site, $0 for the Chatham Brothers site (based on the Company's belief that it never used that site), and $1,750,000), for the Casmalia site. The Company does not yet know about the ability of other waste generators using the Casmalia and Rio Bravo sites to fund their allocable share, and the Company could be found jointly or severally liable with all waste generators using such sites. The Company has made claims against its insurance carriers for certain of these items, and has received claims acknowledgment letters reserving the rights of such carriers. The insurers have alleged or may allege various defenses to coverage, although no litigation has been commenced. Based upon presently available information, the Company believes that capital expenditures and costs of remedial actions in relation to these other matters will not have a material adverse effect on the financial position or results of operations of the Company. In 1990, the Division of Enforcement of the Securities and Exchange Commission (the "SEC") began conducting an informal inquiry regarding various Company production programs, program and contract estimates at completion and related accounting practices. Following the filing of a registration statement with the SEC, the Company received on August 17, 1993, and shortly thereafter responded to, a request for documents from the SEC Division of Enforcement concerning its decision to change its accounting practices relating to long- term programs and contracts, and its previous practice of capitalizing pre- certification and certain general and administrative costs. There have been no further comments from the SEC Division of Enforcement since that date. F-24 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company is involved as plaintiff or defendant in various other legal and regulatory actions and inquiries incident to its business, none of which are believed by management to have a material adverse effect on the financial position or results of operations of the Company. Included in trade accounts and other payables at January 30, 1994 and July 31, 1993 and 1992 are allowances aggregating $50.4 million, $49.8 million and $19.3 million, respectively, for plant closure, other costs related to the planned downsizing process and various items of litigation. NOTE 9--EMPLOYEE BENEFIT PLANS a. Pension Plans The Company has non-contributory pension plans covering substantially all of its employees. Benefits for the salaried employees' plan are based on salary and years of service, while those for the hourly employees' plan are based on negotiated benefits and years of service. The Company has historically made contributions to an independent trust for the minimum funding requirements of these plans under IRS regulations. In addition, the Company has unfunded supplemental retirement plans. Pension expense consists of the following components (in thousands):
YEAR ENDED JULY 31, --------------------------- 1993 1992 1991 -------- -------- ------- Service cost....................................... $ 12,250 $ 8,123 $ 6,873 Interest cost on projected benefit obligation...... 34,601 32,260 29,376 Actual gain on plan assets......................... (29,379) (40,344) (30,716) Net amortization and deferral...................... 1,605 13,356 1,912 -------- -------- ------- Pension expense.................................... $ 19,077 $ 13,395 $ 7,445 ======== ======== =======
An amendment to the hourly employees' pension plan, reflecting increased benefits resulting from union negotiations, accounted for approximately $.6 million of additional pension expense in fiscal 1993 and approximately $2.3 million of additional pension expense in fiscal 1991. An amendment to the salaried employees' retirement plan accounted for approximately $3.6 million of additional pension expense in fiscal 1992. Pension expense for the first six months of fiscal 1994 and 1993 was $7.1 million and $7.5 million, respectively. F-25 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes the funded status of these plans and the amounts recognized in the Consolidated Balance Sheets (in thousands):
JULY 31, -------------------- 1993 1992 --------- --------- Actuarial present value of benefit obligations: Vested........................................... $ 413,460 $ 372,714 Non-vested....................................... 18,483 16,982 --------- --------- Accumulated benefit obligation..................... 431,943 389,696 Effect of projected future salary increases........ 10,145 13,036 --------- --------- Projected benefit obligation for service rendered to date........................................... 442,088 402,732 Plan assets at fair value, primarily stocks, bonds, other fixed income obligations and real estate.... 376,474 346,883 --------- --------- Plan assets less than projected benefit obligation. (65,614) (55,849) Unrecognized net loss.............................. 46,140 29,594 Unrecognized net asset from initial application of SFAS No. 87 being recognized over plans' average remaining service life............................ (18,202) (21,130) Unrecognized prior service cost.................... 38,353 36,740 Additional minimum liability....................... (58,550) (34,164) --------- --------- Pension liability recognized in the Consolidated Balance Sheet..................................... $ (57,873) $ (44,809) ========= =========
At July 31, 1993, the Company's additional minimum liability was in excess of the unrecognized prior service costs and net transition obligation and recorded as a reduction of $13.3 million to shareholders' equity, net of tax benefits of $8.2 million, in accordance with SFAS No. 87, "Employers' Accounting for Pensions". The remaining portion of the additional minimum liability of $37.0 million was recorded as intangible assets and additional minimum pension liability and included in Other Assets and Pension and Post-Retirement Obligations respectively, in the Consolidated Balance Sheets. The weighted average discount rate used in determining the present value of the projected benefit obligation was 8.5 percent at July 31, 1993 and 8.75 percent for fiscal 1992. For compensation based plans, the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation and service cost was based upon an experience- related table and approximated 5.5 percent on current salaries through January 1, 1994, in accordance with plan terms. The expected long-term rate of return on plan assets was 9 percent for the periods presented. The Company also has certain defined contribution plans covering most employees. Expenses for these plans amounted to $0.9 million, $2.1 million, $3.4 million, $6.7 million and $9.7 million in the first six months of fiscal 1994 and 1993 and fiscal years 1993, 1992 and 1991, respectively. b. Post-retirement Benefit Obligations Other Than Pensions The Company has a retirement health care program that pays a specified fixed amount to supplement the medical insurance payments made by retirees who are under age 65 and their spouses and covered dependents. Eligibility for and the amount of the supplement provided by the Company is based on age and years of service. The program requires deductibles and employee contributions. F-26 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company, effective August 1, 1992, adopted the provisions of SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions" using the immediate recognition transition option. See Note 2. This standard requires recognition, during an employee's service with the Company, of the cost of his or her retiree health care benefits. The Company recognized the accumulated post-retirement benefit obligation for past service cost as a one- time charge to earnings (the transition obligation) as of August 1, 1992 of $4.3 million, net of income tax benefit of $2.7 million ($.24 per average share of common stock). In fiscal 1993, 1992 and 1991, the Company's cost of providing post-retirement health care benefits was $2.0 million, $2.9 million and $2.0 million, respectively, excluding the cumulative effect of adopting SFAS No. 106. The costs of health care benefits is provided largely under a self-insured plan, which is scheduled for termination on January 1, 1994. The effect of adopting the new standard on net periodic post-retirement benefit expense for the year ended July 31, 1993 was not material. The accumulated post-retirement benefit obligation was determined using a weighted average discount rate of 8.5 percent. The plan is unfunded. Each year the Company funds the benefits paid. SFAS No. 106 requires disclosure of the effect on the Company's accumulated post-retirement benefit obligation, and net periodic post-retirement benefit cost, using the assumption that the health care cost trend will increase by 1 percent each year. This disclosure is not applicable because the Company is not affected by future health care cost trends since its obligation is to pay a fixed amount as a health care supplement for retirees entitled to this benefit. Net periodic post-retirement benefit cost for the year ended July 31, 1993, included the following components (in thousands): Service cost--benefits attributed to service during the period....... $196 Interest cost on accumulated post-retirement benefit obligation...... 549 ---- Net periodic post-retirement benefit cost............................ $745 ====
The liability for post-retirement health care benefits at July 31, 1993, included the following components (in thousands): Accumulated post-retirement benefit obligation: Retirees........................................................ $2,749 Fully eligible active plan participants......................... 376 Other active plan participants.................................. 2,929 ------ Liability for post-retirement health care benefits................ $6,054 ======
Net periodic post-retirement health care benefit cost for the six months ended January 30, 1994 and January 31, 1993 was $317 and $373, respectively. Liability for post-retirement health care benefits was $5,602 and $6,290, respectively. c. Post-Employment Benefits The Financial Accounting Standards Board has issued SFAS No. 112, Employers' Accounting for Post-Employment Benefits. The new standard is effective for fiscal years beginning after December 15, 1993 and requires employers to recognize the obligation to provide post-employment benefits to former or inactive employees, their beneficiaries, and covered dependents when certain conditions are met. The Company does not expect there to be a material adverse effect on the financial position or result of operations in the year of adoption. F-27 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 10--SHAREHOLDERS' EQUITY Under the terms of the Company's debt covenants of its loan agreements (See Note 7), no portion of retained earnings is available for payment of cash dividends until after July 9, 1995. Thereafter, the Company may pay cash dividends in an amount not to exceed 50 percent of net income for the period beginning August 1, 1995. Effective upon the sale of the Securities, the Company may pay cash dividends only when its ratio of consolidated debt to consolidated tangible net worth is at least2.50-to-1.00. The Company's 1989 Stock Incentive Plan provides that qualified employees are eligible to receive stock options and various other stock-based awards. Subject to certain adjustments, the plan provides that up to 2,500,000 shares of common stock may be sold or issued under the plan. As a result of previous option grants under this plan, 381,431, 371,281 and 377,147 stock options and other stock-based awards remained available for grant at January 30, 1994, July 31, 1993 and 1992, respectively. The plan has no specific termination date except that Incentive Stock Options may not be granted after July 31, 1999. The terms and conditions of the stock-based awards are determined by a Committee of the Board of Directors on each grant date and may include provisions for the exercise price, expiration, vesting, restriction on sale and forfeiture, as applicable. Restricted shares purchased under this plan are subject to restrictions on sale or disposal, which lapse in varying installments from one to 10 years. During fiscal 1992, 6,000 restricted shares were purchased at a price of $1.00 per share. During fiscal 1993, 115,000 restricted shares were purchased by grantees and 21,300 restricted shares were repurchased from grantees, in each case at a price of $1.00 per share. During the six months ended January 30, 1994, 20,000 stock bonus awards were granted at no cost to the recipient. The Company's 1982 Stock Option Plan, under which no future options will be granted, provided for the issuance of non-qualified stock options at the market price of the Company's common stock at the date of grant. The options become exercisable in installments from one to two years after date of grant and expire 10 years from date of grant. The Company has a director stock plan under which non-employee directors are automatically granted, on the first business day following the annual meeting of shareholders, an option to purchase 1,000 shares of common stock. The option exercise price is equal to the fair market value of the stock on the date the option is granted. Options granted under the plan generally becomes exercisable six months after the date of grant and expire 10 years from the date of grant. Subject to certain adjustments, the plan provides that up to 100,000 shares of common stock may be sold or issued under the plan. As a result of previous option grants under the plan, 50,000, 59,000 and 69,000 stock options remained available for grant at January 30, 1994, July 31, 1993 and 1992, respectively. The Company also has a stock compensation plan for non-employee directors pursuant to which the Company will issue or deliver to each such director, in partial consideration for the services rendered by such director during the Company's prior fiscal year, 250 shares of the Company's common stock, subject to certain adjustments. The shares will be issued or delivered on the date of the first meeting of the Board that occurs after the end of each fiscal year. In May 1993, in connection with certain amendments to the financial covenants of its principal financing agreements, the Company issued warrants to certain lenders. The warrants are exercisable for 600,000 shares of common stock at $9.00 per share and expire in seven years. Under the various stock option plans, outstanding options for 1,771,342, 1,671,947 and 1,113,910 shares of common stock were exercisable as of January 30, 1994, July 31, 1993 and 1992, respectively. Activity in these stock option plans for the three years and six months ended January 30, 1994 is summarized as follows: F-28 ROHR, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OPTIONS OPTION PRICE --------- ------------------- Balance Outstanding at August 1, 1991........... 1,331,420 $12.500 - $31.625 Granted....................................... 1,548,803 10.625 - 22.125 Relinquished.................................. (16,760) 16.500 - 31.625 Forfeited..................................... (33,600) 12.000 - 22.125 Exercised..................................... (34,000) 12.000 - 19.375 --------- ------------------- Balance Outstanding at July 31, 1992............ 2,795,863 $10.625 - $31.625 Granted....................................... 155,000 8.875 - 11.375 Relinquished.................................. (30,880) 16.500 - 31.625 Forfeited..................................... (254,134) 10.625 - 22.125 --------- ------------------- Balance Outstanding at July 31, 1993............ 2,665,849 $ 8.875 - $31.625 Granted....................................... 29,000 0 - 8.875 Bonus Stock Award............................. (20,000) 0 Relinquished.................................. (17,955) 16.500 - 31.625 Forfeited..................................... (30,150) 10.625 - 22.125 --------- ------------------- Balance Outstanding at January 30, 1994 (Unau- dited)......................................... 2,626,744 $ 8.875 - $31.625 ========= ===================
The Company's stockholder rights plan generally entitles the holder of each right to purchase one one-hundredths of a share of Series C preferred stock, $1 par value, from the Company for $100, subject to adjustment. A right is included with, and attaches to, each share of common stock issued and expires on August 25, 1996 and is redeemable by the Company. The rights become exercisable and separate from the common stock under certain circumstances generally when a person or group of affiliated or associated persons has acquired or obtained the right to acquire 15 percent or more of the Company's outstanding voting stock or has made a tender offer to acquire 15 percent or more of such voting stock. Under certain circumstances, each right would entitle the holder to purchase a certain number of the Company's common stock at one-half of fair market value. Authorized, unissued shares of common stock were reserved for the following:
JULY 31, JAN. 30, ------------------- 1994 1993 1992 ----------- --------- --------- (UNAUDITED) Various stock plans............................. 3,058,175 3,096,130 3,242,010 Conversion of subordinated debentures........... 2,674,418 2,674,418 2,674,418 Warrants........................................ 600,000 600,000 -- --------- --------- --------- 6,332,593 6,370,548 5,916,428 ========= ========= =========
F-29 (PICTURES) NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------ TABLE OF CONTENTS
PAGE ---- Incorporation of Certain Documents by Reference........................... 3 Available Information..................................................... 3 Prospectus Summary........................................................ 4 Risk Factors.............................................................. 12 Financing Plan............................................................ 17 Use of Proceeds........................................................... 18 Price Range of Common Stock and Dividends................................. 18 Capitalization............................................................ 19 Selected Consolidated Financial and Operating Data........................ 20 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 23 Business.................................................................. 35 Directors and Executive Officers of the Company........................... 52 Legal and Environmental Proceedings....................................... 55 Description of Certain Financings......................................... 60 Description of Capital Stock.............................................. 63 Description of Notes...................................................... 65 Certain Federal Income Tax Consequences................................... 82 Description of Concurrent Financing....................................... 85 Underwriting.............................................................. 85 Legal Matters............................................................. 86 Experts................................................................... 86 Index to Financial Statements............................................. F-1
$50,000,000 ROHR, INC. % CONVERTIBLE SUBORDINATED NOTES DUE 2004 [LOGO OF ROHR] - ------------------------------------- SALOMON BROTHERS INC ----------------------------------------- PROSPECTUS DATED , 1994 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Registration Fee................ $ 54,311 NASD Fee........................ 20,000 Exchange Listing Fees........... 9,000 Blue Sky Fees and Expenses...... 13,000 Printing and Engraving Expenses. 300,000 Legal Fees and Expenses......... 175,000 Accounting Fees and Expense..... 140,000 Trustee's Fees and Expenses..... 30,000 Rating Agency Fees.............. 90,000 Miscellaneous................... 18,689 -------- Total Expenses.............. $850,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law permits indemnification of officers, directors and employees of domestic or foreign corporations under certain circumstances and subject to certain limitations. Article VII of Registrant's By-Laws contains a provision for indemnification involving them because of their positions with the Company, including judgments or amounts paid in settlement of claims brought by or in the right of the Company. In addition to maintaining directors' and officers' liability insurance, the Company has entered into indemnity agreements with certain of its directors and officers comparable to the directors' and officers' liability insurance previously maintained by the Company. The form of these agreements has been approved by the Company's board of directors and stockholders. ITEM 16. EXHIBITS The following exhibits are filed as part of this Registration Statement. 1.1 Proposed Form of Underwriting Agreement. 4.1 Senior Notes Indenture, including proposed form of Senior Note. 4.2 Convertible Subordinated Notes Indenture, including proposed form of Convertible Subordinated Note. 5. Opinion of Gibson, Dunn & Crutcher as to legality of securities being registered. 23.1 Consent of Gibson, Dunn & Crutcher (included in their opinion filed as Exhibit 5). 23.2 Consent of Deloitte & Touche. 24. Power of Attorney.** Statement of eligibility on Form T-1 of Trustee (IBJ Schroder Bank & 25.1 Trust Company). Statement of eligibility on Form T-1 of Trustee (The Bank of New 25.2 York).
- -------- **Previously filed. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-1 Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to Section 145 of the Delaware General Corporation Law or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHULA VISTA, STATE OF CALIFORNIA, ON THE 11TH DAY OF MAY, 1994. ROHR, INC. R. W. MADSEN By: --------------------------------- R. W. Madsen Vice President, General Counsel and Secretary Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed below by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- - ------------------------------------ Director, Chief Executive May , 1994 R. H. Rau Officer, President and Chief Financial Officer - ------------------------------------ Director and Chairman of the May , 1994 J. J. Kerley Board - ------------------------------------ Senior Vice President and May , 1994 Laurence A. Chapman Chief Financial Officer - ------------------------------------ Vice President and May , 1994 A. L. Majors Controller - ------------------------------------ Director May , 1994 Wallace Barnes - ------------------------------------ Director May , 1994 Wallace W. Booth - ------------------------------------ Director May , 1994 Eugene E. Covert - ------------------------------------ Director May , 1994 Wayne M. Hoffman
II-3
SIGNATURE TITLE DATE --------- ----- ---- D. Larry Moore* - ------------------------------------ Director May 11, 1994 D. Larry Moore Robert M. Price* - ------------------------------------ Director May 11, 1994 Robert M. Price William P. Sommers* - ------------------------------------ Director May 11, 1994 William P. Sommers - ------------------------------------ Director May , 1994 Jack D. Steele *By R.W. Madsen ________________________________ May 11, 1994 R.W. Madsen Attorney-in-Fact
II-4 GRAPHIC MATERIAL CROSS-REFERENCE PAGE THE INSIDE FRONT COVER SHOWS THE FOLLOWING: Nacelle with cowl doors open. Commercial aircraft on take-off. Nacelle on wing in flight. Worker preparing nose cowl inlet for installation. United Airlines 737 aircraft. THE INSIDE BACK COVER SHOWS THE FOLLOWING: Mechanics providing on-site field service on commercial aircraft engine. Mechanics installing systems on commercial aircraft engines. Rear view of commercial aircraft engine nacelle system. Commercial aircraft in flight. Time lapse picture of mechanic actuating thrust reverser. Aircraft in line for take-off. PAGE 39: THIS ILLUSTRATION SHOWS THE PROPULSION SYSTEM COMPONENTS EX-1 2 UNDERWRITING AGREEMENT ROHR, INC. $100,000,000 % Senior Notes due 2003 $50,000,000 % Convertible Subordinated Notes due 2004* UNDERWRITING AGREEMENT New York, New York May , 1994 Salomon Brothers Inc Seven World Trade Center New York, New York 10048 Ladies and Gentlemen: Rohr, Inc., a Delaware corporation (the "Company"), proposes to sell to Salomon Brothers Inc (the "Underwriter") $100,000,000 aggregate principal amount of its % Senior Notes due 2003 (the "Senior Notes"), to be issued under an indenture (the "Senior Note Indenture") to be dated as of , 1994 between the Company and IBJ Schroder Bank and Trust Company, as trustee (the "Senior Note Trustee"). Concurrently therewith, the Company proposes to sell to the Underwriter $50,000,000 aggregate principal amount of its % Convertible Subordinated Notes due 2004 (the "Convertible Subordinated Notes"), to be issued under an indenture (the "Convertible Subordinated Note Indenture" and, together with the Senior Note Indenture, the "Indentures") to be dated as of , 1994 between the Company and The Bank of New York, as Trustee (the "Convertible Subordinated Note Trustee," and, together with the Senior Note Trustee, the "Trustees"). The Convertible Subordinated Notes are convertible into shares of common stock of the Company (the "Common Stock"). The Company also proposes to grant to the Underwriter an option to purchase up to an additional $7,500,000 aggregate principal amount of Convertible Subordinated Notes (the "Option Notes," with the Option Notes together with the Senior Notes and Convertible Subordinated Notes hereinafter being called the "Securities"). Terms not otherwise defined herein have the same meanings as set forth in the Indentures. 1. Representations and Warranties. The Company represents and warrants to, and agrees with, the Underwriter as set forth below in this Section 1. Certain terms used in this Section 1 are defined in paragraph (c) hereof. (a) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement (No. 33-53113) on Form S-3, including related Preliminary Prospectuses, for the registration under the Securities Act of 1933, as amended (the "Securities Act"), of the offering and sale of the Securities. The Company may have filed one or more amendments thereto, including the related Preliminary Prospectuses, each of which has previously been furnished to you. The Company will next file with the Commission either (i) prior to effectiveness of such registration statement, a further amendment to such registration statement (including the forms of final Prospectuses) or (ii) after effectiveness of such registration statement, final Prospectuses in accordance with Rules 430A and 424(b)(1) or (4). In the case of clause (ii), the Company has included in such registration statement, as amended at the Effective Date, all material information (other than Rule 430A Information) required by the Securities Act and the rules thereunder to be included in the Prospectuses with respect to the Securities and the offerings thereof. As filed, such amendment and forms of final Prospectuses, or such final Prospectuses, shall contain all Rule 430A Information, together with all other such required information, with respect to the Securities and the offerings thereof and, except to the extent the Underwriter shall agree in writing to a modification, shall be in all - -------- * Plus an option to purchase from Rohr, Inc. up to $7,500,000 aggregate principal amount of additional notes to cover over-allotments, if any. substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectuses) as the Company has advised you, prior to the Execution Time, will be included or made therein. The Company has also filed the Indentures with the Commission pursuant to the TIA and the rules and regulations thereunder. (b) On the Effective Date, the Registration Statement did or will, and when the Prospectuses are first filed (if required) in accordance with Rule 424(b) and on the Closing Date, the Prospectuses (and any supplements thereto) will comply in all material respects with the applicable requirements of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the TIA and the respective rules thereunder; on the Effective Date, the Registration Statement did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; on the Effective Date and on the Closing Date, the Indentures did or will comply in all material respects with the applicable requirements of the TIA and the rules thereunder; and, on the Effective Date, the Prospectuses, if not filed pursuant to Rule 424(b), did not or will not, and, on the date of any filing pursuant to Rule 424(b) and on the Closing Date, the Prospectuses (together with any supplement thereto) will not, include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the Company makes no representations or warranties as to (i) that part of the Registration Statement which shall constitute the Statement of Eligibility and Qualification (Form T- 1) under the TIA of the applicable Trustee or (ii) the information contained in or omitted from the Registration Statement or the Prospectuses (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of the Underwriter specifically for inclusion in the Registration Statement or the Prospectuses (or any supplement thereto). (c) The terms which follow, when used in this Agreement, shall have the meanings indicated. The term "the Effective Date" shall mean each date that the Registration Statement and any post-effective amendment or amendments thereto became or become effective. "Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto. "Preliminary Prospectuses" shall mean any preliminary prospectus referred to in paragraph (a) above and any preliminary prospectus included in the Registration Statement at the Effective Date that omits Rule 430A Information. "Prospectus" shall mean each prospectus relating to the respective Securities that is last filed pursuant to Rule 424(b) after the Execution Time or, if no filing pursuant to Rule 424(b) is required, shall mean the form of final prospectus relating to the Securities included in the Registration Statement at the Effective Date. "Registration Statement" shall mean the registration statement referred to in paragraph (a) above, including incorporated documents, exhibits and financial statements, as amended at the Execution Time (or, if not effective at the Execution Time, in the form in which it shall become effective) and, in the event any post-effective amendment thereto becomes effective prior to the Closing Date (as hereinafter defined), shall also mean such registration statement as so amended. Such term shall include any Rule 430A Information deemed to be included therein at the Effective Date as provided by Rule 430A. "Rule 424" and "Rule 430A" refer to such rules under the Securities Act. "Rule 430A Information" means information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A. Any reference herein to the Registration Statement, the Preliminary Prospectuses or the Prospectuses shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 which were filed under the Exchange Act on or before the Effective Date of the Registration Statement or the issue date of such Preliminary Prospectuses or the Prospectuses, as the case may be; and any reference herein to the terms "amend," "amendment" or "supplement" with respect to the Registration Statement, any Preliminary Prospectuses or the Prospectuses shall be deemed to refer to and include the filing of any document under the Exchange Act after the Effective Date of the Registration Statement or the issue date of any Preliminary Prospectuses or the Prospectuses, as the case may be, deemed to be incorporated therein by reference. 2 (d) Deloitte & Touche, who certified the financial statements and supporting schedules included in the Registration Statement and the Prospectuses, are independent public accountants as required by the Securities Act and the regulations promulgated thereunder. (e) The consolidated financial statements included in the Registration Statement and the Prospectuses present fairly the financial position of the Company and each corporation of which the Company owns or will own as of the Closing Date 50% or more of the outstanding equity securities (individually a "Subsidiary" and collectively the "Subsidiaries") as of the dates indicated and the results of their operations for the periods specified; except as otherwise stated therein, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. (f) Since the respective dates as of which information is given in the Registration Statement and the Prospectuses, except as otherwise stated therein, (i) there has been no material adverse change in the condition (financial or otherwise) or in the results of operations, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business and (ii) other than those in the ordinary course of business, no transactions have been entered into and no liabilities or obligations, direct or contingent, have been incurred by the Company or any of its Subsidiaries, which are material with respect to the Company and its Subsidiaries considered as one enterprise. (g) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and each Prospectus; and the Company is duly registered, qualified or licensed to conduct business in each jurisdiction in which its ownership or leasing of property or conduct of business legally requires such registration, qualification or licensure, except for such jurisdictions where the failure to be so registered, qualified or licensed does not have a material adverse effect on the condition (financial or otherwise) or the results of operations, business affairs or business prospects of the Company and its Subsidiaries considered as one enterprise. (h) As of the Closing Date, the Company had no significant Subsidiaries (as defined in Regulation S-X promulgated by the Commission). [Rohr Europe], a corporation and wholly owned subsidiary of the Company ("Rohr Europe") has been duly incorporated or formed and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and each Prospectus; and Rohr Europe is duly registered, qualified or licensed to conduct business in each jurisdiction or place in which its ownership or leasing of property or conduct of business legally requires such registration, qualification or licensure except for such jurisdictions where the failure to be so registered, qualified or licensed does not have a material adverse effect on its condition (financial or otherwise), results of operations, business affairs or business prospects. (i) The authorized, issued, reserved and outstanding capital stock of the Company as of the Closing Date is as set forth in each Prospectus under "Capitalization," including the footnotes thereto, except for stock issued pursuant to options and warrants described in the Registration Statement or pursuant to any employee benefit plan described in the Registration Statement, in each case occurring subsequent to January 30, 1994 and which are not material in the aggregate; and the issued and outstanding shares of Common Stock of the Company have been duly and validly authorized and issued and are fully paid and nonassessable; there are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interests of the Company, except for the Convertible Subordinated Notes and as may be set forth in the Prospectuses. As of the Closing Date, all of the outstanding capital stock or other securities evidencing equity ownership of the Subsidiaries will have been duly and validly authorized and issued and will be fully paid and nonassessable, and will be owned, directly or indirectly, by the Company, free and clear of any security interest, claim, lien or encumbrance; there are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in any Subsidiary. 3 (j) To the best of their knowledge, neither the Company nor Rohr Europe is engaged in any unfair labor practice which would have a material adverse effect on the Company and its Subsidiaries considered as one enterprise. Except for matters which are not material in the aggregate to the Company and its Subsidiaries, (i) there is (A) no unfair labor practice complaint pending or, to the best of their knowledge, threatened against the Company or Rohr Europe before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under collective bargaining agreements is pending or, to the best of their knowledge, threatened, and (B) no strike, slowdown or stoppage pending or, to the best knowledge of the Company or Rohr Europe after due inquiry, threatened against the Company or Rohr Europe and (ii) there has been no violation of any provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") or the rules and regulations promulgated thereunder. (k) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, which has been served upon the Company or Rohr Europe and is now pending, or, to the best knowledge of the Company or Rohr Europe, threatened, against the Company or Rohr Europe, or to which the Company or Rohr Europe or any of their properties is subject which is required to be disclosed in the Registration Statement and the Prospectuses (other than as disclosed therein), or which could prohibit or limit in any way the consummation of any of the transactions contemplated by this Agreement, the Indentures or the Securities; all pending legal or governmental proceedings to which the Company or Rohr Europe is a party or of which any of their property is the subject which are not described in the Registration Statement and the Prospectuses, including ordinary routine litigation incidental to the business, are, considered in the aggregate, not material; and there are no contracts or other documents of the Company or Rohr Europe which are required to be filed as exhibits to the Registration Statement by the Securities Act or by the regulations promulgated thereunder which have not been so filed. (l) The Common Stock issuable upon conversion of the Convertible Subordinated Notes has been duly authorized and reserved by the Company and, when issued upon conversion of the Convertible Subordinated Notes, will be validly issued, fully paid and nonassessable and will conform to the description thereof in the applicable Prospectus. The Common Stock issuable upon conversion of the Convertible Subordinated Notes (upon issuance) will be free of preemptive and similar rights. (m) No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental or regulatory authority or agency or body having jurisdiction over the Company or Rohr Europe or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement, the Indentures, the Securities and the consummation of the transactions contemplated hereby and thereby, including the issuance, sale and delivery of the Securities, except (i) the registration under the Securities Act or the regulations promulgated thereunder of the Securities, (ii) the qualification of the Indentures under the TIA, (iii) such consents, approvals, authorizations, orders, registrations, filings, qualifications, licenses and permits as may be required under state securities, Blue Sky or real estate syndication laws or gaming laws which have been obtained or made to the extent required as of the date hereof, and (iv) such consents, approvals, authorizations, orders, registrations, filings, qualifications, licenses or permits as have already been obtained or made. (n) The Company and Rohr Europe have good and valid title to or valid and enforceable leasehold interests in all real property, and all material personal property owned or leased by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Registration Statement and the Prospectuses or such as do not materially affect the aggregate value of such property taken as a whole and do not interfere with the use made and proposed to be made of such property and interests by the Company or Rohr Europe, and no consent need be obtained under such leases, except as disclosed in the Prospectuses. The Company and its Subsidiaries are in compliance in all material respects with the terms and conditions of such leases, and such leases are in full force and effect. Except for such assets and facilities as are immaterial in the aggregate to the business of the Company and its Subsidiaries, all tangible assets and facilities of the Company and its Subsidiaries are adequate, in the reasonable opinion of the Company, for the uses to which they are being put or are expected to be put in the ordinary course of business. 4 (o) The Company and Rohr Europe have all governmental licenses, certificates, permits, authorizations, approvals, franchises or other rights necessary to carry on their business as such business is presently conducted by them except as otherwise set forth in the Prospectuses and except as would, in the aggregate, not have a material adverse effect upon the condition (financial or otherwise) or the results of operations, business affairs, or business prospects of the Company and its Subsidiaries considered as a single enterprise. Neither the Company nor Rohr Europe has any reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such license, certificate, permit, authorization, approval, franchise or right in any material respect. Neither the Company nor Rohr Europe has any reason to believe that any such license, permit or approval necessary in the future to conduct the business of the Company and its Subsidiaries as described in the Prospectuses will not be granted upon application, or that any other governmental agencies are investigating the Company or Rohr Europe other than in ordinary course administrative reviews, an ordinary course review of the transactions contemplated hereby or as otherwise set forth in the Prospectuses. (p) The Company and Rohr Europe are in compliance with, and conduct their business in conformity with, all applicable state, federal, local and foreign laws and regulations, except to the extent that any failure so to comply or conform would not have a material adverse effect upon the condition (financial or otherwise) or the results of operations, business affairs or business prospects of the Company and its Subsidiaries, considered as one enterprise. (q) To the best knowledge of the Company, the Company has obtained all permits, licenses and other authorizations that are required under all laws of the United States and of any state in which the Company is incorporated, owns or leases real property or conducts business, or under any regulation, plan, order, decree, judgment, injunction, notice or demand letter thereunder, relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or hazardous substances or wastes into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, or hazardous substances or wastes (collectively, the "Environmental Laws"), except as otherwise set forth in the Prospectuses or to the extent failure to have any such permit, license or authorization, individually or in the aggregate, does not have a material adverse effect on the condition (financial or otherwise) or the earnings, business affairs or business prospects of the Company and its Subsidiaries, considered as one enterprise. Except as described in the Prospectuses, each of the Company and its Subsidiaries is in compliance with all terms and conditions of any required permits, licenses and authorizations, and with the provisions of the Environmental Laws, except to the extent failure to comply would not have a material adverse effect on the condition (financial or otherwise) or the earnings, business affairs or business prospects of the Company and its Subsidiaries, considered as one enterprise. (r) To the best knowledge of the Company, except as disclosed in the Registration Statement, there are no past or present events, conditions, circumstances, activities, practices, incidents, actions, or plans relating to the business as presently being conducted by the Company or its Subsidiaries that prevent compliance or continued compliance with the Environmental Laws, or would be reasonably likely to form the basis of any claim, suit, proceeding, liability, notice of violation, remediation or cleanup based on or related to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release into the work-place, the community or the environment of any pollutant, contaminant or hazardous substance or waste, except as will not individually or in the aggregate have a material adverse effect on the Company and its Subsidiaries, considered as one enterprise. (s) Neither the Company nor Rohr Europe is in violation of its Certificate or Articles of Incorporation or by-laws or in default in any material respect in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument or agreement to which any of them is a party or by which any of them or their property may be bound, or to which any of their property or assets is subject, which violations or defaults in the aggregate would have a material adverse effect on the condition (financial or otherwise) or on the results of operations, business affairs or business prospects of the Company and its Subsidiaries, considered as one 5 enterprise; and the execution, delivery and performance of this Agreement and the Indentures and the issuance and sale of the Securities, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action of the Company and will not conflict with or constitute a breach of, or default under, cause the acceleration of the maturity of, require the consent of any person pursuant to or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of any of the Company or Rohr Europe pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument or agreement to which any of the Company or Rohr Europe is a party or by which either of them may be bound, or to which any of the property or assets of any of the Company or Rohr Europe is subject, nor will such action result in any violation of the provisions of the Certificate or Articles of Incorporation or by-laws of either the Company or Rohr Europe or any applicable law or administrative regulation, or any administrative or court decree, order or judgment specifically binding upon the Company or Rohr Europe. (t) This Agreement has been duly executed and delivered by the Company and, assuming the due execution and delivery by the other parties hereto, is the legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the enforcement of creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (u) The Company has full corporate power and authority to enter into, deliver and perform its obligations under this Agreement, the Indentures, the Securities and all other documents or certificates required or contemplated thereby. The Securities have been duly authorized by the Company for issuance and sale pursuant to this Agreement, and, when issued, authenticated and delivered pursuant to this Agreement and the Indentures against payment of the consideration set forth herein, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting enforcement of creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought; and would be entitled to the benefits provided by the applicable Indenture; the Indentures have been duly authorized and, at the Closing Time, will be duly qualified under the TIA and, assuming due execution and delivery by the applicable Trustee, when executed and delivered by the Company will constitute valid and legally binding agreements of the Company, enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting enforcement of creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought; and the Securities and the Indentures conform to the descriptions thereof in the Prospectuses. (v) Neither the Company nor Rohr Europe is, or, following the issuance of the Securities, will become, an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. (w) All tax returns required to be filed by the Company or Rohr Europe in any jurisdiction have been filed, other than those filings being contested in good faith, and all material taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due or claimed to be due from such entities have been paid, other than those being contested in good faith and for which adequate reserves have been provided or those currently payable without penalty or interest. (x) The Company and Rohr Europe maintain insurance covering their properties, operations, personnel and businesses. Such insurance insures against such losses and risks to an extent which is adequate in accordance with customary industry practice to protect the Company and Rohr Europe and their businesses. 6 2. Purchase and Sale. (a) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to sell to the Underwriter, and the Underwriter agrees to purchase from the Company, at a purchase price of % of the principal amount thereof, 100% of the aggregate principal amount of the Senior Notes and the Convertible Subordinated Notes. (b) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company hereby grants an option to the Underwriter to purchase up to $7,500,000 aggregate principal amount of Option Notes at the same purchase price per share as the Underwriter shall pay for the Convertible Subordinated Notes. Said option may be exercised only to cover over-allotments in the sale of the Convertible Subordinated Notes by the Underwriter. Said option may be exercised in whole or in part at any time (but not more than once) on or before the 30th day after the date of the Prospectuses upon written or telegraphic notice by the Underwriter to the Company setting forth the aggregate principal amount of the Option Notes as to which the Underwriter is exercising the option on the settlement date. Delivery of certificates representing such Option Notes, and payment therefor, shall be made as provided in Section 3 hereof. 3. Delivery and Payment. Delivery of and payment for the Senior Notes and the Convertible Subordinated Notes shall be made at 10:00 a.m., New York City time, on , 1994, which date and time may be varied by agreement among the Underwriter and the Company (such date and time of delivery and payment being herein called the "Closing Date"). The Underwriter will make payment for the Senior Notes and Convertible Subordinated Notes to be sold hereunder by a certified or official bank check or checks, drawn on or by a New York or Los Angeles Clearing House Bank and payable in next day funds, to the order of the Company against delivery of the Senior Notes and the Convertible Subordinated Notes for the account of the Underwriter provided, however, that upon written request of the Company delivered to the Underwriter not less than two business days prior to the Closing Date, such payment shall be made in immediately available funds, and the Company shall reimburse the Underwriter for its cost in obtaining such immediately available funds. Delivery of the Senior Notes and the Convertible Subordinated Notes shall be made at such location as the Underwriter shall reasonably designate at least one business day in advance of the Closing Date, and payment for the Senior Notes and the Convertible Subordinated Notes shall be made at the offices of Latham & Watkins, New York, New York, on the Closing Date. Certificates for the Senior Notes and the Convertible Subordinated Notes shall be registered in such names and in such denominations as the Underwriter may request not less than two full business days in advance of the Closing Date. Delivery to the Underwriter of and payment for any Option Notes to be purchased by the Underwriter shall be made at the aforementioned office of Latham & Watkins at such time a date (the "Option Closing Date") which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor later than ten business days after the giving of the notice described above, as shall be specified in such notice. The place of closing for any Option Notes and the Option Closing Date for such Option Notes may be varied by agreement between the Underwriter and the Company. The Company agrees to have the Senior Notes and the Convertible Subordinated Notes (and the Option Notes, if applicable) available for inspection, checking and packaging by the Underwriter in New York, New York not later than 1:00 p.m. on the business day prior to the Closing Date (or the Option Closing Date, as applicable). The Company will deliver to the Underwriter on the Option Closing Date, and the obligation of the Underwriter to purchase the Option Notes shall be conditioned upon receipt of, supplemental opinions, certificates and letters confirming, as of such Option Closing Date and with respect to the Option Notes, the opinions, certificates and letters delivered on the Closing Date pursuant to Section 6 hereof. 4. Offering by Underwriter. It is understood that the Underwriter proposes to offer the Senior Notes and the Convertible Subordinated Notes for sale to the public as set forth in the Prospectuses. 7 5. Agreements. The Company agrees with the Underwriter that: (a) The Company will use its best efforts to cause the Registration Statement, if not effective at the Execution Time, and any amendment thereof, to become effective. Prior to the termination of the offering of the Securities, the Company will not file any amendment of the Registration Statement or supplement to the Prospectuses without the prior consent of the Underwriter, provided, however, that if the Company shall be advised by counsel that the filing of such amendment or supplement is required under the Securities Act or other applicable law, the Company may file such amendment or supplement after giving notice to the Underwriter and allowing the Underwriter a reasonable opportunity to comment thereon. Subject to the foregoing sentence, if the Registration Statement has become or becomes effective pursuant to Rule 430A, or filing of the Prospectuses is otherwise required under Rule 424(b), the Company will cause the Prospectuses, properly completed, and any supplement thereto to be filed with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Underwriter of such timely filing. The Company will promptly advise the Underwriter (i) when the Registration Statement, if not effective at the Execution Time, and any amendment thereto, shall have become effective, (ii) when the Prospectuses, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 424(b), (iii) when, prior to termination of the offering of the Securities, any amendment of the Registration Statement shall have been filed or become effective, (iv) of any request by the Commission for any amendment of the Registration Statement or supplement to the Prospectuses or for any additional information, (v) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose, and (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company will make every reasonable effort to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof. (b) If, at any time when a prospectus relating to the Securities is required to be delivered under the Securities Act, any event known to the Company occurs as a result of which the Prospectuses as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary to amend the Registration Statement or supplement the Prospectuses to comply with the Securities Act or the rules or regulations thereunder, the Company promptly will prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 5, an amendment or supplement which will correct such statement or omission or which will effect such compliance. (c) The Company will make generally available to its security holders and to the Underwriter a consolidated earnings statement or statements of the Company and its Subsidiaries, covering a twelve-month period commencing after the effective date of the Registration Statement and ending not later than 15 months thereafter, as soon as practicable after the end of such period, which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 under the Securities Act. (d) The Company will furnish to the Underwriter and counsel for the Underwriter, without charge, as many signed copies of the Registration Statement as originally filed and of each amendment thereof (including exhibits filed therewith) as the Underwriter may reasonably request and to the Underwriter a conformed copy of the Registration Statement as originally filed and of each amendment thereof (without exhibits thereto) and, so long as delivery of a prospectus by the Underwriter or dealer may be required by the Securities Act, as many copies of each Preliminary Prospectus and the Prospectuses and any supplement thereto as the Underwriter may reasonably request. The Company will pay the expenses of printing or other production of all documents relating to the offering. (e) The Company will arrange for the qualification of the Securities for sale under the laws of such jurisdictions as the Underwriter may designate and will maintain such qualifications in effect so long as required for the distribution of the Securities provided, however, that the Company shall not be required to 8 qualify as a foreign corporation or consent to service of process in any jurisdiction in which such qualification or consent is not otherwise required, and will arrange for the determination of the legality of the Securities for purchase by institutional investors and will pay the fee of the National Association of Securities Dealers, Inc. in connection with its review of the offering. (f) The Company will fully comply with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner. (g) The Company will cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc. and in the performance of any due diligence investigation by any broker-dealer participating in the sale of the Securities. (h) The Company waives, to the extent permitted by law, the use of any usury laws against any holder of Securities. (i) The Company, during the period when the Prospectuses are required to be delivered under the Act, will file promptly all documents required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act, subsequent to the time the Registration Statement becomes effective. (j) The Company will apply the proceeds from the issuance and sale of the Securities as set forth in the Prospectuses under the heading "Use of Proceeds." (k) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Securities and Exchange Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported in the Prospectuses, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as may be required, in a form acceptable to the Department. (l) The Company will reserve, from time to time, a sufficient number of shares of Common Stock to permit the issuance of shares of Common Stock upon the conversion of all of the outstanding Convertible Subordinated Notes by the holders thereof. (m) The Company will use all reasonable efforts to cause the Common Stock issuable upon conversion of the Convertible Subordinated Notes to be listed on the New York Stock Exchange. (n) The Company will use all reasonable efforts to do and perform all things required to be done and performed under this Agreement by it prior to or after the Closing Date and to satisfy all conditions precedent on its part to the delivery of the Securities. 6. Conditions to the Obligations of the Underwriter. The obligations of the Underwriter to purchase the Securities shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein as of the Execution Time and the Closing Date, or the Option Closing Date, as applicable, to the accuracy of the statements of the Company made in any certificates delivered pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) If the Registration Statement has not become effective prior to the Execution Time, unless the Underwriter agrees in writing to a later time, the Registration Statement will become effective not later than (i) 6:00 p.m. New York City time on the date of determination of the public offering price, if such determination occurred at or prior to 3:00 p.m. New York City time on such date or (ii) 12:00 noon New 9 York City time on the business day following the day on which the public offering price was determined, if such determination occurred after 3:00 p.m. New York City time on such date; if filing of the Prospectuses, or any supplement thereto, is required pursuant to Rule 424(b), the Prospectuses, and any such supplement, will be filed in the manner and within the time period required by Rule 424(b); and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened. (b) The Company shall have furnished to the Underwriter the opinion of Gibson, Dunn & Crutcher as counsel for the Company, and the Opinion of Richard W. Madsen, general counsel to the Company in each case, dated the Closing Date, in form and substance satisfactory to the Underwriter, and substantially in the form of Exhibits B and C, respectively, hereto. In rendering such opinions, such counsel may rely (A) as to matters involving the application of another state's law, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriter and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. In addition, Gibson, Dunn & Crutcher may rely as to certain matters upon the opinion of Richard W. Madsen, general counsel to the Company. (c) The Underwriter shall have received from Latham & Watkins, counsel for the Underwriter, such opinion or opinions, dated the Closing Date, with respect to the issuance and sale of the Securities, the Indentures, the Registration Statement, the Prospectuses (together with any supplement thereto) and other related matters as the Underwriter may reasonably require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (d) The Company shall have furnished to the Underwriter a certificate of the Company, signed by the Chairman of the Board, the President or a Vice President and the principal financial or accounting officer of the Company, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Prospectuses, any supplement to the Prospectuses and this Agreement and that to the best of their knowledge: (i) the representations and warranties of the Company in this Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Company's knowledge, threatened; and (iii) since the date of the most recent financial statements included in the Prospectuses (exclusive of any supplement thereto), (A) there has been no material change in the capital stock or long-term debt of the Company except as set forth in or contemplated in the Prospectuses and (B) there has been no material adverse change in the condition (financial or otherwise), results of operations, business or properties of the Company and its Subsidiaries, considered as one enterprise, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectuses (exclusive of any supplement thereto). (e) At the Execution Time and at the Closing Date, Deloitte & Touche shall have furnished to the Underwriter a letter or letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Underwriter, confirming that they are independent accountants within the meaning of the Securities Act and the applicable published rules and regulations thereunder and stating in effect that: (i) in their opinion the audited financial statements and financial statement schedules included in the Registration Statement and the Prospectuses and reported on by them comply in form in all material 10 respects with the applicable accounting requirements of the Securities Act and the related published rules and regulations; (ii) on the basis of a reading of the latest unaudited financial statements made available by the Company and its Subsidiaries; their limited review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited interim financial information for the six-month period ended January 30, 1994, and as at January 30, 1994; carrying out certain specified procedures (but not an examination in accordance with generally accepted auditing standards) which would not necessarily reveal matters of significance with respect to the comments set forth in such letter; a reading of the minutes of the meetings of the stockholders and directors of each of the Company and its Subsidiaries; and inquiries of certain officials of the Company and its Subsidiaries who have responsibility for financial and accounting matters of the Company or its Subsidiaries as to transactions and events subsequent to January 30, 1994, nothing came to their attention which caused them to believe that: (1) any unaudited financial statements included in the Registration Statement and the Prospectuses do not comply in form in all material respects with applicable accounting requirements of the Securities Act and with the published rules and regulations of the Commission with respect to registration statements on Form S-3; and said unaudited financial statements are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement and the Prospectuses; or (2) with respect to the period subsequent to January 30, 1994, there were any changes, at a specified date not more than five business days prior to the date of the letter, in the long-term debt of the Company or its Subsidiaries or capital stock of each of the Company or its Subsidiaries or decreases in the stockholders' equity of any of the Company or its Subsidiaries, in each case as compared with the amounts shown on the January 30, 1994 consolidated balance sheet included in the Registration Statement and the Prospectuses, or for the period from January 31, 1994 to such specified date there were any decreases, as compared with the corresponding period in the preceding year, in net operating revenues, operating income or net income before income taxes or in total or per share amounts of net income of each of the Company or its Subsidiaries, except in all instances for changes or decreases set forth in such letter or changes or decreases that the Registration Statement discloses have occurred or may occur, in which case the letter shall be accompanied by an explanation by the Company as to the significance thereof unless said explanation is not deemed necessary by the Underwriter; and (iii) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company and its Subsidiaries) set forth in the Registration Statement and the Prospectuses (or in any documents incorporated by reference therein), including the information set forth under the captions "Consolidated Capitalization," "Summary Consolidated Financial Data" and "Selected Consolidated Financial Data" in the Prospectuses, agrees with the accounting records of the Company and its Subsidiaries, excluding any questions of legal interpretation. References to the Prospectuses in this paragraph (e) include any supplement thereto at the date of the letter. (f) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectuses (exclusive of any supplement thereto), there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (f) of this Section 6 or (ii) any change, or any development involving a prospective change, in or affecting the business or properties of the Company and its Subsidiaries taken as a single 11 enterprise the effect of which, in any case referred to in clause (i) or (ii) above, is, in the judgment of the Underwriter, so material and adverse as to make it impractical or inadvisable to proceed with the public offering or the delivery of the Securities as contemplated by the Registration Statement (exclusive of any amendment thereof) and the Prospectuses (exclusive of any supplement thereto). (g) The Company shall have obtained and provided to the Underwriter, in form and substance satisfactory to the Underwriter and its counsel, certain amendments, supplements or modifications to certain of the Company's credit facilities and other borrowing agreements currently in place that shall, among other things, sufficiently broaden certain restrictive financial covenants contained therein. (h) Prior to the Closing Date, the Company shall have furnished to the Underwriter such further information, certificates and documents as the Underwriter may reasonably request. If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Underwriter and its counsel, this Agreement and all obligations of the Underwriter hereunder may be canceled at, or at any time prior to, the Closing Date by the Underwriter. Notice of such cancellation shall be given to the Company in writing or by telephone or telegraph confirmed in writing. 7. Reimbursement of Underwriter's Expenses. (a) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company will pay, or reimburse if paid by or on behalf of the Underwriter, all costs and expenses incident to the performance of the obligations of the Company hereunder, including those in connection with: (i) preparing, printing, duplicating, filing and distributing the Registration Statement as originally filed and all amendments thereto (including all exhibits thereto), any Preliminary Prospectuses, the Prospectuses and any amendments thereof or supplements thereto, the Indentures, any dealer agreements and the underwriting documents (including this Agreement and all other documents related to the public offering of the Securities, including those supplied to the Underwriter in quantities as hereinabove stated); (ii) the issuance, transfer and delivery of the Securities to the Underwriter, including any transfer or other taxes payable thereon; (iii) the qualification of the Securities under state and foreign securities or Blue Sky laws and the eligibility of the Securities for investment under state and foreign law, including the costs of printing and mailing a preliminary and final "Blue Sky Survey" and a "Legal Investment Memorandum" and the reasonable fees and disbursements of Underwriter's counsel in connection therewith; (iv) the review of the terms of the public offering of the Securities by the National Association of Securities Dealers, Inc.; and (v) the fees and expenses of the Trustees and any agent of the Trustees and the fees and disbursements of counsel for the Trustee in connection with the Indentures and the Securities. (b) If the sale of the Senior Notes and the Convertible Subordinated Notes provided for herein is not consummated because any condition to the obligations of the Underwriter set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 9 hereof or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by the Underwriter, the Company will reimburse the Underwriter upon demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by the Underwriter in connection with the proposed purchase and sale of the Securities. 8. Indemnification and Contribution. (a) The Company agrees to indemnify, defend and hold harmless the Underwriter, the directors, officers, employees and agents of the Underwriter, and each person who controls the Underwriter within the meaning of either the Securities Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, 12 claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Securities as originally filed or in any amendment thereto, or in any Preliminary Prospectus or any Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Underwriter specifically for inclusion therein, and provided further that the indemnity agreement contained in this subsection (a) with respect to any Preliminary Prospectus or amended Preliminary Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such loss, expense, liability or claim purchased the Security which is the subject thereof (or to the benefit of any person controlling such Underwriter), if the Prospectus corrected any such alleged untrue statement or omission and if such person was not given a copy of the Prospectus or prior to the written confirmation of the sale of such Security to such person and the Company has previously made available copies of the Prospectus to such Underwriter. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) The Underwriter agrees to indemnify, defend and hold harmless the Company, each of its directors, each of its officers who signs the Registration Statement, each person who controls the Company within the meaning of either the Securities Act or the Exchange Act, and their agents, to the same extent as the foregoing indemnity from the Company to the Underwriter, but only with reference to written information relating to the Underwriter furnished to the Company by or on behalf of the Underwriter specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which the Underwriter may otherwise have. The Company and the Underwriter acknowledge that the statements set forth (i) in the last paragraph of the cover page and (ii) the information under the heading "Underwriting," relating to the amount of Securities sold to the Underwriter, the Underwriter's concession and the dealers' reallowance, in any Preliminary Prospectus and any Prospectus constitute the only information furnished in writing by or on behalf of the Underwriter for inclusion in any Preliminary Prospectus or any Prospectus, and the Underwriter confirms that such statements are correct. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); PROVIDED, HOWEVER, that such counsel shall be satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified parties collectively shall have the right to employ one separate counsel (in addition to local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel, if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with an actual conflict of interest, (ii) the actual defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there are legal defenses available to it and/or other indemnified parties which 13 are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party in writing to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and the Underwriter agrees to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively, "Losses") to which the Company and the Underwriter may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company and by the Underwriter from the offering of the Securities; provided, however, that in no case shall the Underwriter (except as may be provided in any agreement among underwriters relating to the offering of the Securities) be responsible for any amount in excess of the underwriting discount or commission applicable to the Securities purchased by the Underwriter hereunder. If the allocation provided by the immediately preceding sentence is unavailable, the Company and the Underwriter shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and of the Underwriter in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses), and benefits received by the Underwriter shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Prospectuses. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Company or the Underwriter. The Company and the Underwriter agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls the Underwriter within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee and agent of the Underwriter shall have the same rights to contribution as the Underwriter, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). 9. Termination. This Agreement shall be subject to termination in the absolute discretion of the Underwriter, by written notice given to the Company prior to delivery of and payment for the Securities, if prior to such time (a) trading in securities generally on the New York Stock Exchange or the National Association of Securities Dealers Automated Quotation National Market System shall have been suspended or limited or minimum prices shall have been established on either of such Exchange or Market System, (b) a banking moratorium shall have been declared either by federal or New York State authorities, (c) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is such as to make it, in the judgment of the Underwriter, impracticable or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Prospectuses (exclusive of any supplement thereto) or (d) any securities of the Company shall have been downgraded or placed on any "watch list" for possible downgrading by any 14 nationally recognized statistical rating organization, PROVIDED, that in the case of such "watch list" placement, termination shall be permitted only if such placement would, in the judgment of the Underwriter, make it impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities or materially impair the investment quality of the Securities. 10. Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities, certificates and other statements of the Company or its officers and of the Underwriter set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Underwriter or the Company or any of the officers, directors or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 7 and 8 hereof shall survive the termination or cancellation of this Agreement. 11. Notices. All communications hereunder are required to be in writing and effective only on receipt and, if sent to the Underwriter, will be mailed, delivered, telegraphed or telecopied and confirmed to Salomon Brothers Inc at Seven World Trade Center, New York, New York, 10048, Attention: Legal Department; or, if sent to the Company, will be mailed, delivered, telegraphed or telecopied and confirmed to it at 850 Lagoon Drive, Chula Vista, California 91910, Attention: General Counsel. 12. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder. 13. Applicable Law. This Agreement will be governed by and construed in accordance with the internal laws of the State of New York. If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement between the Company and the Underwriter. Very truly yours, ROHR, INC. By: ------------------------------ The foregoing Agreement is hereby confirmed and accepted as of the date first above written. SALOMON BROTHERS INC By: ------------------------------ 15 EXHIBIT A OPINION OF GIBSON, DUNN & CRUTCHER COUNSEL FOR THE COMPANY The opinion of Gibson, Dunn & Crutcher, which is called for by Section 6(c) of the Underwriting Agreement (the "Opinion"), shall be dated the Closing Date and addressed to the Underwriter. All terms used herein without definition shall have the meanings assigned to such terms in the Underwriting Agreement. The Opinion shall be substantially to the effect that: 1. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own its properties and to conduct its business as described in the Registration Statement and the Prospectuses. 2. The Company is duly qualified or licensed to conduct business and is in good standing in each jurisdiction in which it owns or leases material property or in which the character of its business makes such qualification or license necessary, except where the failure so to qualify or be licensed would not have a material adverse effect on the business or financial condition of the Company and its Subsidiaries, taken as a whole. 3. The Company has corporate power and authority to execute, deliver and perform its obligations under this Agreement, the Indentures, the Senior Notes and the Convertible Subordinated Notes. This Agreement, the Indentures, the Senior Notes and the Convertible Subordinated Notes have been duly authorized, executed and delivered by the Company. 4. The Indentures constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except to the extent that (A) such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws and court decisions of general application now or hereafter in effect relating to or affecting the rights of creditors generally, including without limitation, statutory or other laws regarding fraudulent or preferential transfer, (B) such enforceability may be limited by equitable principles (whether considered in an action at law or in equity) which provide, among other things, that the remedies of specific performance and injunctive and other forms of equitable relief are subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought and (C) rights to indemnity and contribution thereunder may be limited by federal or state securities laws or the policies underlying such laws, and except as to any provisions thereof which involve a purported waiver of rights or defenses, as to which such counsel may express no opinion. 5. The Company has authorized capitalization as set forth in the Registration Statement. To the best of such counsel's knowledge, except as set forth in the Registration Statement, (i) there are no outstanding subscriptions, warrants, options, calls or commitments of any character relating to or entitling any person to purchase or otherwise acquire any shares of the capital stock of the Company, and (ii) there are no obligations or securities convertible into or exchangeable for shares of any capital stock of the Company or any commitments of any character relating to or entitling any person to purchase or otherwise acquire any such obligations or securities. 6. The holders of outstanding capital stock of the Company are not entitled to preemptive rights or, to the best of such counsel's knowledge, similar rights to subscribe for or to purchase any capital stock of the Company. 7. To the best of such counsel's knowledge, all of the outstanding capital stock or other securities evidencing equity ownership of the Subsidiaries have been duly and validly authorized and are fully paid and nonassessable, are owned of record and beneficially by the Company, either directly or indirectly through wholly owned subsidiaries of the Company, free and clear of any security interest, claim, lien or encumbrance; and there are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in any Subsidiary. 8. The Senior Notes, the Convertible Subordinated Notes and the Indentures conform in all material respects to the descriptions thereof contained in the Registration Statement and the Prospectuses. 9. The Registration Statement has become effective under the Securities Act; any filing of the Prospectuses, and any supplements thereto, required pursuant to Rule 424(b)(1) has been made in the manner and within the time period required by Rule 424(b); and, to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or threatened. 10. The Registration Statement and each Prospectus (except as to the financial statements and schedules and other financial and statistical data contained or incorporated by reference therein and the Trustee's statements of eligibility and qualification of Form T-1, as to which such counsel need not express an opinion) comply as to form in all material respects with the Securities Act and the Trust Indenture Act and the rules thereunder. 11. The Indentures have been duly qualified under the Trust Indenture Act. 12. No consent, approval, authorization or order of, or registration or filing with, any court or governmental agency or body is required in connection with the execution, delivery and performance by the Company of this Agreement, the Indentures, the Senior Notes and the Convertible Subordinated Notes, or in connection with the offer, sale, delivery and compliance with the terms of the Senior Notes and the Convertible Subordinated Notes, except (A) the registration under the Securities Act of the Senior Notes and the Convertible Subordinated Notes, (B) the qualification of the Indentures under the Trust Indenture Act, (C) such consents, approvals, authorizations, orders, registrations or filings as may be required under state securities, Blue Sky or real estate syndication laws, and (D) such other consents, approvals, authorizations, orders, registrations or filings as have been obtained or made. 13. The Company is not in violation of its Certificate of Incorporation or Bylaws and to the best of such counsel's knowledge is not in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any indenture or other financing agreement of the Company, where such default could have a material adverse effect on the Company and its Subsidiaries, taken as a whole. 14. The execution, delivery and performance of this Agreement, the Indentures, the Senior Notes and the Convertible Subordinated Notes, the fulfillment of the terms therein set forth and the consummation of the transactions therein contemplated, including the issuance, sale and delivery of the Senior Notes and the Convertible Subordinated Notes, will not violate or conflict with, result in a breach of or constitute a default under the Certificate of Incorporation or Bylaws of the Company or the terms of any indenture or other material agreement or instrument known to such counsel, including without limitation this Agreement, the Indentures, the Senior Notes and the Convertible Subordinated Notes, to which the Company is a party or by which it is bound. 15. To the best knowledge of such counsel, (i) there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator against or involving the Company of a character required to be disclosed in the Registration Statement or the Prospectuses which is not disclosed therein, and (ii) there is no contract, license, agreement or other document of the Company of a character required to be described in the Registration Statement or the Prospectuses, or to be filed as an exhibit to the Registration Statement, which is not so described or filed. 16. The Company is not, nor will be upon the issuance and sale of the Senior Notes and the Convertible Subordinated Notes and the fulfillment of the terms of this Agreement, subject to regulation under the Investment Company Act of 1940, as amended. 17. To the best of such counsel's knowledge, no holder of securities of the Company has unwaived rights to the registration of such securities pursuant to the Registration Statement. 18. The Senior Notes and the Convertible Subordinated Notes, when executed and authenticated in accordance with the respective Indenture and delivered to and paid for by the Underwriter in accordance 2 with this Agreement, will be the legal, valid and binding obligations of the Company, entitled to the benefits provided by the Indentures and enforceable in accordance with their terms, except to the extent that (A) such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws or court decisions of general application now or hereafter in effect relating to or affecting the rights of creditors generally, including without limitation, statutory or other laws regarding fraudulent or preferential transfers, (B) such enforceability may be limited by equitable principles (whether considered in an action at law or in equity) which provide, among other things, that the remedies of specific performance and injunctive and other forms of equitable relief are subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought and (C) rights to indemnity and contribution thereunder may be limited by federal or state securities laws or the policies underlying such laws, and except as to any provisions thereof which involve a purported waiver of rights or defenses, as to which such counsel may express no opinion. 19. The statements set forth in the Prospectus relating to the Convertible Subordinated Notes under the headings "Description of Capital Stock" and "Certain Federal Income Tax Consequences," insofar as such statements constitute a summary of the documents, laws or proceedings referred to therein, fairly present the information called for with respect to such documents, laws and proceedings. 20. The indebtedness represented by the Senior Notes and the Convertible Subordinated Notes is not usurious under the laws of (or is exempt from the usury laws of) the United States and the states of California and New York. We are not passing upon, do not assume any responsibility for and have not independently verified the accuracy, completeness or fairness of the financial statements, notes thereto, supporting schedules and other financial and statistical data included in the Registration Statement or the Prospectuses or with respect to the Form T-1, and we have not examined the accounting, financial or statistical records from which such financial statements, notes, schedules and data are derived. We note that, while certain portions of the Registration Statement and the Form T-1 (including financial statements, notes thereto, supporting schedules and other financial and statistical data) have been included therein on the authority of "experts" within the meaning of the Act, we are not such experts with respect to any portion of the Registration Statement or the Form T-1, including without limitation such financial statements, notes, schedules or other financial or statistical data included therein. Subject to the foregoing, we note that we have participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants of the Company and your representatives, at which conferences the contents of the Registration Statement and the Prospectuses and related matters were discussed and, although we are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement and each Prospectus and have not made any independent check or verification thereof, during the course of such participation (relying as to the factual matters underlying the determination of materiality to a large extent upon the statements of officers and other representatives of the Company), no facts came to our attention that caused us to believe that the Registration Statement, at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading (other than information omitted therefrom in reliance on Rule 430A under the Act), or that the Prospectuses, as of their date or the date hereof, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the States of California, Delaware and New York or the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriter, (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials and (C) as to the opinions given in paragraphs 2, 7, 13, 15 and 17 on the opinion of Richard W. Madsen, general counsel to the Company. References to the Prospectuses in this paragraph (b) include any supplements thereto at the Closing Date. 3 EXHIBIT B OPINION OF RICHARD W. MADSEN GENERAL COUNSEL FOR THE COMPANY The opinion of Richard W. Madsen, general counsel for the Company, which is called for by Section 6(c) of the Underwriting Agreement (the "Opinion"), shall be dated the Closing Date and addressed to the Underwriter. All terms used herein without definition shall have the meanings assigned to such terms in the Underwriting Agreement. The Opinion shall be substantially to the effect that: 1. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own its properties and to conduct its business as described in the Registration Statement and the Prospectuses. 2. The Company is duly qualified or licensed to conduct business and is in good standing in each jurisdiction in which it owns or leases material property or in which the character of its business makes such qualification or license necessary, except where the failure so to qualify or be licensed would not have a material adverse effect on the business or financial condition of the Company and its Subsidiaries, taken as a whole. 3. To the best of such counsel's knowledge, all of the outstanding capital stock of the Company has been duly and validly authorized and issued and is fully paid and nonassessable. All of the outstanding capital stock or other securities evidencing equity ownership of the Subsidiaries have been duly and validly authorized and are fully paid and nonassessable, are owned of record and beneficially by the Company, either directly or indirectly through wholly owned subsidiaries of the Company, and, to the best of such counsel's knowledge, is free and clear of any security interest, claim, lien or encumbrance; to the best of such counsel's knowledge, except as disclosed in the Registration Statement, there are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in any Subsidiary. 4. The Company is not in violation of its Certificate of Incorporation or Bylaws and to the best of such counsel's knowledge is not in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any indenture or other financing agreement of the Company, where such default could have a material adverse effect on the Company and its Subsidiaries, taken as a whole. 5. To the best knowledge of such counsel, there is no pending or threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator against or involving the Company of a character required to be disclosed in the Registration Statement or the Prospectuses which is not disclosed therein, or which are, singly and in the aggregate with all other such actions, material to the Company and its Subsidiaries considered as one enterprise. 6. The Company is not, nor will be upon the issuance and sale of the Senior Notes and the Convertible Subordinated Notes and the fulfillment of the terms of this Agreement, subject to regulation under the Investment Company Act of 1940, as amended. 7. To the best of such counsel's knowledge, no holder of securities of the Company has unwaived rights to the registration of such securities pursuant to the Registration Statement. 8. The statements set forth in the Prospectuses under the headings "Business --Contracts" and "Legal and Environmental Proceedings," insofar as such statements constitute a summary of the documents, laws or proceedings referred to therein, fairly present the information called for with respect to such documents, laws and proceedings. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the States of California and Delaware and the United States, to the extent he deems proper and specified in such opinion, upon the opinion of other counsel of good standing whom he believes to be reliable and who are satisfactory to counsel for the Underwriter and (B) as to matters of fact, to the extent he deems proper, on certificates of responsible officers of the Company and public officials. References to the Prospectuses in this paragraph (b) include any supplements thereto at the Closing Date. EX-4.1 3 INDENTURE SR. NOTES - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ROHR, INC. AND IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE ------------------- $100,000,000 % SENIOR NOTES DUE 2003 ------------------- INDENTURE DATED AS OF MAY 15, 1994 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS................................................... 1 SECTION 1.01 Definitions............................................ 1 SECTION 1.02 Other Definitions...................................... 27 SECTION 1.03 Incorporation by Reference of Trust Indenture Act...... 27 SECTION 1.04 Rules of Construction.................................. 28 ARTICLE 2 THE SENIOR NOTES.............................................. 28 SECTION 2.01 Form and Dating........................................ 28 SECTION 2.02 Execution and Authentication........................... 28 SECTION 2.03 Registrar and Paying Agent............................. 29 SECTION 2.04 Paying Agent To Hold Money in Trust.................... 30 SECTION 2.05 Holder Lists........................................... 30 SECTION 2.06 Transfer and Exchange.................................. 30 SECTION 2.07 Replacement Senior Notes............................... 31 SECTION 2.08 Outstanding Senior Notes............................... 31 SECTION 2.09 When Treasury Senior Notes Disregarded................. 32 SECTION 2.10 Temporary Senior Notes................................. 32 SECTION 2.11 Cancellation........................................... 32 SECTION 2.12 Defaulted Interest..................................... 33 SECTION 2.13 CUSIP Number........................................... 33 ARTICLE 3 REDEMPTION..................................................... 33 SECTION 3.01 Notices to Trustee..................................... 33 SECTION 3.02 Selection of Senior Notes To Be Redeemed............... 34 SECTION 3.03 Notice of Redemption................................... 34 SECTION 3.04 Effect of Notice of Redemption......................... 35 SECTION 3.05 Deposit of Redemption Price............................ 35 SECTION 3.06 Senior Notes Redeemed in Part.......................... 35 ARTICLE 4 COVENANTS..................................................... 36 SECTION 4.01 Payment of Senior Notes................................ 36 SECTION 4.02 Commission Reports..................................... 36 SECTION 4.03 Compliance Certificate................................. 36 SECTION 4.04 Maintenance of Office or Agency........................ 38 SECTION 4.05 Limitation on Indebtedness............................. 38 SECTION 4.06 Limitation on Restricted Payments...................... 38 SECTION 4.07 Limitations on Payment Restrictions Affecting Subsidiaries......................................... 40 SECTION 4.08 Limitations on Transactions with Affiliates............ 41 SECTION 4.09 Limitation on Subsidiary Indebtedness and Preferred Stock................................................ 42 SECTION 4.10 Limitation on Sales of Assets.......................... 44 SECTION 4.11 Limitation on Liens.................................... 47 SECTION 4.12 Continued Existence.................................... 48
PAGE ---- SECTION 4.13 Taxes................................................... 48 SECTION 4.14 Stay, Extension and Usury Laws.......................... 49 SECTION 4.15 Investment Company Act.................................. 49 SECTION 4.16 Change of Control....................................... 49 SECTION 4.17 Limitation on Sale and Leaseback Transactions........... 51 SECTION 4.18 Appointments to Fill Vacancies in Trustee's Office...... 52 SECTION 4.19 Further Instruments and Acts............................ 52 ARTICLE 5 SUCCESSORS..................................................... 52 SECTION 5.01 When the Company May Merge, etc......................... 52 SECTION 5.02 Successor Corporation Substituted....................... 54 SECTION 5.03 Purchase Option on Change of Control.................... 54 ARTICLE 6 DEFAULTS AND REMEDIES.......................................... 54 SECTION 6.01 Events of Default....................................... 54 SECTION 6.02 Acceleration............................................ 56 SECTION 6.03 Other Remedies.......................................... 57 SECTION 6.04 Waiver of Past Defaults................................. 57 SECTION 6.05 Control by Majority..................................... 57 SECTION 6.06 Limitation on Suits..................................... 58 SECTION 6.07 Rights of Holders To Receive Payment.................... 58 SECTION 6.08 Collection Suit by Trustee.............................. 58 SECTION 6.09 Trustee May File Proofs of Claim........................ 59 SECTION 6.10 Priorities.............................................. 59 SECTION 6.11 Undertaking for Costs................................... 59 ARTICLE 7 THE TRUSTEE.................................................... 60 SECTION 7.01 Duties of the Trustee................................... 60 SECTION 7.02 Rights of the Trustee................................... 61 SECTION 7.03 Individual Rights of the Trustee........................ 62 SECTION 7.04 Trustee's Disclaimer.................................... 62 SECTION 7.05 Notice of Defaults...................................... 62 SECTION 7.06 Reports by the Trustee to Holders....................... 63 SECTION 7.07 Compensation and Indemnity.............................. 63 SECTION 7.08 Replacement of the Trustee.............................. 64 SECTION 7.09 Successor Trustee by Merger, etc........................ 65 SECTION 7.10 Eligibility, Disqualification........................... 66 SECTION 7.11 Preferential Collection of Claims Against Company....... 66 ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE........................ 66 SECTION 8.01 Termination of Company's Obligations.................... 66 SECTION 8.02 Application of Trust Money.............................. 70 SECTION 8.03 Repayment to Company.................................... 70 SECTION 8.04 Reinstatement........................................... 70
ii
PAGE ---- ARTICLE 9 AMENDMENTS..................................................... 71 SECTION 9.01 Without the Consent of Holders......................... 71 SECTION 9.02 With the Consent of Holders............................ 71 SECTION 9.03 Compliance with the Trust Indenture Act................ 72 SECTION 9.04 Revocation and Effect of Consents...................... 72 SECTION 9.05 Notation on or Exchange of Senior Notes................ 73 SECTION 9.06 Trustee Protected...................................... 73 ARTICLE 10 GENERAL PROVISIONS............................................ 74 SECTION 10.01 Trust Indenture Act Controls........................... 74 SECTION 10.02 Notices................................................ 74 SECTION 10.03 Communication by Holders With Other Holders............ 75 SECTION 10.04 Certificate and Opinion as to Conditions Precedent..... 75 SECTION 10.05 Statements Required in Certificate or Opinion.......... 75 SECTION 10.06 Rules by Trustee and Agents............................ 76 SECTION 10.07 Legal Holidays......................................... 76 SECTION 10.08 No Recourse Against Others............................. 77 SECTION 10.09 Counterparts........................................... 77 SECTION 10.10 Other Provisions....................................... 77 SECTION 10.11 Governing Law.......................................... 78 SECTION 10.12 No Adverse Interpretation of Other Agreements.......... 78 SECTION 10.13 Successors............................................. 78 SECTION 10.14 Severability........................................... 78 SECTION 10.15 Table of Contents, Headings, etc....................... 78
iii CROSS-REFERENCE TABLE* TRUST INDENTURE ACT SECTION INDENTURE SECTION 310(a)(1)................................................................. 7.10 (a)(2)................................................................. 7.11 (a)(3)................................................................. N.A. (a)(4)................................................................. N.A. (b)....................................................... 7.08, 7.10, 10.02 (c).................................................................... N.A. 311(a).................................................................... 7.11 (b).................................................................... 7.11 (c).................................................................... N.A. 312(a).................................................................... 2.05 (b)................................................................... 10.03 (c)................................................................... 10.03 313(a).................................................................... 7.06 (b)(1)................................................................. N.A. (b)(2)................................................................. 7.06 (c)............................................................. 7.06, 10.02 (d).................................................................... 7.06 314(a)............................................................. 4.01, 10.02 (b).................................................................... N.A. (c)(1)................................................................ 10.04 (c)(2)................................................................ 10.04 (c)(3)................................................................. N.A. (d).................................................................... N.A. (e)................................................................... 10.05 (f).................................................................... N.A. 315(a)................................................................. 7.01(b) (b)............................................................. 7.05, 10.02 (c)................................................................. 7.01(a) (d)................................................................. 7.01(c) (e).................................................................... 6.11 316(a)(last sentence)..................................................... 2.09 (a)(1)(A).............................................................. 6.05 (a)(2)(B).............................................................. 6.04 (a)(2)................................................................. N.A. (b).................................................................... 6.02 317(a)(1)................................................................. 6.08 (a)(2)..................................................................6.09 (b).................................................................... 2.04 318(a)................................................................... 10.01 N.A. means not applicable. - --------- * This Cross-Reference Table is not part of the Indenture. iv THIS INDENTURE, dated as of May 15, 1994, is between Rohr, Inc., a Delaware corporation (the "Company"), and IBJ Schroder Bank & Trust Company, a New York banking corporation ("Trustee"). The Company has duly authorized the creation of its % Senior Notes due 2003 (the "Senior Notes") and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders from time to time of the Senior Notes. ARTICLE 1 Definitions Section 1.01 Definitions. "Acquired Indebtedness" of any specified Person means Indebtedness of any other Person and its Subsidiaries existing at the time such other Person merged with or into or became a Subsidiary of such specified Person or assumed by the specified Person in connection with the acquisition of assets from such other Person including, without limitation, Indebtedness of such other Person and its Subsidiaries incurred in connection with or in anticipation of (a) such other Person and its Subsidiaries being merged with or into or becoming a Subsidiary of such specified Person or (b) such acquisition by the specified Person. "Affiliate" means, when used with reference to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the referent Person, as the case may be, or any Person who beneficially owns (within the meaning of Rule 13d-3 andRule 13d-5 under the Exchange Act), directly or indirectly, 10% or more of the equity interests of the referent Person or warrants, options or other rights to acquire or hold more than 10% of any class of equity interests of the referent Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of management or poli- cies of the referent Person, directly or indirectly, whether through the own- ership of voting securities, by contract or otherwise; and the terms "control- ling" and "controlled" have meanings correlative of the foregoing. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Sale" means any sale, lease, transfer, exchange or other disposition by the Company or any Subsidiary (or series of related sales, leases, trans- fers, exchanges or dispositions) in excess of $1,000,000, including, without limitation, dispositions pursuant to merger, consolidation or sale and lease- back transactions, of (a) shares of Capital Stock of a Subsidiary of the Com- pany (pro rated to the extent of the Company's interest therein), (b) all or substantially all of the properties and assets of any division or line of business of the Company or any Subsidiary of the Company or (c) any other property or assets of the Company (pro rated to the extent of the Company's interest therein) or of any Subsidiary of the Company (pro rated to the extent of the Company's interest therein,) (each referred to for purposes of this definition as a "disposition") by the Company or by any of its Subsidiaries (other than (i) dispositions by the Company to a Wholly Owned Subsidiary of the Company or by a Subsidiary of the Company to the Company or to a Wholly Owned Subsidiary of the Company, (ii) sales or other dispositions of inventory in the ordinary course of business, (iii) any disposition of properties or as- sets that is consummated in accordance with the provisions of Section 5.01, (iv) any disposition of any account receivable pursuant to the Pooling and Servicing Agreement, (v) dispositions by the Company or any Subsidiary of the Company of the business, jet product line, the overhaul and repair business, as conducted by Rohr Aero Services, Inc. and Rohr Aero Services Europe, re- spectively, on the Issue Date, the Hagerstown, Maryland plant and the Auburn, Washington plant, in each case, including related assets, (vi) the disposition by the Company or any Subsidiary of the Company of interests owned on the Is- sue Date in two trusts which own an Airbus A300 aircraft and a McDonnell Doug- las DC10 aircraft, respectively and (vii) the disposition of Building 107 (at the Company's facility in Chula Vista, California) to (a) any pension plan of the Company or (b) to any other Person if the net proceeds of such disposition are delivered to any pension plan referred to in clause (a) of this defini- tion, in either case resulting in the full satisfaction (or in case the full amount of such net proceeds are so delivered and shall be insufficient to ef- fect such full satisfaction, the partial satisfaction,) of the Company's fund- ing liabilities with respect to any such pension plans). "Average Life" means, as of the date of determination, with respect to any Indebtedness or security, the quotient obtained by dividing (a) the sum of the product of (i) the number of years from such date to the date of each 2 successive scheduled principal or redemption payment of such Indebtedness or security multiplied by (ii) the amount of such principal or redemption payment by (b) the sum of all such principal or redemption payments. "Bank Agent" means, at any time, the then-acting agent under the Revolving Credit Agreement, which shall initially be Citicorp USA, Inc. "Board of Directors" means the Board of Directors of the Company or any au- thorized committee of the Board of Directors. "Capital Stock" means, with respect to any Person, any and all shares, in- terests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of such Person's capital stock, including each class of Common Stock or Preferred Stock of such Person, whether out- standing on the Issue Date or issued after the Issue Date, and any and all rights, warrants or options exchangeable for or convertible into such capital stock (but excluding any debt security that is exchangeable for or convertible into such capital stock). "Capitalized Lease Obligation" means any obligation under a lease that is required to be classified and accounted for as a capital lease obligation un- der GAAP and, for purposes of this Indenture, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. The Stated Maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without penalty. "Cash Equivalents" means (a) marketable direct obligations issued by, or un- conditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within three years from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instru- mentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having a long-term rating of at least A from either Standard & Poor's Corporation ("S&P") or Moody's Investors Serv- ice, Inc. ("Moody's") or a short-term rating of at least A-1 from S&P or P-1 from Moody's, (c) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least 3 A-1 from S&P or at least P-1 from Moody's, (d) certificates of deposit, bank- ers' acceptances, time deposits, eurocurrency deposits or similar types of in- vestments routinely offered by commercial banks and maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any United States branch of a foreign bank having, at the date of acquisition thereof, combined capital and surplus of not less than $500 million, (e) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a) above en- tered into with any commercial bank meeting the qualifications specified in clause (d) above or with investment banks reporting to the Market Reports Di- vision of the Federal Reserve Bank ("FRB") meeting the FRB's capital criteria and having a long-term rating of at least A from either S&P or Moody's and (f) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (a) through (e) above. "Change of Control" means the occurrence of one or more of the following events (whether or not approved by the Board of Directors of the Company): (a) an event or series of events by which any Person or other entity or group of Persons or other entities acting in concert as determined in accordance with Section 13(d) of the Exchange Act, whether or not applicable (a "Group of Per- sons") shall, as a result of a tender or exchange offer, open market pur- chases, privately negotiated purchases, merger or otherwise (i) be or become, directly or indirectly, the beneficial owner (within the meaning of Rule 13d-3 and Rule 13d-5 under the Exchange Act, whether or not applicable) of 50% or more of the combined voting power of the then outstanding Voting Stock of the Company or (ii) have or has the ability to elect, directly or indirectly, a majority of the members of the Board of Directors of the Company or other equivalent governing body thereof, (b) the stockholders of the Company shall approve any Plan of Liquidation of the Company (whether or not otherwise in compliance with the provisions of this Indenture), (c) individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors of the Company (together with any new directors whose elec- tion or appointment by the Board of Directors of the Company or whose nomina- tion for election by the Company's shareholders was approved by a vote of at least a majority of the members of the Board of Directors of the Company then still in office who either were members of the Board of Directors of the Com- pany at the beginning of such period or whose 4 election, appointment or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors of the Company then in office, or (d) the direct or indirect sale, lease, exchange or other transfer, in one transaction or a series of related transactions, of all or substantially all of the property or assets of the Company to any Person or Group of Persons (whether or not otherwise in compli- ance with the provisions of this Indenture). "Commission" means the Securities and Exchange Commission. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether vot- ing or non-voting) of any Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Company" means the party named as such above until a successor replaces it in accordance with Article 5 and thereafter means the successor. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Per- son, the ratio of (a) the aggregate amount of EBITDA of such Person for the four full fiscal quarters ending on or immediately prior to the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to (b) the aggregate Consolidated Fixed Charges of such Person for such Four Quarter Period. For purposes of this definition, if the Transaction Date occurs prior to the first anniversary of the Issue Date, EBITDA and Consolidated Fixed Charges shall be calculated, in the case of the Company, after giving effect on a pro forma ba- sis as if the issuance of the Senior Notes and the application of the net pro- ceeds therefrom occurred on the first day of the Four Quarter Period. In addi- tion to and without limitation of the foregoing, for purposes of this defini- tion, EBITDA and Consolidated Fixed Charges shall be calculated after giving effect on a pro forma basis for the period of such calculation to (x) the incurrence or retirement, as the case may be, of any Indebtedness (including Acquired Indebtedness) of such Person or of any of its Subsidiaries during the period commencing on the first day of the Four Quarter Period to and including the Transaction Date (the "Reference Period"), including, without limitation, the incurrence of the Indebtedness giving rise to the need to make such calcu- lation, as if such incurrence or retirement, as the case may be, occurred 5 on the first day of the Reference Period and (y) the EBITDA attributable to any Person, business, property or asset acquired or divested during the Refer- ence Period (provided that with respect to any such acquisition, only to the extent the EBITDA of such Person is otherwise includible in the referent Per- son's EBITDA) as if such transaction occurred on the first day of the Refer- ence Period. Furthermore, in calculating "Consolidated Fixed Charges" for pur- poses of determining the denominator (but not the numerator) of this "Consoli- dated Fixed Charge Coverage Ratio," (i) interest on Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (ii) if interest on any Indebtedness actually incurred on the Transaction Date may be optionally determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the entire Reference Period; and (iii) notwithstanding the foregoing, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by Interest Rate Protection Agreements, shall be deemed to accrue at the rate per annum result- ing after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any peri- od, the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Interest Expense and (b) the product of (i) the amount of all dividend requirements whether in cash or oth- erwise (except dividends payable in shares of Common Stock) paid, accrued or scheduled to be paid or accrued during such period multiplied by (ii) a frac- tion, the numerator of which is one and the denominator of which is one minus the then current effective consolidated Federal, state, local and foreign tax rate (expressed as a decimal number between 1 and 0) of such Person (as re- flected in the audited consolidated financial statements of such Person for the most recently completed fiscal year). "Consolidated Interest Expense" means, with respect to any Person for any period, the aggregate of the interest expense (without deduction of interest income) of such Person and its Consolidated Subsidiaries for such period, on a consolidated basis, as determined in accordance with GAAP, including all amor- tization of original issue discount, the interest component of Capitalized Lease Obligations, net cash costs under all Interest Rate Protection Agree- 6 ments (including amortization of fees), all capitalized interest, the interest portion of any deferred payment obligations for such period and cash contribu- tions to any employee stock ownership plan to the extent such contributions are used by such employee stock ownership plan to pay interest or fees to any Person (other than the referent Person or one of its Wholly Owned Subsidiar- ies) in connection with loans incurred by such employee stock ownership plan to purchase capital stock of the referent Person, but net of any amortization of any debt issuance costs. If the Person for whom this calculation is being made or any of its Subsidiaries directly or indirectly guarantees Indebtedness of a third person, the calculation shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or Subsidiary of such Person had di- rectly incurred or otherwise assumed such guaranteed Indebtedness as of the first day of the Reference period. "Consolidated Net Income" means, with respect to any Person for any period, the consolidated net income (or deficit) of such Person and its Consolidated Subsidiaries for such period, on a consolidated basis, as determined in accor- dance with GAAP consistently applied, provided that the net income of any other Person (other than a Subsidiary) in which the referent Person or any Subsidiary of the referent Person has a joint interest with a third party (which interest does not cause the net income of such other Person to be con- solidated into the net income of the referent Person in accordance with GAAP) shall be included only to the extent of the lesser of (a) such net income that has been actually received by the referent Person or Wholly Owned Subsidiary of the referent Person in the form of cash dividends or similar cash distribu- tions (subject to, in the case of a dividend or other distribution to a Wholly Owned Subsidiary of the referent Person, the limitations set forth in clause (i)(1) of the next proviso hereof) or (b) the net income of such other Person (which in no event shall be less than zero); provided further, that there shall be excluded (i)(1) the net income (but not loss) of any Subsidiary of the referent Person to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, or- der, statute, rule or governmental regulation applicable to such Subsidiary, (2) the net income of any Person acquired in a pooling of interests transac- tion accrued prior to the date it became a Subsidiary of the referent Person, and (3) all gains and losses resulting from the cumulative effect of any ac- counting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended, or any successor thereto; (ii) any gain (but not loss), net of any related provisions 7 for taxes, realized upon the sale or other disposition (including, without limitation, dispositions pursuant to Sale-Leaseback Financings) of any prop- erty or assets which are not sold or otherwise disposed of in the ordinary course of business and upon the sale or other disposition of any Capital Stock of any Subsidiary of the referent Person; (iii) any gain arising from the ac- quisition of any securities, or the extinguishment, under GAAP, of any Indebt- edness of the referent Person; (iv) any extraordinary gain (but not extraordi- nary loss) net of any related provision for taxes on any such extraordinary gain; (v) any amounts paid or accrued as dividends on Preferred Stock of such Person or Preferred Stock of any Subsidiary of such Person; (vi) income or loss attributable to discontinued operations; and (vii) in the case of a suc- cessor to the Company by consolidation or merger or as a transferee of the Company's assets, any earnings of the successor corporation prior to such con- solidation, merger or transfer of assets. "Consolidated Net Worth" of a Person at any date means the Consolidated Stockholders' Equity of such Person less (a) the amount of any gain resulting, directly or indirectly, from the extinguishment, retirement or repurchase of any Indebtedness of such Person or of any of its Subsidiaries, (b) any revalu- ation or other write-ups subsequent to the Issue Date in the book value of any asset owned by such Person or a Consolidated Subsidiary and (c) any amounts attributable to the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of Capital Stock of such Person or of any of its Subsidiaries. Notwithstanding any of the foregoing, net deferred income tax assets recorded in accordance with Statement of Financial Account- ing Standards No. 109, Accounting for Income Taxes ("SFAS 109"), shall be cal- culated without regard to any valuation allowance with respect to such net de- ferred tax asset recorded by the Company in accordance withSFAS 109. "Consolidated Stockholders' Equity" as of any date means, with respect to any Person, the amount by which the assets of such Person and of its Subsidi- aries on a consolidated basis exceed (a) the total liabilities of such Person and of its Subsidiaries on a consolidated basis, plus (b) any redeemable Pre- ferred Stock (including Disqualified Capital Stock) of such Person or any re- deemable Preferred Stock (including Disqualified Capital Stock) of any Subsid- iary of such Person issued to any Person other than to such Person or to a Wholly Owned Subsidiary of such Person, in each case determined in accordance with GAAP. 8 "Consolidated Subsidiary" of any Person means a Subsidiary which for finan- cial reporting purposes is or, in accordance with GAAP, should be, accounted for by such Person as a consolidated subsidiary. "Consolidated Tax Expense" means, with respect to any Person for any period, the aggregate of the U.S. Federal, state and local tax expense attributable to taxes based on income and foreign income tax expenses of such Person and its Consolidated Subsidiaries for such period (net of any income tax benefit), de- termined in accordance with GAAP. "Convertible Subordinated Notes" means the % Convertible Subordinated Notes due 2004 of the Company offered concurrently with the Senior Notes. "Convertible Subordinated Note Indenture" means that certain indenture by and between the Company and The Bank of New York, as Trustee, governing the Convertible Subordinated Notes as amended or supplemented from time to time. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values to or under which the Company or any of its Subsidiaries is a party or a benefi- ciary on the date of this Indenture or becomes a party or a beneficiary there- after. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default (as defined in Section 6.01). "Disqualified Capital Stock" means any Capital Stock that, other than solely at the option of the issuer thereof, by its terms (or by the terms of any se- curity into which it is convertible or exchangeable) is, or upon the happening of an event or the passage of time would be, required to be redeemed or repur- chased, in whole or in part, or has, or upon the happening of an event or the passage of time would have, a redemption or similar payment due on or prior to the first anniversary of the Maturity Date of the Senior Notes, or is convert- ible into or exchangeable for debt securities at the option of the holder thereof at any time prior to such Maturity Date. 9 "EBITDA" for any Person means for any period for which it is to be deter- mined the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income of such Person for such period, plus (b) only to the extent Consolidated Net Income has been re- duced thereby, (i) Consolidated Tax Expense of such Person paid or accrued in accordance with GAAP for such period, (ii) Consolidated Interest Expense of such Person for such period, (iii) depreciation and amortization expenses (in- cluding, without limitation, amortization of capitalized debt issuance costs) of such Person and its Consolidated Subsidiaries for such period; all as de- termined on a consolidated basis in conformity with GAAP consistent with those principles applied in the preparation of the audited financial state ments of such Person and its Consolidated Subsidiaries on the Issue Date; provided that if a Person has any Subsidiary that is not a Wholly Owned Subsidiary, EBITDA of such Person shall be reduced by an amount equal to (1) the Consolidated Net Income of such Subsidiary for such period multiplied by (2) the quotient of (A) the number of shares of outstanding Common Stock of such Subsidiary not owned on the last day of such period by such Person or by any Wholly Owned Subsidiary of such Person that is not subject to any encumbrance or restric- tion on the payment of dividends to such Person divided by (B) the total num- ber of shares of outstanding Common Stock of such Subsidiary on the last day of such period. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" has the meaning set forth in the definition of Per- mitted Refinancing Indebtedness. "Fair Market Value" or "fair value" means, with respect to any asset or property or Capital Stock, the price which could be negotiated in an arm's- length, free market transaction, for cash, between an informed and willing seller and an informed, willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a written resolution of said Board of Di- rectors (certified by the Secretary or Assistant Secretary of the Company) de- livered to the Trustee, provided that if the aggregate non-cash consideration to be received by the Company or any of its Subsidiaries from any Asset Sale shall exceed $10,000,000, then Fair Market Value shall be determined by an In- dependent Financial Advisor. 10 "GAAP" means generally accepted accounting principles set forth in the opin- ions and pronouncements of the Accounting Principles Board of the American In- stitute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), as- sume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Per- son (and "incurrence," "incurred," "incurable" and "incurring" shall have meanings correlative to the foregoing), provided that the accrual of interest (whether such interest is payable in cash or in kind) and the accretion of original issue discount shall not be deemed an incurrence of Indebtedness, provided, further, that (a) any Indebtedness or Disqualified Capital Stock of a Person existing at the time such Person becomes (after the Issue Date) a Subsidiary (whether by merger, consolidation, acquisition or otherwise) of the Company shall be deemed to be incurred by such Subsidiary at the time it be- comes a Subsidiary of the Company and (b) any amendment, modification or waiver of any document pursuant to which Indebtedness was previously incurred shall be deemed to be an incurrence of Indebtedness unless such amendment, modification or waiver does not (i) increase the principal or premium thereof or interest rate thereon (including by way of original issue discount), (ii) change to an earlier date the Stated Maturity thereof or the date of any scheduled or required principal payment thereon or the time or circumstances under which such Indebtedness may or shall be redeemed, (iii) if such Indebt- edness is subordinated to the Senior Notes, modify or affect, in any manner adverse to the holders such subordination, (iv) if the Company is the obligor thereon, provide that a Subsidiary of the Company not already an obligor thereon shall be an obligor thereon or (v) violate, or cause the Indebtedness to violate, the provisions described under Sections 4.07 and 4.11 of this In- denture. "Indebtedness" means, with respect to any Person, at any date, any of the following, without duplication, (a) any liability, contingent or otherwise, of such Person (i) for borrowed money (whether or not the recourse of the 11 lender is to the whole of the assets of such Person or only to a portion thereof) (ii) evidenced by a note, bond, debenture or similar instrument or (iii) for the payment of money relating to a Capitalized Lease Obligation or other obligation (whether issued or assumed) relating to the deferred purchase price of property but excluding advances, deposits, partial and progress pay- ments, unpaid wages and related employee obligations, trade accounts payable and accrued liabilities in each case arising in the ordinary course of busi- ness that are not overdue by 180 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (b) all conditional sale obligations and all obligations under any title re- tention agreement (even if the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of such property); (c) reimbursement obligations of such Person with respect to let- ters of credit and all obligations of such Person in respect of any banker's acceptance or similar credit transaction entered into in the ordinary course of business; (d) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on any asset or property (including, without limita- tion, leasehold interests and any other tangible or intangible property) of such Person, whether or not such Indebtedness is assumed by such Person or is not otherwise such Person's legal liability, provided that if the obligations so secured have not been assumed in full by such Person or are otherwise not such Person's legal liability in full, the amount of such Indebtedness for the purposes of this definition shall be limited to the lesser of the amount of such Indebtedness secured by such Lien or the Fair Market Value of the assets or property securing such Lien; (e) all Indebtedness of others guaranteed (in- cluding all dividends of other Persons the payment of which is guaranteed), directly or indirectly, by such Person or that is otherwise its legal liabil- ity or which such Person has agreed to purchase or repurchase or in respect of which such Person has agreed contingently to supply or advance funds; (f) all Disqualified Capital Stock issued by such Person (other than such Disqualified Capital Stock owned by the referent Person or by any Wholly Owned Subsidiary of the referent Person, provided that if any Wholly Owned Subsidiary of the referent Person shall cease to be a Wholly Owned Subsidiary of the referent Person or shall transfer such Disqualified Capital Stock (other than to the referent Person or another Wholly Owned Subsidiary of the referent Person) the date on which such Wholly Owned Subsidiary so ceases to be a Wholly Owned Sub- sidiary of the referent Person or so transfers such Disqualified Capital Stock shall be deemed to be 12 the issuance of such Disqualified Capital Stock by the Subsidiary issuer thereof) with the amount of Indebtedness represented by such Disqualified Cap- ital Stock being equal to the greater of its voluntary or involuntary liquida- tion preference and its maximum fixed repurchase price, but excluding accrued dividends if any; and (g) all obligations under Currency Agreements and Inter- est Rate Protection Agreements. For purposes hereof, the "maximum fixed repur- chase price" of any Disqualified Capital Stock which does not have a fixed re- purchase price shall be calculated in accordance with the terms of such Dis- qualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contin- gency giving rise to the obligation, of any contingent obligations at such date, provided that the amount outstanding at any time of any Indebtedness is- sued with original issue discount is the full amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such In- debtedness at such time as determined in conformity with GAAP. "Indenture" means this Indenture as amended or supplemented from time to time. "Independent Financial Advisor" means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the reasonable and good faith judgment of the Board of Directors of the Company, qualified to perform the task for which such firm has been engaged and disinterested and independent with respect to the Company and its Affiliates. "Interest Rate Protection Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, in- terest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or ar- rangement designed to protect a Person or any of its Subsidiaries against fluctuations in interest rates to or under which such Person or any of its Subsidiaries is a party or a beneficiary on the Issue Date or becomes a party or a beneficiary thereafter. "Investment" by any Person means (a) any direct or indirect loan, advance or other extension of credit or capital contribution to (by means of transfers of cash or other property (valued at the Fair Market Value thereof 13 as of the date of transfer) to others or payments for property or services for the account or use of others, or otherwise), (b) any direct or indirect pur- chase or acquisition of Capital Stock, bonds, notes, debentures or other secu- rities or evidences of Indebtedness issued by any other Person (whether by merger, consolidation, amalgamation or otherwise and whether or not purchased directly from the issuer of such securities or evidences of Indebtedness), (c) any direct or indirect guarantee or assumption of the Indebtedness of any other Person, and (d) all other items that would be classified as investments (including, without limitation, purchases of assets outside the ordinary course of business) on a balance sheet of such Person prepared in accordance with GAAP. The amount of any Investment shall be the original cost of such In- vestment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "Issue Date" means the date on which the Senior Notes are originally issued under this Indenture. "Lien" means, with respect to any Person, any mortgage, pledge, lien, encum- brance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal prop- erty of such Person, or a security interest of any kind (including any condi- tional sale or other title retention agreement, any lease in the nature there- of, including any sale and leaseback transaction, any option or other similar agreement to sell, in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Com- mercial Code (or equivalent statute or statutes) of any jurisdiction other than to reflect ownership by a third party of property leased to the referent Person or any of its Subsidiaries under a lease that is not in the nature of a conditional sale or title retention agreement). "Material Subsidiary" means, at any date of determination, any Subsidiary of the Company that, together with its Subsidiaries, (i) for the most recent fis- cal year of the Company accounted for more than 5% of the consolidated reve- nues of the Company or (ii) as of the end of such fiscal year, was the owner of more than 5% of the consolidated assets of the Company, all as set forth on the most recently available consolidated financial statements of the Company and its consolidated Subsidiaries for such fiscal year prepared in conformity with generally accepted accounting principles as then in effect. 14 "Maturity Date" means [ ], 2003. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or Cash Equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or Cash Equivalents, net of (a) reasonable third-party brokerage commissions and other reasonable third-party fees and expenses (including fees and ex- penses of counsel and investment bankers) related to such Asset Sale, (b) pro- visions for all taxes as a result of such Asset Sale computed on a consoli- dated basis reflecting the consolidated results of operations of the Company and its Subsidiaries, taken as a whole, (c) payments made to repay Indebted- ness or any other obligation outstanding at the time of such Asset Sale that was incurred in accordance with this Indenture and that either (i) is secured by a Lien incurred in accordance with this Indenture on the property or assets sold or (ii) is required to be paid as a result of such sale in each case to the extent actually repaid in cash and (d) appropriate amounts to be provided by the Company or any Subsidiary of the Company as a reserve against liabili- ties associated with such Asset Sale, including without limitation pension and other post-employment benefit liabilities, liabilities related to environmen- tal matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with generally accepting accounting principles as then in effect. For purposes of this definition and Section 4.10, "cash" means U.S. dollars or such money as is freely and readily convertible into U.S. dollars. "Net Equity Proceeds" means (a) in the case of any sale by the Company of Qualified Capital Stock of the Company, the aggregate net proceeds received by the Company, after payment of expenses, commissions and the like incurred in connection therewith, whether such proceeds are in cash or in other property (valued as determined reasonably and in good faith by the Board of Directors of the Company, as evidenced by a written resolution of said Board of Direc- tors, at the Fair Market Value thereof at the time of receipt) and (b) in the case of any exchange, exercise, conversion or surrender of any outstanding In- debtedness of the Company or any Subsidiary for or into shares of Qualified Capital Stock of the Company, the amount of such Indebtedness (or, 15 if such Indebtedness was issued at an amount less than the stated principal amount thereof, the accrued amount thereof as determined in accordance with generally accepted accounting principles as then in effect) as reflected in the consolidated financial statements of the Company prepared in accordance with generally accepted accounting principles as then in effect as of the most recent date next preceding the date of such exchange, exercise, conversion or surrender (plus any additional amount required to be paid by the holder of such Indebtedness of the Company or to any wholly owned Subsidiary of the Com- pany upon such exchange, exercise, conversion or surrender) and less any and all payments made to the holders of such Indebtedness, and all other expenses incurred by the Company in connection therewith, in the case of each of clauses (a) and (b) to the extent consummated after the Issue Date, provided that the exchange exercise, conversion or surrender of any Indebtedness out- standing on the Issue Date, including the Convertible Subordinated Notes, which is subordinated (whether pursuant to its terms or by operation of law) to the Senior Notes shall not be or be deemed to be included in Net Equity Proceeds. "New Indebtedness" has the meaning set forth in the definition of Permitted Refinancing Indebtedness. "Officer" means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, the Chief Accounting Officer, any Ex- ecutive Vice President, Senior Vice President or Vice President, the Treasur- er, any other executive officer, the Secretary and any Assistant Treasurer or any Assistant Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers, one of whom must be the principal executive officer, principal financial officer, the treasurer or principal accounting officer of the Company. "Opinion of Counsel" means a written opinion from legal counsel who is rea- sonably acceptable to the Trustee. The counsel may be an employee of or coun- sel to the Company or the Trustee except to the extent otherwise indicated in this Indenture. "Pari Passu Indebtedness" means the Senior Notes and any Indebtedness under the Company's Revolving Credit Agreement, its 9.33% Senior Notes due 2002, its 9.35% Senior Notes due 2000, and any other Indebtedness per- 16 mitted under this Indenture which is pari passu in right of payment with the Senior Notes. "Permitted Indebtedness" means, without duplication, (a) Indebtedness of the Company and its Subsidiaries remaining outstanding immediately after the Issue Date after giving effect to the consummation of the transactions described in the Prospectus under "Use of Proceeds"; (b) $110 million of Indebtedness of the Company evidenced by or arising under the Revolving Credit Agreement; (c) Indebtedness of the Company evidenced by or arising under the Senior Notes and this Indenture; (d) Permitted Refinancing Indebtedness incurred by the Company or by any of its Subsidiaries; (e) unsecured Indebtedness of the Company to a Wholly Owned Subsidiary of the Company, provided that (i) any Indebtedness of the Company to a Wholly Owned Subsidiary of the Company shall be evidenced by an intercompany promissory note that is subordinated in right of payment to the payment and performance of the Company's obligations under this Indenture and the Senior Notes, and (ii) any subsequent issuance or transfer of Capital Stock of a Wholly Owned Subsidiary of the Company (the "Creditor Subsidiary") that results in such Creditor Subsidiary ceasing to be a Wholly Owned Subsidi- ary of the Company or any subsequent transfer of Indebtedness owing from the Company to such Creditor Subsidiary (other than a transfer to another Wholly Owned Subsidiary of the Company) shall be deemed in each case to constitute the incurrence of Indebtedness by the Company to the extent of any such In- debtedness then outstanding; (f) Indebtedness of the Company in an aggregate principal amount not to exceed, when added to Indebtedness and Preferred Stock of Subsidiaries of the Company incurred under clause (d) of Section 4.09 here- of, 10% of Consolidated Net Worth of the Company, provided, however, that no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of such Indebtedness; and (g) Indebt edness (1) of the Company or of any Subsidiary of the Company in respect of bankers' acceptances provided in the ordinary course of business, (2) of the Company under Currency Agreements and Interest Rate Protection Agreements which are entered into for the purpose of protection against risk of currency or interest rate fluctuations affecting the Company or any of its Subsidiaries in the ordinary course of business that are related to payment obligations of the Company or any of its Subsidiaries otherwise permitted under this Inden- ture, provided that in the case of Currency Agreements or Interest Rate Pro- tection Agreements that relate to other Indebtedness, such 17 Currency Agreements or Interest Rate Protection Agreements do not increase the obligations of the Company outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates, as applica- ble, or by reason of fees, indemnities and compensation payable thereunder and (3) of the Company or any of the Subsidiaries of the Company in respect of letters of credit issued in connection with self-insurance and reinsurance ob- ligations incurred in the ordinary course of business, provided that the total amount of outstanding Indebtedness incurred under this clause (3), other than in connection with workers' compensation, unemployment insurance and other so- cial security obligations, shall not exceed $9 million at any one time. "Permitted Investments" means (a) investments held in the form of cash and Cash Equivalents; (b) Investments in any Wholly Owned Subsidiary (or any Per- son which will, upon the making of such Investment, become a Wholly Owned Sub- sidiary) of the Company by the Company or by any other Wholly Owned Subsidiary of the Company, provided that (i) any Indebtedness evidencing an Investment in a Wholly Owned Subsidiary of the Company shall not be subordinated or junior to any other Indebtedness or other obligation of such Wholly Owned Subsidiary and (ii) such Investment shall only be a Permitted Investment so long as any such Wholly Owned Subsidiary in which the Investment has been made or which has made such Investment remains a Wholly Owned Subsidiary of the Company; (c) Investments made after the Issue Date, not exceeding $15 million at any one time in excess of Investments made as Restricted Payments, in joint ventures, partnerships or Persons that are not Wholly Owned Subsidiaries of the Company that are made solely for the purpose of acquiring or furthering businesses re- lated to the Company's business; (d) Investments of the Company and its Sub- sidiaries arising as a result of any Asset Sale otherwise complying with the terms of this Indenture, provided that for each Asset Sale the maximum aggre- gate amount of Investments permitted under this clause (d) shall not exceed 20% of the total consideration received for such Asset Sale by the Company or any Subsidiary of the Company; (e) Investments in the Company by any Subsidi- ary of the Company, provided that any Indebtedness evidencing such Investment is subordinated to the Senior Notes; (f) Investments of the Company and its Subsidiaries in the form of promissory notes or deferred payment obligations as a result of the sale of the Company's business jet product line or its Ha- gerstown, Maryland plant; provided that the aggregate amount of such non-cash consideration does not exceed $15 million; (g) Investments arising from, or of the type contemplated 18 by, the Company's Pooling and Servicing Agreement as in effect on the Issue Date; (h) Investments received in connection with the bona fide settlement of legal proceedings or other disputed obligations arising in the ordinary course of business; (i) loans, advances or other extensions of credit to actual or potential customers or suppliers that are made as part of the purchase or sale of goods or services by the Company or any of its Subsidiaries, as made from time to time by the Company or any Subsidiary in the ordinary course of busi- ness and consistent with practices in the industry of the Company; and (j) other Investments made after the Issue Date in the ordinary course of business of the Company not to exceed $10 million at any one time. "Permitted Liens" means, without duplication, (a) Liens for taxes, assess- ments and governmental charges or levies (other than any Lien imposed by the Employee Retirement Income Security Act of 1974, as amended) that are not yet subject to penalties for non-payment or are being contested in good faith by appropriate proceedings and for which adequate reserves, if required, have been established or other provisions have been made in accordance with GAAP; (b) statutory mechanics', workmen's, materialmen's, operators', warehousemen's, repairmen's, and bankers' liens, and similar Liens imposed by law and arising in the ordinary course of business for sums which are not overdue by more than 15 days, or if so overdue, are being contested in good faith by appropriate proceedings and for which adequate reserves, if required, have been established or other provisions have been made in accordance with GAAP; (c) minor imperfections of, or encumbrances on, title that do not impair the value of property for its intended use; (d) Liens (other than any Lien un- der the Employee Retirement Income Security Act of 1974, as amended) incurred or deposits made in the ordinary course of business in connection with (or made to secure reinsurance obligations of the Company or any of its Subsidiar- ies incurred in connection with its or their obligations with respect to) workers' compensation, unemployment insurance and other types of social secu- rity; (e) Liens incurred or deposits made to secure the performance of ten- ders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return of money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed mon- ey); (f) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not mate- rially interfere with the ordinary course of business of the Company or of any 19 of its Subsidiaries; (g) Liens (including extensions and renewals thereof) upon real or tangible personal property acquired after the Issue Date, pro- vided that (1) any such Lien is created solely for the purpose of securing In- debtedness (other than Permitted Indebtedness) (A) that is incurred in accor- dance with Section 4.05 or 4.09 to finance the cost (including the cost of im- provement or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within 365 days after the later of the acquisition, the completion of construction or the commencement of full operation of such property or (B) that is Permitted Refinancing In- debtedness to Refinance any Indebtedness previously so secured, (2) the prin- cipal amount of the Indebtedness secured by any such Lien does not exceed 100% of such cost and (3) any such Lien shall not extend to or cover any property or assets of the Company or of any of its Subsidiaries other than such item of property or assets and any improvements on such item; (h) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company or of any of its Subsidiaries; (i) Liens encumbering property or assets to secure repayment of advances, deposits or progress or partial payments by a customer of the Company or of any of its Subsidiaries relating to such property or assets; (j) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (k) Liens in favor of the Company or any Wholly Owned Subsidiary of the Company; (l) Liens secured by real property or other assets of the Company or of any Subsidiary of the Company in connection with the financing of industrial revenue and similar bond facilities and related obligations or of any equipment or other property designed primarily for the purpose of air or water pollution control, provided that any such Lien on such facilities, equipment or other property shall not apply to any other property or assets of the Company or of such Subsidiary of the Company; (m) Liens arising from the rendering of a final judgment or order against the Company or any Subsidiary of the Company that does not give rise to an Event of Default; (n) Liens securing reimbursement obligations with re- spect to letters of credit incurred in accordance with this Indenture that en- cumber documents and other property relating to such letters of credit and the products and proceeds thereof; (o) Liens in favor of customs and revenue au- thorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (p) Liens encumbering customary ini- tial deposits and margin deposits, and other Liens that are within the general parameters customary in the industry and incurred in the ordinary course of business securing Indebtedness under Interest Rate Protection Agreements 20 and Currency Agreements and forward contracts, options, futures contracts, futures options or fluctuations in the price of commodities; (q) Liens on sales of receivables; (r) Liens in favor of the Trustee arising under this In- denture; (s) Liens incurred or deposits made in the ordinary course of busi- ness to secure up to $9 million of self-insurance and reinsurance obligations, other than obligations related to workers' compensation, unemployment insur- ance and other types of social security; and (t) deposits made to secure pro- curement credit card obligations arising from miscellaneous, non-repetitive purchases of supplies and services in the ordinary course of business, with no such purchase to exceed $5,000. "Permitted Payments" means, so long as no Default or Event of Default shall have occurred and be continuing or would result as a consequence thereof, (a) the prepayment, acquisition, retirement or decrease of Indebtedness of the Company that is subordinated (whether pursuant to its terms or by operation of law) to the Senior Notes that is prepaid, acquired, decreased or retired (i) by conversion into or in exchange for Qualified Capital Stock of the Company or (ii) in exchange for or with or out of the net cash proceeds of the sub- stantially concurrent sale (other than by the Company to a Subsidiary of the Company) of Permitted Refinancing Indebtedness (b) payroll, travel, relocation and similar advances to employees of the Company or any Subsidiaries in the ordinary course of the Company's business; (c) loans to employees (other than travel advances) not to exceed $500,000 in the aggregate at any one time out- standing; (d) any purchases, redemptions, acquisitions, cancellations or other retirement for value of shares of Capital Stock of the Company or of any Sub- sidiary of the Company, options on any such shares or related stock apprecia- tion rights or similar securities held by officers, directors or employees or former officers or employees (or their estates or beneficiaries under their estates) and which were issued pursuant to any stock option plan (or other di- rector officer or employee benefit plan or agreement), upon death, disability, retirement, termination of employment or pursuant to the terms of such plan or agreement and which in the aggregate do not exceed $1,000,000 in any fiscal year; (e) the purchase at a price of not more than $.05 per right of any rights issued or issuable pursuant to currently existing or future rights plans of the Company, provided that such purchase shall not exceed $3 million in the aggregate; or (f) the retirement of shares of the Company's Capital Stock in exchange for or out of the proceeds of a substantially concurrent sale (other than a sale to a Subsidiary of the Company) of other shares of its Capital Stock (other than Disqualified Capital Stock). 21 "Permitted Program Investment" means an investment in design, engineering, tooling or similar costs related to a program undertaken by the Company in the ordinary course of its business. "Permitted Refinancing Indebtedness" means Indebtedness of the Company or of any of the Company's Subsidiaries or Preferred Stock of a Subsidiary of the Company, the net proceeds of which are used to Refinance outstanding Indebted- ness of the Company or of any of the Company's Subsidiaries that was outstand- ing as of the Issue Date or incurred in accordance with this Indenture or Pre- ferred Stock of a Subsidiary of the Company that was out standing as of the Issue Date or issued in accordance with this Indenture, provided that (a) if the Indebtedness (including the Senior Notes) being Refinanced (the "Existing Indebtedness") is pari passu with or subordinated to the Senior Notes, then any Indebtedness Refinancing of the Existing Indebtedness (the "New Indebted- ness") shall be pari passu with or subordinated to, as the case may be, the Senior Notes, at least to the same extent and in the same manner as the Exist- ing Indebtedness is to the Senior Notes, (b) such New Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Existing Indebted- ness, (c) such New Indebtedness has an Average Life at the time such New In- debtedness is incurred that is equal to or greater than the Average Life of the Existing Indebtedness as of the date of such Refinancing, (d) such New In- debtedness is in an aggregate principal amount (or, if such New Indebtedness is issued at a price less than the principal amount thereof, the aggregate amount of gross proceeds therefrom is) not in excess of the aggregate princi- pal amount outstanding under the Existing Indebtedness on the date of the pro- posed Refinancing thereof (or if the Existing Indebtedness was issued at a price less than the principal amount thereof, then not in excess of the amount of liability in respect thereof determined in accordance with GAAP as of the date of such proposed Refinancing), (e) with respect to such Preferred Stock of the Company's Subsidiaries, Preferred Stock issued in exchange for or the proceeds of which are used to Refinance such existing Preferred Stock of a Subsidiary ("New Preferred Stock") shall have (i) a Stated Maturity no earlier than the Stated Maturity of the Preferred Stock being exchanged or Refinanced, (ii) an Average Life at the time such New Preferred Stock is proposed to be incurred that is equal to or greater than the Average Life of the Preferred Stock to be exchanged or Refinanced as of the date of such proposed exchange or Refinancing and (iii) a liquidation value no greater than the liquidation value of the Preferred Stock to be exchanged or Refi- 22 nanced as of the date of such proposed exchange or Refinancing and (f) if such Existing Indebtedness is Indebtedness solely of the Company, such New Indebt- edness will only be permitted if it is Indebtedness solely of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or po- litical subdivision thereof. "Plan of Liquidation" means a plan (including by operation of law) that pro- vides for, contemplates or the effectuation of which is preceded or accompa- nied by (whether or not substantially contemporaneously) (a) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company otherwise than as an entirety or substantially as an entirety and (b) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the re- maining assets of the Company to holders of Capital Stock of the Company. "Pooling and Servicing Agreement" means the Pooling and Servicing Agreement dated as of December 23, 1992, among the Company, the Company's Wholly Owned Subsidiary RI Receivables, Inc. and Bankers Trust Company, as trustee on be- half of the Certificateholders (as defined therein), and related documentation and any extension, renewal, modification, restatement or replacement thereof (in whole or in part), as the same may be amended, supplemented or otherwise modified from time to time, provided, however, the investors in any such re- ceivables program shall not obtain an interest in receivables sold under such program which exceeds $70 million in aggregate principal amount at any one time. "Preferred Stock" means the Capital Stock of any Person (other than the Com- mon Stock of such Person) of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of as- sets upon any voluntary or involuntary liquidation, dissolution or winding-up of such Person, to shares of Capital Stock of any other class of such Person. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act. "Prospectus" means the Company's final prospectus dated , 1994 in respect of the public offering of the Senior Notes. 23 "Qualified Capital Stock" means, with respect to any Person, any Capital Stock of such Person that is not Disqualified Capital Stock or convertible into or exchangeable or exercisable for Disqualified Capital Stock and in- cludes rights and other securities issuable under the Company's Amended and Restated Rights Agreement, dated as of April 6, 1990, between the Company and The First National Bank of Chicago, as Rights Agent, as such agreement may be amended or supplemented from time to time. "redemption date" when used with respect to any of the Senior Notes to be redeemed, means the date fixed by the Company for such redemption pursuant to this Indenture and the Senior Notes. "redemption price" when used with respect to any of the Senior Notes to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Senior Notes. "Reference Period" has the meaning set forth in the definition of "Consoli- dated Fixed Charge Coverage Ratio." "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or In- debtedness in whole or in part. "Refinanced" and "Refinancing" shall have cor- relative meanings. "Restricted Payment" means (a) the declaration or payment of any dividend or the making of any other distribution, including any dividend or distribution made in connection with the merger or consolidation of the Company (whether in any such case in cash, securities or other property or assets of the Company or of any of its Subsidiaries), on the Company's or any of its Subsidiaries' Capital Stock, or to the holders of the Company's or any of its Subsidiaries' Capital Stock, whether outstanding on the Issue Date or thereafter (other than dividends or distributions payable solely in Qualified Capital Stock of the Company or of such Subsidiary (subject to the last paragraph of Section 4.06) and other than any dividend or distribution declared or paid by any Wholly Owned Subsidiary of the Company); (b) the making of any Investment by the Com- pany or any of its Subsidiaries in any Person other than Permitted Invest- ments; (c) any purchase, redemption, retirement or other acquisition for value by the Company or any Subsidiary of any Capital Stock of the Company or of any of its Subsidiaries or of any Affiliate of the Company 24 or any other securities of a direct or indirect parent of the Company, whether outstanding on the Issue Date or thereafter, or any warrants, rights or op- tions to purchase or acquire shares of the Capital Stock of the Company or of any of its Subsidiaries or of any Affiliate of the Company, whether outstand- ing on the Issue Date or thereafter, held by any Person other than the Company or one of its Wholly Owned Subsidiaries, other than through the issuance in exchange therefor solely of Qualified Capital Stock of the Company or of such Subsidiary; or (d) the prepayment, acquisition, decrease or retirement for value prior to maturity, scheduled repayment or scheduled sinking fund payment of any Indebtedness of the Company that is subordinated (whether pursuant to its terms or by operation of law) to the Senior Notes, in each case to the ex- tent not contained within the definition of "Permitted Payments". The dollar amount of any non-cash dividend or distribution by the Company or any of its Subsidiaries on the Company's or any Subsidiary's Capital Stock shall be equal to the Fair Market Value of such dividend or distribution at the time of such dividend or distribution. "Revolving Credit Agreement" means the Credit Agreement dated as of April 26, 1989, among the Company, the lenders party thereto, and the Bank Agent, and any agreement governing Indebtedness incurred to refund or Refinance the borrowings, letters of credit and commitments then outstanding or permitted to be outstanding under the Revolving Credit Agreement, in each case together with the related notes and any other instruments and agreements executed from time to time in connection therewith, and in each case as amended, modified, supplemented, extended, renewed, restated, refunded, replaced or refinanced (in whole or in party, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time. "Securities Act" means the Securities Act of 1933, as amended. "Senior Notes" means the Senior Notes issued under this Indenture. "Stated Maturity" means, with respect to any security or Indebtedness, the date specified therein as the fixed date on which any principal of such secu- rity or Indebtedness is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase thereof at the option of the holder thereof). 25 A "Subsidiary" of a Person means (a) a corporation a majority of whose Vot- ing Stock is at the time, directly or indirectly, owned by such Person, by one or more Subsidiaries of such Person or by such Person and one or more Subsidi- aries of such Person or (b) any other Person (other than a corporation) in which such Person, one or more Subsidiaries of such Person or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, have (i) at least a majority ownership interest or (ii) the power to elect or direct the election of the directors or other gov- erning body of such Person. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ((S))((S)) 77aaa- 77-bbbb) as in effect on the date of execution of this Indenture, except as provided in Section 9.03. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor. "Trust Officer" means any officer within the Corporate Trust & Agencies Ad- ministration Department (or any successor department) of the Trustee, includ- ing any vice president, assistant vice president, assistant secretary, direc- tor or associate director; any other officer of the Trustee customarily per- forming functions similar to those performed by any officer of the Corporate Trust & Agencies Administration Department; and any other officer of the Trustee to whom any corporate trust matter is referred because of such per- son's knowledge of and familiarity with the particular subject. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock of such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the board of directors or other governing body of such Person. "Wholly Owned Subsidiary" means, with respect to any Person, any Subsidiary of such Person all the outstanding shares of Capital Stock (other than direc- tors' qualifying shares, if applicable) of which are owned directly by such Person or another Wholly Owned Subsidiary of such Person. 26 Section 1.02 Other Definitions.
DEFINED IN TERM SECTION - ---- ---------- "Affiliate Transaction".............................................. 4.08 "Asset Sale Offer"................................................... 4.10 "Asset Sale Offer Amount"............................................ 4.10 "Asset Sale Offer Payment Date"...................................... 4.10 "Asset Sale Offer Termination Date".................................. 4.10 "Asset Sale Offer Trigger Date"...................................... 4.10 "Bankruptcy Law"..................................................... 6.01 "Business Day"....................................................... 10.07 "Change of Control Date"............................................. 4.16 "Change of Control Offer"............................................ 4.16 "Change of Control Offer Payment Date"............................... 4.16 "Change of Control Offer Termination Date"........................... 4.16 "Custodian".......................................................... 6.01 "Event of Default"................................................... 6.01 "Legal Holiday"...................................................... 10.07 "Paying Agent"....................................................... 2.03 "Registrar".......................................................... 2.03 "United States Government Obligations"............................... 8.01
Section 1.03 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the Commission; "indenture securities" means the Senior Notes; "indenture security holder" means a holder of a Senior Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Senior Notes means the Company or any other obligor on the Senior Notes. All other terms in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them. 27 Section 1.04 Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) words in the singular include the plural, and in the plural include the singular; and (e) the male, female and neuter genders include one another. ARTICLE 2 The Senior Notes Section 2.01 Form and Dating. The Senior Notes and the Trustee's certificate of authentication relating thereto shall be substantially in the form set forth in Exhibit A, which is part of this Indenture, with such appropriate insertions, omissions, substitu- tions and other variations as are required or permitted by this Indenture. The Senior Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company shall approve the form of the Senior Notes and any notation, legend or endorsement on them. Each Senior Note shall be dated the date of its authentication. The terms and provisions contained in the Senior Notes shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent appli- cable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound there- by. Section 2.02 Execution and Authentication. Two Officers shall sign the Senior Notes for the Company by manual or fac- simile signature. The Company's seal shall be reproduced on the Senior Notes. If an Officer whose signature is on a Senior Note no longer holds that of- fice at the time the Senior Note is authenticated, the Senior Note shall nev- ertheless be valid. 28 A Senior Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Senior Note has been authenticated under this Indenture. Upon a written order of the Company signed by an Officer of the Company, the Trustee shall authenticate Senior Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Senior Notes. The aggregate principal amount of Senior Notes outstanding at any time may not exceed that amount except as provided in Section 2.07. The Senior Notes shall be issuable only in registered form without coupons and only in denominations of $1,000 or any integral multiple thereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Senior Notes. An authenticating agent may authenticate Senior Notes whenever the Trustee may do so. Each reference in this Indenture to au- thentication by the Trustee includes authentication by such agent. An authen- ticating agent has the same right as an Agent to deal with the Company or an Affiliate of the Company. Section 2.03 Registrar and Paying Agent. The Company shall maintain or cause to be maintained in the Borough of Man- hattan, New York, New York (the "New York Office"), and in such other loca- tions as it shall determine, an office or agency: (a) where securities may be presented for registration of transfer or for exchange ("Registrar"); (b) where Senior Notes may be presented for payment ("Paying Agent"); and (c) where notices and demand to or upon the Company in respect of Senior Notes and this Indenture may be served by the holders of Senior Notes. The Registrar shall keep a register of the Senior Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent, Registrar or co-registrar without prior notice. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture and shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture. The agreement shall implement the provisions of this Inden- ture that relate to such Agent. The Company or any of its Subsidiaries may act as Paying Agent, Registrar or co-registrar, except that for purposes of Arti- cles 3 and 8 and Sections 4.10 and 4.16, neither the 29 Company nor any of its Subsidiaries shall act as Paying Agent. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such, and the Trustee shall initially act as such. The Trustee shall cause the New York Office to be maintained as long as it acts as Registrar or Paying Agent. Section 2.04 Paying Agent To Hold Money in Trust. The Company shall require each Paying Agent (other than the Trustee, who hereby so agrees), to agree in writing that the Paying Agent will hold in trust for the benefit of holders of Senior Notes or the Trustee all money held by the Paying Agent for the payment of principal or interest on the Senior Notes, and will notify the Trustee of any default by the Company in respect of making any such payment. While any such default continues, the Trustee may re- quire a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary of the Company) shall have no further liability for the money. If the Company or a Subsidiary of the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the holders of Senior Notes all money held by it as Paying Agent. Section 2.05 Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of holders of Senior Notes. If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and ad- dresses of holders of Senior Notes. section 2.06 Transfer and Exchange. Where Senior Notes are presented to the Registrar or a co-registrar with a request to register a transfer or to exchange them for an equal principal amount of Senior Notes for other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Company shall issue and the Trustee shall authenticate Senior Notes at the Registrar's re- quest. 30 No service charge shall be made for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.10, 3.06 or 9.05. The Company shall not be required (a) to issue, register the transfer of or exchange Senior Notes during a period beginning at the opening of business 15 days before the day of any selection of Senior Notes for redemption under Sec- tion 3.02 and ending at the close of business on the day of selection, or (b) to register the transfer or exchange of any Senior Note so selected for re- demption in whole or in part, except the unredeemed portion of any Senior Note being redeemed in part. section 2.07 Replacement Senior Notes. If the holder of a Senior Note claims that the Senior Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Senior Note if the Trustee's requirements are met. If required by the Trustee or the Company as a condition of receiving a re- placement Senior Note, the holder of Senior Note must provide an indemnity bond sufficient, in the judgment of both the Company and the Trustee, to fully protect the Company, the Trustee, any Agent and any authenticating agent from any loss which any of them may suffer if the Senior Note is replaced. The Com- pany and the Trustee may charge the relevant holder for their expenses in re- placing any Senior Note. Every replacement Senior Note is an additional obligation of theCompany. section 2.08 Outstanding Senior Notes. The Senior Notes outstanding at any time are all the Senior Notes properly authenticated by the Trustee except for those cancelled by the Trustee, those delivered to it for cancellation, and those described in this Section as not outstanding. If a Senior Note is replaced pursuant to Section 2.07, it ceases to be out- standing unless the Trustee receives proof satisfactory to it that the re- placed Senior Note is held by a bona fide purchaser. 31 If Senior Notes are considered paid under Section 4.01, they cease to be outstanding and interest on them ceases to accrue. A Senior Note does not cease to be outstanding because the Company or an Af- filiate of the Company holds the Senior Note. section 2.09 When Treasury Senior Notes Disregarded. In determining whether the holders of the required principal amount of Se- nior Notes have concurred in any direction, waiver or consent, Senior Notes owned by the Company or an Affiliate of the Company shall be considered as though they are not outstanding except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Senior Notes which the Trustee knows are so owned shall be so disregarded. section 2.10 Temporary Senior Notes. Until definitive Senior Notes are ready for delivery, the Company may pre- pare and the Trustee shall authenticate temporary Senior Notes. Temporary Se- nior Notes shall be substantially in the form of definitive Senior Notes but may have variations that the Company considers appropriate for temporary Se- nior Notes. If temporary Senior Notes are issued, the Company will cause de- finitive Senior Notes to be prepared without unreasonable delay. After the preparation of definitive Senior Notes, the temporary Senior Notes shall be exchangeable for definitive Senior Notes upon surrender of the temporary Se- nior Notes at any office or agency of the Company designated pursuant to Sec- tion 2.03 without charge to the holder. Upon surrender for cancellation of any one or more temporary Senior Notes the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Senior Notes of authorized denominations. Until so exchanged, the temporary Senior Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Senior Notes. section 2.11 Cancellation. The Company at any time may deliver Senior Notes to the Trustee for cancel- lation. The Registrar and Paying Agent shall forward to the Trustee any Senior Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel Senior Notes surrendered 32 for registration of transfer, exchange, payment, replacement or cancellation and shall dispose of cancelled Senior Notes as the Company directs. The Com- pany may not issue new Senior Notes to replace Senior Notes that it has paid or that have been delivered to the Trustee for cancellation. section 2.12 Defaulted Interest. If the Company fails to make a payment of interest on the Senior Notes, it shall pay such defaulted interest plus, to the extent lawful, any interest payable on the defaulted interest. It may pay such defaulted interest, plus any such interest payable on it, to the persons who are holders of Senior Notes on a subsequent special record date. The Company shall fix any such rec- ord date and payment date. At least 15 days before any such record date, the Company shall mail to holders of Senior Notes a notice that states the record date, payment date and amount of such interest to be paid. section 2.13 CUSIP Number. The Company in issuing the Senior Notes may use a "CUSIP" number, and if so, such CUSIP number shall be included in notices of redemption or exchange as a convenience to holders of Senior Notes; provided, however, that any such no- tice may state that no representation is made as to the correctness or accu- racy of the CUSIP number printed in the notice or on the Senior Notes and that reliance may be placed only on the other identification numbers printed on the Senior Notes. The Company will promptly notify the Trustee of any change in the CUSIP number. ARTICLE 3 Redemption section 3.01 Notices to Trustee. If the Company elects to redeem Senior Notes pursuant to the optional re- demption provisions of paragraph 5 of the Senior Notes, it shall notify the Trustee of the redemption date and the principal amount of Senior Notes to be redeemed. The redemption price shall be the amount determined pursuant to par- agraph 5 of the Senior Notes. 33 The Company shall give each notice provided for in this Section at least 50 days before the redemption date (unless a shorter notice period shall be sat- isfactory to the Trustee). section 3.02 Selection of Senior Notes To Be Redeemed. If less than all the Senior Notes are to be redeemed, the Trustee shall se- lect the Senior Notes to be redeemed by lot or pro rata or by any other method that the Trustee considers fair and appropriate. The Trustee shall make the selection not more than 75 days and not less than 30 days before the redemp- tion date from Senior Notes outstanding not previously called for redemption. The Trustee may select for redemption a portion of the principal of Senior Note that has a denomination larger than $1,000. Senior Notes and portions thereof will be redeemed in the amount of $1,000 or integral multiples of $1,000. Provisions of this Indenture that apply to Senior Notes called for re- demption also apply to portions of Senior Notes called for redemption. The Trustee will make the selection of Senior Notes outstanding and not previously called for redemption. The Trustee shall notify the Company promptly of the Senior Notes or portions of Senior Notes to be called for redemption. section 3.03 Notice of Redemption. At least 30 days but not more than 60 days before a redemption date, the Company shall mail a notice of redemption to each holder whose Senior Notes are to be redeemed. The notice shall identify the Senior Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Senior Note is being redeemed in part, the portion of the principal amount of such Senior Note to be redeemed and that, after the redemption date, upon surrender of such Senior Note, a new Senior Note or Senior Notes in principal amount equal to the unredeemed portion will be issued; (d) that Senior Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (e) that interest on Senior Notes called for redemption and for which funds have been set apart for payment, ceases to accrue on and after the 34 redemption date (unless the Company defaults in the payment of the redemp- tion price); (f) the paragraph of the Senior Notes pursuant to which the Senior Notes are being redeemed; (g) the aggregate principal amount of Senior Notes that are being re- deemed; (h) the CUSIP number of the Senior Notes (provided that the disclaimer permitted by Section 2.13 may be made); and (i) the name and address of the Paying Agent. At the Company's request, the Trustee shall give notice of redemption in the Company's name and at its expense. section 3.04 Effect of Notice of Redemption. Once notice of redemption is mailed, Senior Notes called for redemption be- come due and payable on the redemption date at the price set forth in the Se- nior Note. section 3.05 Deposit of Redemption Price. On or before the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money in immediately available funds sufficient to pay the redemption price of and accrued interest on all Senior Notes to be re- deemed on that date. The Trustee or the Paying Agent shall return to the Com- pany any money not required for that purpose. section 3.06 Senior Notes Redeemed in Part. Upon surrender of a Senior Note that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the holder of a Senior Note at the expense of the Company a new Senior Note equal in principal amount to the unredeemed portion of the Senior Note surrendered. 35 ARTICLE 4 Covenants Section 4.01 Payment of Senior Notes. The Company shall pay the principal of and interest on the Senior Notes on the dates and in the manner provided in the Senior Notes. Principal and inter- est shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company or a Subsidiary of the Company) holds as of 1:00 P.M. Eastern Time on that date immediately available funds designated for and suf- ficient to pay all principal and interest then due. To the extent lawful, the Company shall pay interest (including post- peti- tion interest in any proceeding under any Bankruptcy Law) on (a) overdue prin- cipal, at the rate borne by Senior Notes, compounded semiannually; and (b) overdue installments of interest (without regard to any applicable grace peri- od) at the same rate, compounded semiannually. Section 4.02 Commission Reports. So long as any Senior Note is outstanding, the Company shall file with the Commission and, within 15 days after it files them with the Commission, file with the Trustee and thereafter promptly mail or promptly cause the Trustee to mail to the holders of Senior Notes at their addresses as set forth in the register of the Senior Notes copies of the annual reports and of the informa- tion, documents and other reports which the Company is required to file with Commission pursuant to Section 13 or 15(d) of the Exchange Act or which the Company would be required to file with the Commission if the Company then had a class of securities registered under the Exchange Act. In addition, the Com- pany shall cause its annual report to stockholders and any quarterly or other financial reports furnished to its stockholders generally to be filed with the Trustee, no later than the date such materials are mailed or made available to the Company's stockholders, and thereafter mailed promptly to the holders of Senior Notes at their addresses as set forth in the register of Senior Notes. Section 4.03 Compliance Certificate. The Company shall deliver to the Trustee, within 60 days after the end of the first three fiscal quarters and within 120 days after the end of each fis- cal 36 year of the Company, an Officers' Certificate stating that a review of the ac- tivities of the Company and its Subsidiaries during the preceding fiscal pe- riod has been made under the supervision of the signing Officers with a view to determining whether the Company has fully performed its obligations under this Indenture and further stating, as to each such Officer signing such cer- tificate, that to the best of his or her knowledge the Company has kept, ob- served, performed and fulfilled each and every covenant contained in this In- denture and is not in default in the performance or observance of any of the terms and conditions hereof (or, if any Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest on the Senior Notes are prohibited. The Company shall, so long as any of the Senior Notes are outstanding, de- liver to the Trustee, forthwith upon becoming aware of any Default, Event of Default or default in the performance of any term or condition in this Inden- ture, without regard to any period of grace or requirement of notice provided hereunder, an Officers' Certificate specifying such Defaults, Event of Default or default. So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, at the time the Officers' Certificate described in the second preceding paragraph is filed with respect to any fiscal year end of the Company, the Company also shall file with the Trustee a letter or statement of the independent accountants who shall have certified the financial statements of the Company for its preceding fiscal year in connection with the annual report of the Company to its stockholders for such year to that effect that, in making the examination necessary for certification of such financial statements, nothing came to their attention that would lead them to believe that the Company has violated any of the terms or conditions contained in Sections 4.05, 4.06 and 4.09 of this Indenture, which Default remains uncured at the date of such letter or statement or, if they shall have obtained knowledge of any such uncured Default, specifying in such letter or statement such Default or Defaults and the nature thereof, it being understood that such accountants shall not be liable directly or indirectly for failure to obtain knowledge of any such Default or Defaults and that their examination was not directed primarily toward obtaining knowledge of such non compliance. 37 Section 4.04 Maintenance of Office or Agency. The Company shall maintain or cause to be maintained the office or agency required under Section 2.03. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not maintained by the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Senior Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designation; provid- ed, however, that no such designation or rescission shall in any manner re- lieve the Company of its obligation to maintain or cause to be maintained an office or agency in the City of New York for such purpose. Section 4.05 Limitation on Indebtedness. The Company shall not, directly or indirectly, incur any Indebtedness (in- cluding Acquired Indebtedness) other than Permitted Indebtedness, unless (a) no Default or Event of Default shall have occurred and be continuing at the time of the proposed incurrence thereof or shall occur as a result of such proposed incurrence and (b) after giving effect to such proposed incurrence the Company's Consolidated Fixed Charge Coverage Ratio would be greater than 2.0 to 1.0 on or prior to July 31, 1996, and 2.25 to 1.0 on or after August 1, 1996. Section 4.06 Limitation on Restricted Payments. The Company shall not, and shall not permit or cause any of its Subsidiaries to, directly or indirectly, make any Restricted Payment unless, at the time of such proposed Restricted Payment, and on a pro forma basis immediately after giving effect thereto: A. no Default or Event of Default has occurred and is continuing; B. the aggregate amount expended for all Restricted Payments subsequent to the Issue Date would not exceed the sum of: (1) 50% of aggregate Consolidated Net Income of the Company (or if such Consolidated Net Income is a loss, minus 100% of such loss) earned on a cumulative basis during the period beginning on May 2, 1994 and ending on the last date of the Company's fiscal quarter imme- diately preceding such proposed Restricted Payment; plus 38 (2) 100% of the aggregate Net Equity Proceeds received by the Com- pany from any Person (other than from a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date of Qualified Capital Stock of the Company (excluding (a) any Qualified Capital Stock of the Company paid as a dividend on any Capital Stock of the Company or of any of its Subsidiaries or as interest on any Indebted- ness of the Company or of any of its Subsidiaries, (b) the issuance of Qualified Capital Stock upon the conversion of, or in exchange for, any Capital Stock of the Company or of any of its Subsidiaries and (c) any Qualified Capital Stock of the Company with respect to which the purchase price thereof has been financed directly or indirectly using funds (i) borrowed from or advanced by the Company or any of its Sub- sidiaries, unless and until and to the extent such borrowing advanced is repaid or (ii) contributed or guaranteed by the Company or by any of its Subsidiaries (including, without limitation, in respect of any employee stock ownership or benefit plan) unless and until such guar- antee terminates; and C. The Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under clause (a) of Section 4.05 (as- suming a market rate of interest with respect thereto). The foregoing provisions of this covenant will not prevent: (a) the payment of any dividend within 60 days after the date of its declaration if at such date of declaration the payment of such dividend would comply with the provi- sions set forth above, provided that (i) such dividend will be deemed to have been paid as of its date of declaration for the purposes of this covenant and (ii) at the time of payment of such dividend no other Default or Event of De- fault shall have occurred and be continuing or would result therefrom, (b) if no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof, the purchase, redemption, retirement or acqui- sition of any shares of Capital Stock of the Company or of any Subsidiary or any Indebtedness of the Company that is subordinated to the Senior Notes solely by conversion into, in exchange for or with or out of the net cash pro- ceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company and neither such purchase, redemption, retirement, acquisition, conversion or exchange nor the proceeds of any such sale shall be included in any computation made under clause (B)(2) above or (c) the making of any Permitted Payments. The amounts expended pursuant to clauses (a) and (c) (with respect to those items identi- fied in clauses (a)(i), (d), (e) or (f) of the definition 39 of Permitted Payments) of this paragraph will be included in computing the amounts available for Restricted Payments for purposes of the immediately pre- ceding paragraph. For purposes of this covenant a distribution to holders of the Company's Capital Stock of (a) shares of Capital Stock of any of its Subsidiaries or (b) other assets of the Company or of any of its Subsidiaries, without, in either case, the receipt of equivalent consideration therefor shall be deemed to be the equivalent of a cash dividend equal to the excess of the Fair Market Value of the shares or other assets being so distributed at the time of such distri- bution over the consideration, if any, received therefor. Section 4.07 Limitations on Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Subsidiaries to, di- rectly or indirectly, create or become (after the Issue Date) subject to any consensual encumbrance or restriction of any kind (a) on the ability of any such Subsidiary to (i) pay dividends, in cash or otherwise, or make other pay- ments or distributions on its Capital Stock or any other equity interest or participation in, or measured by, its profits, owned by the Company or by any of its Subsidiaries, or make payments on any Indebtedness owed to the Company or to any of its Subsidiaries, (ii) make loans or advances to the Company or to any of its Subsidiaries, (iii) transfer any of their respective property or assets to the Company or to any of its Subsidiaries or (b) on the ability of the Company or any of its Subsidiaries to receive or retain any such (i) divi- dends, payments or distributions, (ii) loans or advances or (iii) transfer of property or assets, except for such encumbrances or restrictions existing un- der or by reason of (1) customary provisions restricting subletting, transfer or assignment under any lease governing a leasehold interest of the Company or of any of its Subsidiaries, (2) applicable law, (3) reasonable covenants set forth in the agreements governing the formation of a joint venture otherwise permitted by this Indenture, (4) Acquired Indebtedness incurred in accordance with this Indenture, provided that such encumbrance or restriction in respect of such Acquired Indebtedness is not applicable to any Person, or the property of any Person, other than the Person, or the property of the Person, so ac- quired and that such Acquired Indebtedness was not incurred by the Company or any of its Subsidiaries or by the Person being acquired in connection with or anticipation of such acquisition, (5) with respect to clause (a)(iii) and (b)(iii) above, purchase money obligations for property acquired in the ordi- nary course of 40 business, (6) Indebtedness outstanding immediately after the Issue Date (as in effect on the Issue Date), (7) customary provisions in instruments or agree- ments relating to a Lien permitted to be created, incurred or assumed pursuant to the provisions of Section 4.11 hereof which restrict the transfer of the property or assets subject to such Lien, (8) customary provisions in any agreement otherwise permitted under this Indenture which (i) provide that transactions between the Company and its Subsidiaries be no less favorable to any such Subsidiary than could be obtained from an unaffiliated third party, and (ii) do not have any material adverse effect on the ability of such Sub- sidiary to pay dividends to the Company or otherwise advance cash, directly or indirectly to the Company on terms no less favorable to any such Subsidiary than could be obtained from an unaffiliated third party or (9) any New Indebt- edness that is Permitted Refinancing Indebtedness incurred to Refinance any of the Indebtedness set forth in clauses (4), (5) and (6) above to the extent such encumbrance or restriction in respect of the New Indebtedness is no less favorable to the holders and no more restrictive than such encumbrances or re- strictions contained in the Indebtedness being Refinanced as of the date of such Refinancing and do not extend to or cover any other Person or the prop- erty of any other Person other than the Person in respect of whom such encum- brance or restriction relating to the Indebtedness being Refinanced applied. Section 4.08 Limitations on Transactions with Affiliates. The Company shall not, nor shall the Company permit any of its Subsidiaries to, (a) sell, lease, transfer or otherwise dispose of any of its property or assets to, (b) purchase any property or assets from, (c) make any Investment in, or (d) enter into or amend any contract, agreement or understanding with or for the benefit of, any Affiliate of the Company or of any Subsidiary of the Company (an "Affiliate Transaction"), other than Affiliate Transactions that, in its reasonable judgment are necessary or desirable for the Company or such Subsidiary in the conduct of its business and that (i) a majority of the members of the Board of Directors of the Company reasonably and in good faith determines are in the best interests of the Company or such Subsidiary and (ii) are on terms (which terms are in writing) that are fair and reasonable to the Company or the Subsidiary and that are no less favorable to the Company or such Subsidiary than those that could be obtained in a comparable arm's length transaction by the Company or such Subsidiary from an unaffiliated party, as determined reasonably and in good faith by the Board of Directors of the Com- pany, provided that if the Company or any Subsidiary of the Company enters into an Affiliate Transaction or series of Affiliate Transactions involving or having an aggregate value of more than $10 million such Affiliate Transaction shall, prior to the consummation thereof, have been approved by 41 a majority of the disinterested directors of the Company (or by a majority of the disinterested directors on any committee of directors authorized to con- sider such matter, provided that the delegation of such matter to such commit- tee has been approved by a majority of disinterested directors of the Company) and, provided, further, that with respect to any such transaction or series of related transactions that involve an aggregate value of more than $20 million the Company or such Subsidiary shall, prior to the consummation thereof, ob- tain a favorable opinion as to the fairness to itself of such transaction or series of related transactions from a financial point of view from an Indepen- dent Financial Advisor and file the same with the Trustee. The foregoing re- striction shall not apply to (x) any transaction between Wholly Owned Subsidi- aries of the Company, or between the Company and any Wholly Owned Subsidiary of the Company if such transaction is not otherwise prohibited by the terms of this Indenture and (y) any Restricted Payment made in accordance with Section 4.06. Notwithstanding the foregoing, the term "Affiliate Transaction" shall not include any contract, agreement or understanding with or for the benefit of, or a plan for the benefit of, any or all employees of the Company or its Sub- sidiaries (in their capacity as such) that has been approved by the Company's Board of Directors, a disinterested committee thereof, or a stock issuance to directors pursuant to plans approved by stockholders of the Company. section 4.09 Limitation on Subsidiary Indebtedness and Preferred Stock. The Company shall not permit any Subsidiary to, directly or indirectly, in- cur any Indebtedness or issue any Preferred Stock other than, without duplica- tion: (a) Indebtedness or Preferred Stock issued to and held by the Company or a Wholly Owned Subsidiary of the Company, provided that (i) such Indebtedness is not subordinated to any other Indebtedness of such Subsidiary, and (ii) any subsequent issuance or transfer of Capital Stock of a Wholly Owned Subsidiary of the Company (the "Obligee Subsidiary") to whom a Subsidiary of the Company is indebted (the "Obligor Subsidiary") that results in such Obligee Subsidiary ceasing to be a Wholly Owned Subsidiary of the Company or any subsequent transfer such Indebtedness or Preferred Stock of such Obligor Subsidiary by such Obligee Subsidiary (other than to the Company or another Wholly Owned Subsidiary of the Company) shall be deemed in each case to be the incurrence of such Indebtedness or the issuance of such Preferred Stock by each Obligor Subsidiary owing to or issued to, as the case may be, such Obligee Subsidiary to the extent outstanding as of such date; (b) Indebtedness or Preferred Stock of a Subsidiary of the Company which represents the assumption by such Subsid- iary of Indebtedness or Preferred Stock of 42 another Subsidiary of the Company in connection with a merger of such Subsidi- aries; (c) Indebtedness or Preferred Stock of any Person (other than a Person that has acquired, directly or indirectly, assets from the Company other than in the ordinary course of business) existing at the time such Person becomes a Subsidiary of the Company, provided that (i) such Indebtedness or Preferred Stock was not incurred or issued as a result of or in connection with or in anticipation of such Person becoming a Subsidiary of the Company, (ii) immedi- ately after giving effect to such Person becoming a Subsidiary of the Company (as if such Indebtedness and Preferred Stock were incurred and issued on the first day of the Reference Period) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under clause (a) of Section 4.05 (assuming a market rate of interest with respect thereto), and (iii) the total of the aggregate principal amount of Indebtedness and the aggregate liq- uidation value of Preferred Stock of such Person outstanding on the date it becomes a Subsidiary of the Company, plus the total of the aggregate principal amount of Indebtedness and the aggregate liquidation value of Preferred Stock of such other Persons incurred under this clause (c) (but only to the extent such debt or Preferred Stock remains outstanding on the date of determina- tion), does not exceed 10% of the Consolidated Net Worth of the Company; (d) Indebtedness and Preferred Stock of any Subsidiary of the Company, provided that (i) immediately after giving effect thereto (as if the incurrence or is- suance thereof occurred on the first day of the Reference Period) the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebted- ness) under clause (a) of Section 4.05 (assuming a market rate of interest with respect thereto), and (ii) the total of the aggregate principal amount of the Indebtedness and the aggregate liquidation value of Preferred Stock pro- posed to be issued and incurred by such Subsidiary plus the total of the ag- gregate principal amount of Indebtedness and the aggregate liquidation value of Preferred Stock incurred and issued by all Subsidiaries of the Company un- der this clause (d) does not exceed, when added to Indebtedness of the Company incurred under clause (f) of the definition of "Permitted Indebtedness," 10% of Consolidated Net Worth; (e) Permitted Indebtedness incurred by any Subsidi- ary of the Company under clauses (a) and (g) of the definition of "Permitted Indebtedness"; (f) Indebtedness or Preferred Stock that is Permitted Refinanc- ing Indebtedness incurred or issued to Refinance any Indebtedness or Preferred Stock incurred or issued by a Subsidiary of the Company prior to the Issue Date or in accordance with this Indenture; or (g) Indebtedness of the Company's non-U.S. Subsidiaries under any working cap- 43 ital or other revolving credit facility in an aggregate amount not to exceed $5 million at any one time. Section 4.10 Limitation on Sale of Assets. The Company will not, and will not permit any of its Subsidiaries to, consum- mate any Asset Sale unless such Asset Sale is for at least Fair Market Value and at least 80% of the consideration therefrom received by the Company or such Subsidiary is in the form of cash or Cash Equivalents. Following any Asset Sale, an amount equal to the Net Cash Proceeds of such Asset Sale shall be applied by the Company or such Subsidiary within 365 days of the date of the Asset Sale, at its election, to either: (a) the payment of Pari Passu Indebtedness with an equal and concurrent reduction in the commit- ment related to such Pari Passu Indebtedness, if applicable, provided any Net Cash Proceeds which are applied on such pro rata basis to reduce Indebtedness under the Revolving Credit Agreement shall result in a permanent reduction of the borrowing availability thereunder; (b) make any Permitted Program Invest- ment or any other investment in capital assets usable in the Company's or its Subsidiaries' lines of business or in an asset or business in the same line of business as the Company; or (c) a combination of payment and investment per- mitted by the foregoing clauses (a) and (b). On the earlier of (A) the 366th day after the date of an Asset Sale or (B) such date as the Board of Directors of the Company or of such Subsidiary determines (as evidenced by a written resolution of said Board of Directors) not to apply an amount equal to the Net Cash Proceeds relating to such Asset Sale as set forth in the immediately pre- ceding sentence (each of (A) and (B), an "Asset Sale Offer Trigger Date"), the Company or such Subsidiary shall be obligated to apply an amount equal to ag- gregate amount of Net Cash Proceeds which have not been applied on or before such Asset Sale Offer Trigger Date as permitted by the foregoing clauses (a), (b) and (c) of the immediately preceding sentence (each an "Asset Sale Offer Amount") to make an offer to purchase for cash (the "Asset Sale Offer") from all holders of Senior Notes on a pro rata basis that amount of Senior Notes equal to the Asset Sale Offer Amount at a price equal to 100% of the principal amount of the Senior Notes to be repurchased, plus accrued and unpaid interest thereon to the date of repurchase. Notwithstanding the foregoing, if an Asset Sale Offer Amount is less than $10 million, the application of such Asset Sale Offer Amount to an Asset Sale Offer may be deferred until such time as such Asset Sale Offer Amount plus the aggregate amount of all Asset Sale Offer Amounts arising subsequent to such Asset Sale 44 Offer Trigger Date from all Asset Sales by the Company and its Subsidiaries aggregates at least $10 million, at which time the Company or such Subsidiary shall apply all Asset Sale Offer Amounts that have been so deferred to make an Asset Sale Offer (the first date the aggregate of all such deferred Asset Sale Offer Amounts is equal to $10 million or more shall be deemed to be an "Asset Sale Offer Trigger Date"). In the event of the transfer of substantially all (but not all) of the prop- erty and assets of the Company as an entirety to a Person in a transaction permitted under Section 5.01, the successor corporation shall be deemed to have sold the properties and assets of the Company not so transferred for pur- poses of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. Each Asset Sale Offer shall be mailed to the holders of the Senior Notes at the addresses shown on the register of holders maintained by the Registrar with a copy to the Trustee and the Paying Agent, within 10 days following the applicable Asset Sale Offer Trigger Date, and shall comply with each of the procedures for notice set forth below. Each Asset Sale Offer shall remain open until a specified date (the "Asset Sale Offer Termination Date") which is at least 20 Business Days from the date such Asset Sale Offer is mailed. During the period specified in the Asset Sale Offer, holders of Senior Notes may elect to tender their Senior Notes in whole or in part in integral multiples of $1,000 in exchange for cash. Payment shall be made by the Company (or ap- plicable Subsidiary) in respect of Senior Notes properly tendered pursuant to this Section on a specified Business Day (the "Asset Sale Offer Payment Date") which shall be no earlier than three Business Days after the Asset Sale Offer Termination Date and no later then 60 days after such applicable Asset Sale Offer Trigger Date. To the extent holders of Senior Notes properly tender Se- nior Notes in an amount exceeding the Asset Sale Offer Amount, Senior Notes of tendering holders will be repurchased on a pro rata basis (based on amounts tendered). The notice, which shall govern the terms of the Asset Sale Offer, shall in- clude such disclosures as are required by law and shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 4.10; (b) the purchase price (including the amount of the accrued interest, if any) for each Senior Note, the Asset Sale Offer Termination Date and the Asset Sale Offer Payment Date; 45 (c) that any Senior Note not tendered or accepted for payment will con- tinue to accrue interest in accordance with the terms thereof; (d) that, unless the Company defaults on making the payment, any Senior Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Asset Sale Offer Payment Date; (e) that holders electing to have Senior Notes purchased pursuant to an Asset Sale Offer will be required to surrender their Senior Notes to the Paying Agent at the address specified in the notice prior to 5:00 p.m., New York City time, on the Asset Sale Offer Termination Date and must com- plete any form letter of transmittal proposed by the Company and accept- able to the Trustee and the Paying Agent; (f) that holders of Senior Notes will be entitled to withdraw their election if the Paying Agent receives, not later than 5:00 p.m., New York City time, on the Asset Sale Offer Termination Date, a tested telex, fac- simile transmission or letter setting forth the name of the holder, the principal amount of Senior Notes the holder delivered for purchase, the Senior Note certificate number (if any) and a statement that such holder is withdrawing his election to have such Senior Notes purchased; (g) that if Senior Notes in a principal amount in excess of the Asset Sale Offer Amount are tendered pursuant to the Asset Sale Offer, the Com- pany shall purchase Senior Notes on a pro rata basis among the Senior Notes tendered (with such adjustments as may be deemed appropriate by the Company so that only Senior Notes in denominations of $1,000 or integral multiples of $1,000 shall be acquired); (h) that holders whose Senior Notes are purchased only in part will be issued new Senior Notes equal in principal amount to the unpurchased por- tion of the Senior Notes surrendered; and (i) the instructions that holders must follow in order to tender their Senior Notes. On the Asset Sale Offer Termination Date, the Company shall (i) accept for payment Senior Notes or portions thereof tendered pursuant to the Asset Sale Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Senior Notes or portions thereof so tendered and accepted and (iii) deliver to the Trustee the Senior Notes so accepted together with an Of- ficers' Certificate setting forth the Senior Notes or portions thereof ten- dered to and accepted for payment by the Company. On the Asset Sale Offer Pay- ment Date, the Paying Agent shall mail or deliver to the holders of Senior Notes so accepted payment in an amount equal to the purchase price, and the Trustee 46 shall promptly authenticate and mail or deliver to such holders a new Senior Note equal in principal amount to any unpurchased portion of the Senior Note surrendered. Any Senior Notes not so accepted shall be promptly mailed or de- livered by the Company to the holder thereof. If an offer is made to repurchase the Senior Notes pursuant to an Asset Sale Offer, the Company will and will cause its Subsidiaries to comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 4.10, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.10 by virtue thereof. Section 4.11 Limitation on Liens. The Company may not, and may not permit any of its Subsidiaries to, volun- tarily or involuntarily, create, incur or assume any Liens upon any of their respective properties or assets whether owned on the Issue Date or acquired thereafter, or on any income or profits therefrom, or assign or otherwise con- vey any right to receive income or profits thereon, securing any Indebtedness of the Company or of any of its Subsidiaries other than, without duplication (a) Liens granted by the Company securing Indebtedness of the Company that is incurred in accordance with this Indenture and that is Pari Passu Indebted- ness, provided that the Senior Notes are secured on an equal and ratable basis to such Liens, (b) Liens granted by the Company securing Indebtedness of the Company incurred in accordance with this Indenture and that is subordinated to the Senior Notes, provided that the Senior Notes are secured by Liens ranking prior to such Liens, (c) Liens existing on the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date, (d) Permitted Liens, (e) Liens relating to other Indebtedness and Sale-Leaseback Financings in an aggregate amount not to exceed at any one time 10% of the Company's Consoli- dated Net Worth, (f) Liens in respect of Acquired Indebtedness incurred by the Company in accordance with Section 4.05 and in respect of Acquired Indebted- ness incurred by a Subsidiary of the Company in accordance with clause (d) of Section 4.09, provided that the Lien in respect of such Acquired Indebtedness secured such Acquired Indebtedness at the time of the incurrence of such Ac- quired Indebtedness by the Company or by 47 one of its Subsidiaries and such Lien and the Acquired Indebtedness were not incurred by the Company or any of its Subsidiaries or by the Person being ac- quired or from whom the assets are proposed to be acquired in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or by one of its Subsidiaries and, provided further, that such Liens do not extend to or cover any property or assets of the Company or of any of its Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or of one of its Subsidiaries, (g) Liens granted by a corpora- tion, which Liens are in existence at the time such corporation becomes a Sub- sidiary of the Company, provided that such Liens were not created by such cor- poration in connection with or in anticipation of such corporation becoming a Subsidiary of the Company, and provided further that such Liens do not extend to or cover any property or assets of the Company or any of its Subsidiaries other than the property or assets of such acquired corporation prior to the time it became a Subsidiary of the Company and (h) Liens in respect of New In- debtedness that is Permitted Refinancing Indebtedness incurred to Refinance any of the Indebtedness set forth in clauses (a), (b), (c), (e), (f) and (g) above, provided that such Liens in respect of such New Indebtedness are no less favorable to the holders of Senior Notes than the Liens in respect of the Indebtedness being Refinanced and such Liens in respect of New Indebtedness do not extend to or cover any properties or assets of the Company or of any of the Company's Subsidiaries other than the property or assets that secured the Indebtedness being Refinanced. Section 4.12 Continued Existence. Subject to Article 5, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate exist- ence. Section 4.13 Taxes. The Company shall pay prior to delinquency all taxes, assessments and gov- ernmental levies, except as contested in good faith and by appropriate pro- ceedings or where the failure to do so (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries, taken as a whole. 48 Section 4.14 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the Company's obligation to pay the Senior Notes; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law insofar as such law applies to the Senior Notes, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execu- tion of every such power as though no such law has been enacted. Section 4.15 Investment Company Act. The Company, as of the Issue Date, is not and shall not become an investment company subject to registration under the Investment Company Act of 1940, as amended. Section 4.16 Change of Control. Following a Change of Control (the date of each such occurrence being the "Change of Control Date"), the Company shall notify the holders of Senior Notes in writing of such occurrence and shall make an offer (the "Change of Control Offer") to purchase all Senior Notes then outstanding at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the "Change of Control Offer Payment Date" (as defined below). Notice of a Change of Control shall be mailed by or at the direction of the Company to the holders of Senior Notes as shown on the register of such hold- ers maintained by the Registrar not less than 15 days nor more than 30 days after the applicable Change of Control Date at the addresses as shown on the register of holders maintained by the Registrar, with a copy to the Trustee and the Paying Agent. The Change of Control Offer shall remain open until a specified date (the "Change of Control Offer Termination Date") which is at least 20 Business Days from the date such notice is mailed. During the period specified in such notice, holders of Senior Notes may elect to tender their Senior Notes in whole or in part in integral multiples of $1,000 in exchange for cash. Payment shall be made by the Company in respect of Senior 49 Notes properly tendered pursuant to this Section on a specified Business Day (the "Change of Control Offer Payment Date") which shall be no earlier than 3 Business Days after the applicable Change of Control Offer Termination Date and no later than 60 days after the applicable Change of Control Date. The notice, which shall govern the terms of the Change of Control Offer, shall include such disclosures as are required by law and shall state: (a) that a Change of Control Offer is being made pursuant to this Sec- tion 4.16 and that all Senior Notes will be accepted for payment; (b) the purchase price (including the amount of accrued interest, if any) for each Senior Note, the Change of Control Offer Termination Date and the Change of Control Offer Payment Date; (c) that any Senior Note not accepted for payment will continue to ac- crue interest in accordance with the terms thereof; (d) that, unless the Company defaults on making the payment, any Senior Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Offer Payment Date; (e) that holders electing to have Senior Notes purchased pursuant to a Change of Control Offer will be required to surrender their Senior Notes to the Paying Agent at the address specified in the notice prior to 5:00 p.m., New York City time, on the Change of Control Offer Termination Date and must complete any form letter of transmittal proposed by the Company and acceptable to the Trustee and the Paying Agent; (f) that holders of Senior Notes will be entitled to withdraw their election if the Paying Agent receives, not later than 5:00 p.m., New York City time, on the Change of Control Offer Termination Date, a tested tel- ex, facsimile transmission or letter setting forth the name of the holder, the principal amount of Senior Notes the holder delivered for purchase, the Senior Note certificate number (if any) and a statement that such holder is withdrawing his election to have such Senior Notes purchased; (g) that holders whose Senior Notes are purchased only in part will be issued Senior Notes equal in principal amount to the unpurchased portion of the Senior Notes surrendered; (h) the instructions that holders must follow in order to tender their Senior Notes; and (i) the circumstances and relevant facts regarding such Change of Con- trol (including, but not limited to, information with respect to pro 50 forma historical financial information after giving effect to such Change of Control, information regarding the Persons acquiring control and such Persons' business plans going forward). On the Change of Control Offer Payment Date, the Company shall (i) accept for payment Senior Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Senior Notes or portions thereof so tendered and ac- cepted and (iii) deliver to the Trustee the Senior Notes so accepted together with an Officers' Certificate setting forth the Senior Notes or portions thereof tendered to and accepted for payment by the Company. On the Change of Control Offer Payment Date, the Paying Agent shall mail or deliver to the holders of Senior Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or deliver to such holders a new Senior Note equal in principal amount to any unpurchased portion of the Senior Note surrendered. Any Senior Notes not so accepted shall be promptly mailed or delivered by the Company to the holder thereof. In addition, in the event of any Change of Control, the Company shall not, and shall not permit any of its Subsidiaries to, purchase, redeem or otherwise acquire any Indebtedness subordinated or junior to the Senior Notes pursuant to any analogous provision relating to such Indebtedness on or prior to the payment in full in cash or Cash Equivalents of all Senior Notes, together with accrued and unpaid interest thereon with respect to which the Change of Con- trol Offer was accepted. If an offer is made to redeem Senior Notes as a result of a Change of Con- trol, the Company will be required to comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applica- ble to such offer. Section 4.17 Limitation on Sale and Leaseback Transactions. The Company will not, and will not permit any of its Subsidiaries to, enter into any sale and leaseback transaction, provided that the Company (and not a Subsidiary of the Company) may enter into such a sale and leaseback transac- tion if (a) with respect to any such transaction involving the incurrence of Capitalized Lease Obligations, the Company could have (i) incurred Indebted- ness in an amount equal to the debt relating to such sale and leaseback 51 transaction pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in Section 4.05 and (ii) incurred a Lien to secure such Indebtedness pursuant to Section 4.11, (b) the proceeds of such sale and leaseback transac- tion are at least equal to the Fair Market Value of the property that is sub- ject of such sale and leaseback transaction and (c) the Company shall apply or cause to be applied the proceeds of such transaction in compliance with Sec- tion 4.10. Section 4.18 Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 7.08, a Trustee, so that there shall at all times be a Trustee hereunder. Section 4.19 Further Instruments and Acts. Upon request of the Trustee, the Company will execute and deliver such fur- ther instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE 5 Successors Section 5.01 When the Company May Merge, Etc. The Company will not, in a single transaction or series of related transac- tions, consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any Person or adopt a Plan of Liquidation unless: (a) either (i) the Company shall be the surviving or continuing corpora- tion or (ii) the Person (if other than the Company) formed by such consol- idation or into which the Company is merged or the Person which acquires by conveyance, transfer or lease the properties and assets of the Company substantially as an entirety or in the case of a Plan of Liquidation, the Person to which all or substantially all of the assets of the Company have been transferred (1) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (2) shall expressly assume, by supplemental indenture, ex- ecuted and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of 52 the Senior Notes and the performance of every covenant of the Senior Notes and this Indenture on the part of the Company to be performed or observed; (b) immediately after giving effect to such transaction and any assump- tion contemplated by clause (2) above (including giving effect to any In- debtedness and Acquired Indebtedness incurred or anticipated to be in- curred in connection with or in respect of such transaction), the Company (in the case of clause (i) of the foregoing clause (a)) or such Person (in the case of clause (ii) thereof) (i) shall have a Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments relating to such transaction) equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transac- tion and (ii) shall be able to incur (assuming a market rate of interest with respect thereto) at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 4.05, provided that in deter- mining the "Consolidated Fixed Charge Coverage Ratio" of the resulting, transferee or surviving Person, such ratio shall be calculated as if the transaction (including the incurrence of any Indebtedness or Acquired In- debtedness) occurred on the first day of the Reference Period; (c) immediately before and after giving effect to such transaction and the assumption contemplated by clause (a)(ii)(2) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred in connec- tion with or in respect of the transaction) no Default or Event of Default shall have occurred and be continuing; (d) the Company or such Person shall have delivered to the Trustee (i) an Officers' Certificate and an Opinion of Counsel (which may be in-house counsel of the Company), each stating that such consolidation, merger, sale, assignment, conveyance, transfer or lease or Plan of Liquidation and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with the provisions of this Indenture and that all conditions precedent in this Indenture relat- ing to such transaction have been satisfied and (ii) a certification from the Company's independent certified public accountants stating that the Company has made the calculations required by clause (b) above in accor- dance with the terms of this Indenture; and (e) neither the Company nor any Subsidiary of the Company nor such Per- son, as the case may be, would thereupon become obligated with respect to any Indebtedness (including Acquired Indebtedness), nor any of its prop- erty or assets subject to any Lien, unless the Company or such Subsidiary or such Person, as the case may be, could incur such Indebtedness (includ- ing Acquired Indebtedness) or create such Lien under this 53 Indenture (giving effect to such Person being bound by all the terms of this Indenture). For purposes of Section 5.01, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or sub- stantially all of the properties or assets of one or more Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. section 5.02 Successor Corporation Substituted. Upon any such consolidation, merger, sale, assignment, conveyance, lease or transfer in accordance with Section 5.01, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made will succeed to, and be substituted for, and may ex- ercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company therein, and thereafter (except in the case of a sale, assignment, transfer, lease, convey- ance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under this Indenture and the Senior Notes. section 5.03 Purchase Option on Change of Control. This Article 5 does not affect the obligations of the Company (including without limitation any successor to the Company) under Section 4.16. ARTICLE 6 Defaults and Remedies section 6.01 Events of Default. An "Event of Default" with respect to any Senior Notes occurs if: (a) the Company defaults in the payment of principal of, or premium, if any, on the Senior Notes when due at maturity, upon repurchase, upon ac- celeration or otherwise, including, without limitation, failure of the Company to repurchase the Senior Notes on the date required pursuant to Section 4.10 or 4.16 or failure to make any optional redemption payment when due; or 54 (b) the Company defaults in the payment of any installment of interest on the Senior Notes when due (including any interest payable in connection with any optional redemption payment) and continuance of such default for more than 30 days; or (c) The Company fails to observe, perform or comply with any of the pro- visions described under Sections 4.05, 4.06, 4.09, 4.10, 4.16 and 5.01 and the failure to remedy such failure prior to the receipt of written notice from the Trustee by the holders of at least 25% in aggregate principal amount of the outstanding Senior Notes; or (d) the Company defaults (other than a default set forth in Section 6.01, clauses (a), (b) and (c) above) in the performance of, or breach of, any other covenant or warranty of the Company in this Indenture or the Se- nior Notes and fails to remedy such default or breach within a period of 60 days after the receipt of written notice from the Trustee or the hold- ers of at least 25% in aggregate principal amount of the then outstanding Senior Notes; or (e) the Company fails to pay at maturity or a default in the obligation to pay when due the principal of, interest on (but only to the extent any such failure to pay interest is not fully cured prior to the expiration of the grace period provided in such Indebtedness on the date such interest payment was initially due), or any other payment obligation on any other Indebtedness (other than the Senior Notes) of the Company or of any Sub- sidiary of the Company, whether such Indebtedness exists on the Issue Date or shall be incurred thereafter, having, individually or in the aggregate, an outstanding principal amount of $15,000,000 or more or (ii) any other Indebtedness (other than the Senior Notes) of the Company or of any Sub- sidiary of the Company, whether such Indebtedness exists on the Issue Date or shall be incurred thereafter, having, individually or in the aggregate, an outstanding principal amount of $15,000,000 or more, is declared due and payable prior to its stated maturity; or (f) a court of competent jurisdiction enters one or more judgments or orders against the Company or any Subsidiary of the Company or any of their respective property or assets in an aggregate amount in excess of $15,000,000 and that are not covered by insurance written by third par- ties, which judgments or orders have not been vacated, discharged, satis- fied or stayed pending appeal within 60 days from the entry thereof; or (g) the Company or any Material Subsidiary, pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, 55 (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors; or (h) a court of competent jurisdiction enters a judgment, order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Material Subsidiary in an involuntary case, (B) appoints a Custodian of the Company or any Material Subsidiary for all or substantially all of its property, or (C) orders the liquidation of the Company or any Material Subsidi- ary, and the order or decree remains unstayed and in effect for 60 days. The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiv- er, trustee, assignee, liquidator or similar official under any Bankruptcy Law. Section 6.02 Acceleration. If an Event of Default (other than an Event of Default specified in clauses (g) and (h) of Section 6.01) occurs and is continuing, then and in every such case the Trustee, by written notice to the Company, or the holders of at least 25% in aggregate principal amount of the then outstanding Senior Notes, by written notice to the Company and the Trustee, may declare the unpaid princi- pal of and accrued interest on all the Senior Notes to be due and payable. Upon such declaration such principal amount, premium, if any, and accrued and unpaid interest shall be immediately due and payable notwithstanding anything contained in this Indenture or the Senior Notes to the contrary. If an Event of Default with respect to the Company specified in clauses (g) or (h) of Sec- tion 6.01 occurs, all unpaid principal of, and premium, if any, and accrued and unpaid interest or, Senior Notes then outstanding shall automatically be- come and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of Senior Notes. The holders of a majority in principal amount of the then outstanding Senior Notes by notice to the Trustee may rescind an acceleration and its conse- quences if all existing Events of Default, other than the nonpayment of prin- cipal and premium, if any, and interest on the Senior Notes which has 56 become due solely by virtue of such acceleration have been cured or waived and if the rescission would not conflict with any judgment or decree of any court of competent jurisdiction. No such rescission shall affect any subsequent De- fault or impair any right consequent thereto. Section 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Senior Notes or to enforce the performance of any provision of the Senior Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Senior Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any holder of a Senior Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04 Waiver of Past Defaults. The holders of a majority in aggregate principal amount of the Senior Notes then outstanding may, on behalf of the holders of all the Senior Notes, waive an existing Default or Event of Default and its consequences, except Default or Event of Default in the payment of the principal of or interest on the Se- nior Notes (other than nonpayment of principal of and premium, if any, or in- terest on the Senior Notes which has become due solely by virtue of an accel- eration which has been duly rescinded, as provided above), or in respect of a covenant or provision of this Indenture which cannot be modified or amended without the consent of all holders of Senior Notes. When a Default is waived, it is cured and stops continuing. No waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05 Control by Majority. The holders of a majority in principal amount of the then outstanding Senior Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudi- cial to the rights of other holders of Senior Notes or that may 57 involve the Trustee in personal liability; provided that the Trustee may take any other action the Trustee deems proper that is not inconsistent with such directions. Section 6.06 Limitation on Suits. A holder of a Senior Note may not pursue any remedy with respect to this In- denture or the Senior Notes unless: (a) the holder gives to the Trustee notice of a continuing Event of De- fault; (b) the holders of at least 25% in principal amount of the then out- standing Senior Notes make a request to the Trustee to pursue the remedy; (c) such holder or holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the holders of a majority in principal amount of the then outstanding Senior Notes do not give the Trustee a di- rection inconsistent with the request. A holder of a Senior Note may not use this Indenture to prejudice the rights of another holder or to obtain a preference or priority over another holder. Section 6.07 Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any holder of a Senior Note to receive payment of principal and interest on the Senior Note, on or after the respective due dates expressed in the Senior Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the holder of a Senior Note. Section 6.08 Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee 58 of an express trust against the Company for the whole amount of principal and interest remaining unpaid on the Senior Notes and interest on overdue princi- pal and interest and such further amount as shall be sufficient to cover the costs and, to the extent lawful, expenses of collection, including the reason- able compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the holders of Senior Notes allowed in any judicial proceedings relative to the Company, its creditors or its property. Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any holder of a Senior Note any plan of reorganization, arrange- ment, adjustment or composition affecting the Senior Notes or the rights of any holder thereof, or to authorize the Trustee to vote in respect of the claim of any holder in any such proceeding. Section 6.10 Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.07, including payment of all compensation, expenses and liabilities incurred, and all advances made, by the Trustee, and the costs and expenses of collection; Second: to holders of Senior Notes for amounts due and unpaid on the Senior Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Senior Notes for principal and interest, respectively; and Third: to the Company. Except as otherwise provided in Section 2.12, the Trustee may fix a record date and payment date for any payment to holders of Senior Notes. Section 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party liti- gant 59 in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Sec- tion does not apply to a suit by the Trustee, a suit by a holder pursuant to Section 6.07 or a suit by holders of more than 10% in principal amount of the then outstanding Senior Notes. ARTICLE 7 The Trustee The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. Section 7.01 Duties of the Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own af- fairs. (b) Except during the continuance of an Event of Default: (i) The duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those du- ties that are specifically set forth in this Indenture and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) In the absence of bad faith on its part, the Trustee may conclu- sively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent ac- tion, its own negligent failure to act or its own willful misconduct, except that: (i) This paragraph does not limit the effect of paragraph (b) of this Section; 60 (ii) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction re- ceived by it pursuant to Section 6.05. (d) Whether or not therein expressly so provided, every provision of this Indenture that is in any way related to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfac- tory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. section 7.02 Rights of the Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not in- vestigate any fact or matter stated in such a document. (b) Before the Trustee acts or refrains from acting, it may require an Offi- cers' Certificate, an Opinion of Counsel or both. The Trustee shall not be li- able for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in re- liance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent ap- pointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or pow- ers. 61 (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by Officers of the Company. (f) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. section 7.03 Individual Rights of the Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Senior Notes and may otherwise deal with the Company or an Affili- ate with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. section 7.04 Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Senior Notes, it shall not be accountable for the Company's use of the proceeds from the Senior Notes or any money paid to the Company or upon the Company's direction under any provi- sion of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Senior Notes or any other document in connection with the sale of the Senior Notes or pursuant to this Indenture other than its certificate of authentica- tion. Section 7.05 Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each holder of a Senior Note a no- tice of the Default or Event of Default within 60 days after it occurs. A De- fault or an Event of Default shall not be considered known to the Trustee un- less it is a Default or Event of Default in the payment of principal or inter- est when due under Section 6.01(a) or (b) or the Trustee shall have received notice thereof, in accordance with this Indenture, from the Company or from the holders of a majority in principal amount of the outstanding Senior Notes. Except in the case of a Default or Event of Default in payment of principal or interest on any Senior Note, the Trustee may withhold the notice if and so 62 long as a committee of its Trust Officers in good faith determines that with- holding the notice is in the interest of the holders of Senior Notes. Section 7.06 Reports by the Trustee to Holders. Within 60 days after the reporting date stated in Section 10.10, the Trustee shall mail to holders of Senior Notes a brief report dated as of such report- ing date that complies with TIA () 313(a) (but if no event described in TIA () 313(a) has occurred within twelve months preceding the reporting date, no re- port need be transmitted). The Trustee also shall comply with TIA () 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA () 313(c). A copy of each report at the time of its mailing to holders of Senior Notes shall be filed with the Commission and each stock exchange, if any, on which the Senior Notes are listed. The Company shall notify the Trustee when the Se- nior Notes are listed on any stock exchange. Section 7.07 Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensa- tion for its acceptance of this Indenture and its services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses may include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any loss, liability or ex- pense incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in the next paragraph. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim with counsel designated by the Company, who may be outside counsel to the Company but shall in all events be reasonably satisfactory to the Trustee, and the Trustee shall cooperate in the defense. In addition, the Trustee may retain one separate counsel and, if deemed advisable by such coun- sel, local counsel, and the Company shall pay the reasonable fees and 63 expenses of such separate counsel and local counsel. The indemnification herein extends to any settlement, provided that the Company will not be liable for any settlement made without its consent, provided, further, that such con- sent will not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or bad faith. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Senior Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on Senior Notes. Such Liens shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of De- fault specified in Section 6.01(g) or (h) occurs, the expenses and the compen- sation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bank- ruptcy Law. Section 7.08 Replacement of the Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign at any time and be discharged from the trust hereby created by so notifying the Company. The holders of a majority in principal amount of the then outstanding Senior Notes may remove the Trustee by so noti- fying the Trustee and the Company. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. 64 If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trust- ee. Within one year after the successor Trustee takes office, the holders of a majority in principal amount of the then outstanding Senior Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retir- ing Trustee resigns or is removed, the retiring Trustee, the Company or the holders of at least 10% in principal amount of the then outstanding Senior Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee after written request by any holder of a Senior Note who has been a holder for at least six months fails to comply with Section 7.10, such holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Inden- ture. The successor Trustee shall mail a notice of its succession to holders of Senior Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided that all sums owing to the retiring Trustee hereunder have been paid and subject to the lien pro- vided for in Section 7.07. Notwithstanding the replacement of the Trustee pur- suant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. Section 7.09 Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corpo- ration or national banking association without any further act shall be the successor Trustee. 65 Section 7.10 Eligibility, Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA () 310(a)(1). The Trustee shall always have a combined capital and surplus as stated in Section 10.10. The Trustee is subject to TIA () 310(b) regarding the disqualification of a trustee upon acquiring a conflicting interest. Section 7.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA () 311(a), excluding any creditor rela- tionship set forth in TIA () 311(b). A Trustee who has resigned or been re- moved shall be subject to TIA () 311(a) to the extent indicated therein. ARTICLE 8 Satisfaction and Discharge of Indenture Section 8.01 Termination of Company's Obligations. (i) This Indenture shall cease to be of further effect (except that the Company's obligations under Section 7.07 and 8.03 shall survive) when all out- standing Senior Notes theretofore authenticated and issued have been delivered (other than destroyed, lost or stolen Senior Notes that have been replaced or paid) to the Trustee for cancellation and the Company has paid all sums pay- able hereunder. In addition, the Company may terminate its obligations under this Indenture (except the Company's obligations under Sections 7.07 and 8.03) if, under terms satisfactory to the Trustee: (a) the Senior Notes have either become due and payable or are by their terms due and payable within one year (or scheduled for redemption within one year); and (b) the Company irrevocably deposits in trust with the Trustee money or United States Government Obliga- tions (defined below in this Section 8.01), or a combination thereof, suffi- cient, without consideration of the reinvestment of interest in the opinion of the chief financial officer of the Company expressed in a written certificate delivered to the Trustee, to pay principal and interest on the Senior Notes to maturity or upon redemption, as the case may be. The Company may make the de- posit only during the one year period. However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 4.01, 4.04, 7.07, 7.08, 8.03 and 8.04 shall survive until the Senior Notes are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.07 and 8.03 shall survive. 66 After a deposit made pursuant to this Section 8.01, the Trustee upon request of the Company shall acknowledge in writing the discharge of the Company's ob- ligations under this Indenture except for those surviving obligations speci- fied above. In addition, the Company may elect to have either clause (ii) or clause (iii) below be applied to the outstanding Senior Notes upon compliance with the conditions set forth in clause (iv) below. (ii) Upon the Company's exercise under the last sentence of paragraph (i) above of the option applicable to this paragraph (ii), the Company shall be deemed to have been released and discharged from its obligations with respect to the outstanding Senior Notes on the date the conditions set forth below are satisfied ("legal defeasance"). For this purpose, legal defeasance means that the Company shall be deemed to have paid and discharged the entire Indebted- ness represented by the outstanding Senior Notes, which shall thereafter be deemed to be "outstanding" only for the purpose of the Sections of and matters under this Indenture referred to in subclauses (A), (B), (C) and (D) of this clause (ii), and to have satisfied all its other obligations under such Senior Notes and this Indenture insofar as such Senior Notes are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments ac- knowledging the same), except for the following, which shall survive until otherwise terminated or discharged hereunder: (A) the rights of holders of outstanding Senior Notes to receive solely from the trust fund described in clause (iv) below and as more fully set forth in such clause, payments in re- spect of the principal of, and premium, if any, and interest on such Senior Notes when such payments are due, (B) the Company's obligations with respect to such Senior Notes when such payments are due, (C) the Company's obligations with respect to such Senior Notes under Sections 2.03, 2.05, 2.06, 2.07 and 4.04, and, with respect to the Trustee, under Section 7.07, (D) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (E) this Section 8.01 and Sections 8.03 and 8.04. Subject to compliance with this Sec- tion 8.01, the Company may exercise its option under this clause (ii) notwith- standing the prior exercise of its option under paragraph (iii) below with re- spect to the Senior Notes. (iii) Upon the Company's exercise under the last sentence of clause (i) of the option applicable to this clause (iii), the Company shall be released and discharged from its obligations under any covenant contained in Article 4 (ex- cept for Sections 4.01 and 4.04) and Article 5 with respect to the outstand- 67 ing Senior Notes on and after the date the conditions set forth below are sat- isfied ("covenant defeasance"), and the Senior Notes shall thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, con- sent or declaration or act of holders of Senior Notes (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the outstanding Senior Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether di- rectly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other pro- vision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 but, except as specified above, the remainder of this Indenture (including without limitation obligations set forth in Sections 8.03 and 8.04 hereof) and such Senior Notes shall be unaffected thereby. (iv) The following shall be the conditions to the application of either clause (ii) or (iii) above to the outstanding Senior Notes: (a) the Company has irrevocably deposited in trust with the Trustee or, at the option of the Trustee, with a trustee, satisfactory to the Trustee and the Company, under terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, cash in United States dollars, United States Government Obligations, or a combination thereof, suffi- cient, without consideration of the reinvestment of interest, in the opin- ion of the chief financial officer of the Company expressed in a written certificate delivered to the Trustee, to pay at maturity principal and in- terest on the Senior Notes; provided that (i) the trustee of the irrevoca- ble trust shall have been irrevocably instructed to pay such money or the proceeds of such United States Government Obligations to the Trustee and (ii) the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such United States Government Obligations to the payment of said principal and interest with respect to the Senior Notes; (b) in the case of an election under clause (ii) above, the Company shall have delivered to the Trustee an Opinion of Counsel from nationally recognized counsel reasonably acceptable to the Trustee stating that (x) the Company has received from, or there has been published by, the Inter- nal Revenue Service a ruling or (y) since the date of this Indenture, there has been a change in the applicable federal income tax law, in ei- ther case to the effect that the holders of the outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result 68 of such legal defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same time as would have been the case if such legal defeasance had not occurred; (c) in the case of an election under clause (iii) above, the Company shall have delivered to the Trustee an Opinion of Counsel from nationally recognized counsel reasonably acceptable to the Trustee (i) to the effect that the holders of the outstanding Senior Notes will not recognize in- come, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same time as would have been the case if such covenant defeasance had not occurred or (ii) that the Company has received from, or there has been published by, the Internal Revenue Service a ruling to the foregoing effect. (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (e) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default or Event of Default under any material agreement or instrument to which the Company or any of its subsidiaries is bound; (f) The Company shall deliver to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolven- cy, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certif- icate stating that the deposit was not made by the Company with the intent of preferring the holders over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (h) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that all conditions precedent provided for relating to the legal defeasance under clause (ii) above or the cove- nant defeasance under clause (iii) above, as the case may be, have been complied with. After such irrevocable deposit made pursuant to this Section 8.01 (and sat- isfaction of the other conditions set forth herein), the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified above. As used herein, "United States Government Obligations" means obligations for which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. 69 Section 8.02 Application of Trust Money. The Trustee shall hold in trust money or United States Government Obliga- tions deposited with it pursuant to Section 8.01. It shall apply the deposited money and the money from United States Government Obligations through the Pay- ing Agent and in accordance with this Indenture to the payment of principal and interest on the Senior Notes. Section 8.03 Repayment to Company. The Trustee and the Paying Agent shall promptly pay to the Company upon re- quest any excess money or securities held by them at any time. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains un- claimed for two years after the date upon which such payment shall have become due; provided, however, that the Company shall have first caused notice of such payment to the Company to be mailed to each holder entitled thereto no less than 30 days prior to such payment. After payment to the Company, holders entitled to the money must look to the Company for payment as general credi- tors unless an applicable abandoned property law designates another person and all liability of the Trustee and such Paying Agent with respect to such money shall cease. Section 8.04 Reinstatement. If the Trustee or Paying Agent is unable to apply any money in accordance with Section 8.02 by reason of any order or judgment of any court or govern- mental authority enjoining, restraining or otherwise prohibiting such applica- tion, the Company's obligations under this Indenture and the Senior Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02; provided, however, that if the Company makes any payment of interest on or principal of any Senior Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the holders of such Senior Notes to receive such payment from the money held by the Trustee or Paying Agent. 70 ARTICLE 9 Amendments Section 9.01 Without the Consent of Holders. The Company and the Trustee may amend or modify this Indenture (including the terms and conditions of the Senior Notes) without notice to or the consent of any holder of Senior Notes for the purpose of: (a) adding to the covenants of the Company for the benefit of the hold- ers of Senior Notes; (b) surrendering any right or power conferred upon the Company; (c) evidencing the successor of another corporation to the Company and the assumption of the Company thereunder and in the Senior Notes as per- mitted herein; (d) curing any ambiguity, or correcting or supplementing any defective provision contained herein or making any changes in any other provisions of this Indenture which the Company and the Trustee deem necessary or de- sirable and which, in either case, will not adversely affect the interests of the holders of Senior Notes. Section 9.02 With the Consent of Holders. Subject to Section 6.07, the Company and the Trustee may amend this Inden- ture or the Senior Notes with the written consent of the holders of not less than a majority in aggregate principal amount of the then outstanding Senior Notes. Subject to Sections 6.04 and 6.07, the holders of a majority in principal amount of the Senior Notes then outstanding may also waive compliance in a particular instance by the Company with any provision of this Indenture or the Senior Notes. However, without the consent of each holder of a Senior Note affected, an amendment or waiver under this Section may not: (a) reduce the amount of Senior Notes whose holders must consent to an amendment, supplement or waiver; (b) reduce the rate of or extend the time for payment of, interest, in- cluding defaulted interest, on any Senior Note; 71 (c) reduce the principal of or premium on or change the fixed maturity of any Senior Note or alter the redemption provisions with respect there- to; (d) make the principal of or premium, if any, or interest on, any Senior Note payable in money other than as provided for in this Indenture and the Senior Note; (e) waive a continuing default in the payment of the principal of or premium, if any, interest on, or redemption or repurchase payment with re- spect to, any Senior Note, including, without limitation, a continuing de- fault to make payment when required upon a Change of Control or after an Asset Sale Offer Trigger Date; (f) after the Company's obligation to purchase the Senior Notes arises hereunder, to then amend, modify or change the obligation of the Company to make or consummate a Change of Control Offer in the event of a Change of Control or an Asset Sale Offer in the event of an Asset Sale Offer Trigger Date or waive any default in the performance thereof or modify any of the provisions or definitions with respect to any such offers; or (g) make any change in provisions relating to waivers of defaults, the abilities of holders of Senior Notes to enforce their rights hereunder or the provisions of clauses (a) through (g) of this Section 9.02. To secure a consent of the holders under this Section, it shall not be nec- essary for such holders to approve the particular form of any proposed amend- ment or waiver, but it shall be sufficient if such consent approves the sub- stance thereof. After an amendment or waiver under this Section becomes effective, the Com- pany shall mail to holders of Senior Notes a notice briefly describing the amendment or waiver. Section 9.03 Compliance with the Trust Indenture Act. Every amendment to this Indenture or the Senior Notes shall be set forth in a supplemental indenture that complies with the TIA as then in effect. Section 9.04 Revocation and Effect of Consents. Until an amendment or waiver becomes effective, a consent to it by a holder of a Senior Note is a continuing consent by the holder and every subsequent holder of a Senior Note or portion of a Senior Note that evidences 72 the same debt as the consenting holder's Senior Note, even if notation of the consent is not made on any Senior Note. However, any such holder or subsequent holder may revoke the consent as to his or her Senior Note or portion of a Se- nior Note if the Trustee receives the notice of revocation before the date on which the Trustee receives an Officers' Certificate certifying that the hold- ers of the requisite principal amount of Senior Notes have consented to the amendment or waiver. The Company may, but shall not obligated to, fix a record date for the pur- pose of determining the holders entitled to consent to any amendment or waiv- er. If a record date is fixed, then notwithstanding the provisions of the im- mediately preceding paragraph, those persons who were holders at such record date (or their duly designated proxies), and only those persons, shall be en- titled to consent to such amendment or waiver or to revoke any consent previ- ously given, whether or not such persons continue to be holders after such record date. No consent shall be valid or effective for more than 90 days af- ter such record date unless consents from holders of the principal amount of Senior Notes required hereunder for such amendment or waiver to be effective shall have also been given and not revoked within such 90-day period. After an amendment or waiver becomes effective it shall bind every holder, unless it is of the type described in any of clauses (a) through (g) of Sec- tion 9.02. In such case, the amendment or waiver shall bind each holder of a Senior Note who has consented to it. Section 9.05 Notation on or Exchange of Senior Notes. Senior Notes authenticated and delivered after the execution of any supple- mental indenture pursuant to this Article 9 may, and shall if required by the Trustee, bear a notation in the form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so deter- mine, new Senior Notes so modified as to conform, in the opinion of the Com- pany and the Trustee, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in ex- change for outstanding Senior Notes. Section 9.06 Trustee Protected. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if such amendment or supplemental indenture 73 does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing such amendment or supplemental indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or supplemental indenture is authorized or permitted by this Indenture, that it is not incon- sistent herewith, and that it will be valid and binding upon the Company in accordance with its terms. ARTICLE 10 General Provisions Section 10.01 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA () 318(c), the imposed duties shall control. Section 10.02 Notices. Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person or mailed by first-class mail, with postage prepaid (registered or certified, return receipt request- ed), facsimile or overnight air couriers guaranteeing next day delivery, to the other's address stated in Section 10.10. The Company or the Trustee by no- tice to the other may designate additional or different addresses for subse- quent notices or communications. All notices and communications (other than those sent to holders of Senior Notes) shall be deemed to have been duly given at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when transmission confirmed, if transmitted by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a holder of a Senior Note shall be mailed by first-class mail, with postage prepaid, to his or her address shown on the register kept by the Registrar. Failure to mail a notice or communication to a holder or any defect in it shall not affect its sufficiency with respect to other holders. 74 If a notice or communication is sent in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company sends a notice or communication to holders of Senior Notes, it shall send a copy to the Trustee and each Agent at the same time. All other notices or communications shall be in writing. section 10.03 Communication by Holders With Other Holders. Holders of Senior Notes may communicate pursuant to TIA () 312(b) with other holders with respect to their rights under this Indenture or the Senior Notes. The Company, the Trustee, the Registrar and anyone else shall have the protec- tion of TIA ((S)) 312(c). section 10.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfac- tory to the Trustee (which shall include the statements set forth in Sec- tion 10.05) stating that, in the opinion of such person, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 10.05) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. section 10.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA ((S)) 314(a)(4)) shall include: (a) a statement that the person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such cer- tificate or opinion are based; 75 (c) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condi- tion has been complied with; and (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Any Officers' Certificate may be based, insofar as it relates to legal mat- ters, upon an Opinion of Counsel, unless such Officer knows that the opinion with respect to the matters upon which his certificate may be based as afore- said is erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters, upon certificates, statements or opinions of, or represen- tations by an officer or officers of the Company, or other persons or firms deemed appropriate by such counsel, unless such counsel knows that the certif- icates, statements or opinions or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous. Any Officers' Certificate, statement or Opinion of Counsel may be based, in- sofar as it relates to accounting matters, upon a certificate or opinion of or representation by an accountant (who may be an employee of the Company), or firm of accountants, unless such Officer or counsel, as the case may be, knows that the certificate or opinion or representation with respect to the account- ing matters upon which his certificate, statement or opinion may be based as aforesaid is erroneous. section 10.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or a meeting of holders of Senior Notes. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 10.07 Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institu- tions in the City of New York are not required to be open, and a "Business Day" is any day that is not a Legal Holiday. If a payment date is a Legal Hol- iday at a place of payment, payment may be made at that place on the next suc- ceeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. 76 Section 10.08 No Recourse Against Others. No director, officer, employee or stockholder, as such, of the Company from time to time shall have any liability for any obligations of the Company under the Senior Notes or this Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each holder by accepting a Senior Note waives and releases all such liability. This waiver and release are part of the consideration for the Senior Notes. Each of such directors, officers, employees and stockholders is a third party beneficiary of this Sec- tion 10.08. Section 10.09 Counterparts. This Indenture may be executed in any number of counterparts and by the par- ties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Section 10.10 Other Provisions. The Company initially appoints the Trustee as Paying Agent, Registrar and authenticating agent. The first certificate pursuant to Section 4.03 shall be for the first full fiscal quarter of the Company following the issuance of Senior Notes hereun- der. The reporting date for Section 7.06 is February 15 of each year. The first reporting date is the first February 15th following the issuance of Senior Notes hereunder. The Trustee shall always have, or shall be a Subsidiary of a bank or bank holding company which has, a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condi- tion. The Company's address is: Rohr, Inc. 850 Lagoon Drive Chula Vista, CA 91910 Attention: General Counsel Facsimile: (619) 691-4222 Telephone: (619) 691-2025 77 The Trustee's address is: IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attention: Corporate Trust & Agencies Administration Facsimile: (212) 858-2952 Telephone: (212) 858-2529 Section 10.11 Governing Law. The internal laws of the State of New York shall govern this Indenture and the Senior Notes, without regard to the conflict of laws provisions thereof. Section 10.12 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such other indenture, loan or debt agreement may not be used to interpret this Indenture. Section 10.13 Successors. All agreements of the Company in this Indenture and the Senior Notes shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. Section 10.14 Severability. In case any provision in this Indenture or in the Senior Notes shall be in- valid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 10.15 Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or re- strict any of the terms or provisions hereof. 78 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly exe- cuted and attested, all as of the date first above written, signifying their agreements contained in this Indenture. SIGNATURES ROHR, INC. By _________________________________________ Name: Title: Attest: - ------------------------- IBJ SCHRODER BANK & TRUST COMPANY By _________________________________________ Name: Title: Attest: - ------------------------- S-1 EXHIBIT A (Face of Security) No. $ CUSIP ROHR, INC. % SENIOR NOTE DUE 2003 promises to pay to or registered assigns, the principal sum of Dollars on , 2003 Interest Payment Dates: and Regular Record Dates: and Certificate of Authentication This Senior Note is one of the Senior Notes issued pursuant to the within-mentioned Indenture. IBJ SCHRODER BANK & TRUST COMPANY, as Trustee ROHR, INC. By______________________________ By___________________________________________ Authorized Signature President and Chief Executive Officer Dated: By___________________________________________ Secretary (SEAL) EXHIBIT A (Back of Security) ROHR, INC. % SENIOR NOTE DUE 2003 1. INTEREST. Rohr, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Senior Note at the rate per annum shown above. The Company will pay interest semiannually on May 15 and November 15 of each year. Interest on the Senior Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from , 1994. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on overdue principal and (to the extent permitted by law) on overdue installments of interest will accrue at a rate of % per annum. 2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes (ex- cept defaulted interest) to the person in whose name each Senior Note is reg- istered at the close of business on the May 1 or November 1 immediately pre- ceding the relevant interest payment date even though Senior Notes are can- celled after such record date and on or before the interest payment date. Holders must surrender Senior Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money, and may mail such check to the holder's registered ad- dress. 3. PAYING AGENT AND REGISTRAR. IBJ Schroder Bank & Trust Company, a New York banking corporation (together with any successor trustee under the Indenture referred to below, the "Trustee"), will act as Paying Agent and Registrar. The Company may change the Paying Agent, Registrar or co-registrar without prior notice. Subject to certain limitations in the Indenture, the Company or any of its Subsidiaries may act in any such capacity. A-2 4. INDENTURE. The Company issued the Senior Notes under an Indenture dated as of May 15, 1994 (the "Indenture") between the Company and the Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ((S))((S)) 77aaa-77bbbb) as in effect on the date of the Indenture. The Senior Notes are subject to, and qualified by, all such terms, certain of which are summarized hereon, and holders are referred to the Indenture and such Act for a statement of such terms. The Senior Notes are unsecured general obligations of the Company limited to $100,000,000 in aggregate principal amount. Capitalized terms not defined below have the same meaning as is given to them in the Indenture. 5. OPTIONAL REDEMPTION. The Company may redeem the Senior Notes, in whole or in part, prior to maturity at any time on or after , 1999 at the redemption prices (expressed in percentages of principal amount) set forth below plus accrued interest to the date fixed for redemption, if redeemed dur- ing the 12-month period beginning on of each year starting with the year indicated below.
REDEMPTION YEAR PRICE ---- ---------- 1999........................................................... % 2000........................................................... % 2001 and thereafter............................................ %
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the date fixed for redemption to each holder of Senior Notes to be redeemed at his or her registered address. Senior Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. In the event of a redemption of less than all of the Senior Notes, the Senior Notes will be chosen for redemption by the Trustee by lot or pro rata or, if required, in compliance with the require- ments of the principal national securities exchange, if any, on which the Se- nior Notes are listed. On and after the redemption date interest ceases to ac- crue on Senior Notes or portions of them called for redemption (unless the Company defaults in the payment of the redemption price). If this Senior Note is redeemed subsequent to a record date with respect to any interest payment date specified above and on or prior to such interest payment date, then any accrued interest will be paid to the person in whose name this Senior Note is registered at the close of business on such record date. A-3 7. CHANGE OF CONTROL. Upon a Change of Control, the Company shall make a Change of Control Offer to purchase all outstanding securities at a price equal to 101% of the aggregate principal amount of the Senior Notes, plus ac- crued and unpaid interest to the date of purchase, such offer to be made as provided in the Indenture. To accept the Change of Control Offer, the holder hereof must comply with the terms thereof, including surrendering this Senior Note, with the "Option of Holder to Elect Purchase" portion hereof completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent, at the address specified in the notice of the Change of Control Offer mailed to holders as provided in the Indenture, prior to termination of the Change of Control Offer. 8. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered and Senior Notes may be exchanged as provided in the Indenture. As a condition of transfer, the Regis- trar may require a holder, among other things, to furnish appropriate endorse- ments and transfer documents and the Company may require a holder to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Senior Note or portion of a Senior Note selected for redemption. Also, it need not exchange or register the transfer of any Senior Notes for a period of 15 days before a selection of Senior Notes to be redeemed. 9. PERSONS DEEMED OWNERS. The registered holder of a Senior Note may be treated as its owner for all purposes. 10. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture or the Senior Notes may be amended with the consent of the holders of at least a majority in principal amount of the then outstanding Senior Notes and any ex- isting default may be waived with the consent of the holders of a majority in principal amount of the then outstanding Senior Notes. Without the consent of any holder, the Indenture or the Senior Notes may be amended to: add to the covenants of the Company for the benefit of the holders; surrender any right or power conferred upon the Company; evidence the succession of another person to the Company and the assumption by such successor of the covenants and obli- gations of the Company thereunder and in the Senior Notes as permitted in the Indenture; and cure any ambiguity or correct or supplement any defective pro- vision herein or make any changes A-4 in any other provisions of the Indenture which the Company and the Trustee deem necessary or desirable and which in either case will not adversely affect the interest of the holders of the Senior Notes. 11. DEFAULTS AND REMEDIES. An Event of Default is: default for 30 days in payment of interest on the Senior Notes; default in payment of principal of or premium if any, on the Senior Notes; failure by the Company for 60 days after notice to it to comply with any of its other agreements in the Indenture or the Senior Notes (except that with respect to certain other covenants, such defaults shall be Events of Default with such notice but without such passage of time); certain defaults under and accelerations prior to maturity of cer- tain indebtedness; certain final judgments which remain undischarged; and cer- tain events of bankruptcy or insolvency. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately, except that in the case of an Event of Default aris- ing from certain events of bankruptcy or insolvency, all outstanding Senior Notes become due and payable without further action or notice. Holders may not enforce the Indenture or the Senior Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Senior Notes. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish quarterly compliance certificates to the Trustee. 12. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee or any of its Affiliates, in their individual or any other capacities, may make or continue loans to or guaranteed by, accept deposits from and perform services for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates as if it were not Trustee. 13. NO RECOURSE AGAINST OTHERS. No director, officer, employee or stockhold- er, as such, of the Company shall have any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each holder by accepting a Senior Note waives and releases all such A-5 liability. The waiver and release are part of the consideration for the Senior Notes. 14. AUTHENTICATION. This Senior Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 15. ABBREVIATIONS. Customary abbreviations may be used in the name of a holder or an assignee, such as: TEN CO = tenants in common, TEN ENT = tenants by the entireties, JT TEN = joint tenants with right of survivorship and not as tenants in common, CUST = Custodian and U/G/M/A = Uniform Gifts to Minors Act. The Company will furnish to any holder upon written request and without charge a copy of the Indenture. Requests may be made to: General Counsel, Rohr, Inc., 850 Lagoon Drive, Chula Vista, California 91910. A-6 ASSIGNMENT FORM If you the holder want to assign this Senior Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Senior Note to ------------------------------- - ------------------------------------------------------------------------------- (Insert assignee's social security or tax ID number) --------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- agent to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. Date: ------------------------------------------------------------------------- Your signature: ---------------------------------------------------------------- (Sign exactly as your name appears on the other side of this Senior Note) Signature Guarantee: ---------------------------------------------------------- A-7 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Senior Note purchased by the Company pursuant to Sections 4.10 or 4.16 of the Indenture, check the Box: [_] If you wish to have a portion of this Senior Note purchased by the Company pursuant to Sections 4.10 or 4.16 of the Indenture, state the amount in multi- ples of $1,000: $ ---------------------------------------- Date: -------------------------------------- Your signature: ---------------------------------------------------------------- (Sign exactly as your name appears on the other side of this Senior Note) Signature Guarantee: ---------------------------------------------------------- A-8 EX-4.2 4 INDENTURE CONV. SUB. NOTES - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ROHR, INC. AND THE BANK OF NEW YORK, AS TRUSTEE -------------------- $50,000,000 % CONVERTIBLE SUBORDINATED NOTES DUE 2004 -------------------- INDENTURE DATED AS OF MAY 15, 1994 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS................................................... 1 SECTION 1.01 Definitions............................................ 1 SECTION 1.02 Other Definitions...................................... 15 SECTION 1.03 Incorporation by Reference of Trust Indenture Act...... 15 SECTION 1.04 Rules of Construction.................................. 16 ARTICLE 2 THE CONVERTIBLE SUBORDINATED NOTES............................ 16 SECTION 2.01 Form and Dating........................................ 16 SECTION 2.02 Execution and Authentication........................... 17 SECTION 2.03 Registrar and Paying Agent............................. 17 SECTION 2.04 Paying Agent To Hold Money in Trust.................... 18 SECTION 2.05 Holder Lists........................................... 19 SECTION 2.06 Transfer and Exchange.................................. 19 SECTION 2.07 Replacement Convertible Subordinated Notes............. 19 SECTION 2.08 Outstanding Convertible Subordinated Notes............. 20 SECTION 2.09 When Treasury Convertible Subordinated Notes Disregarded.......................................... 20 SECTION 2.10 Temporary Convertible Subordinated Notes............... 21 SECTION 2.11 Cancellation........................................... 21 SECTION 2.12 Defaulted Interest..................................... 21 SECTION 2.13 CUSIP Number........................................... 22 ARTICLE 3 REDEMPTION.................................................... 22 SECTION 3.01 Notices to Trustee..................................... 22 SECTION 3.02 Selection of Convertible Subordinated Notes To Be Redeemed............................................. 22 SECTION 3.03 Notice of Redemption................................... 23 SECTION 3.04 Effect of Notice of Redemption......................... 24 SECTION 3.05 Deposit of Redemption Price............................ 24 SECTION 3.06 Convertible Subordinated Notes Redeemed in Part........ 24 ARTICLE 4 COVENANTS..................................................... 25 SECTION 4.01 Payment of Convertible Subordinated Notes.............. 25 SECTION 4.02 Commission Reports..................................... 25 SECTION 4.03 Compliance Certificate................................. 26 SECTION 4.04 Maintenance of Office or Agency........................ 26 SECTION 4.05 Limitation on Sale of Assets........................... 27 SECTION 4.06 Continued Existence.................................... 30 SECTION 4.07 Taxes.................................................. 30 SECTION 4.08 Change of Control...................................... 31 SECTION 4.09 Appointments to Fill Vacancies in Trustee's Office..... 33 SECTION 4.10 Further Instruments and Acts........................... 33 SECTION 4.11 Stay, Extension and Usury Laws......................... 34 SECTION 4.12 Investment Company Act................................. 34
PAGE ---- ARTICLE 5 SUCCESSORS.................................................... 34 SECTION 5.01 When the Company May Merge, etc........................ 34 SECTION 5.02 Successor Corporation Substituted...................... 36 SECTION 5.03 Purchase Option on Change of Control................... 36 ARTICLE 6 DEFAULTS AND REMEDIES......................................... 36 SECTION 6.01 Events of Default...................................... 36 SECTION 6.02 Acceleration........................................... 38 SECTION 6.03 Other Remedies......................................... 39 SECTION 6.04 Waiver of Past Defaults................................ 39 SECTION 6.05 Control by Majority.................................... 40 SECTION 6.06 Limitation on Suits.................................... 40 SECTION 6.07 Rights of Holders To Receive Payment................... 40 SECTION 6.08 Collection Suit by Trustee............................. 41 SECTION 6.09 Trustee May File Proofs of Claim....................... 41 SECTION 6.10 Priorities............................................. 41 SECTION 6.11 Undertaking for Costs.................................. 42 ARTICLE 7 THE TRUSTEE................................................... 42 SECTION 7.01 Duties of the Trustee.................................. 42 SECTION 7.02 Rights of the Trustee.................................. 44 SECTION 7.03 Individual Rights of the Trustee....................... 45 SECTION 7.04 Trustee's Disclaimer................................... 45 SECTION 7.05 Notice of Defaults..................................... 46 SECTION 7.06 Reports by the Trustee to Holders...................... 46 SECTION 7.07 Compensation and Indemnity............................. 47 SECTION 7.08 Replacement of the Trustee............................. 48 SECTION 7.09 Successor Trustee by Merger, etc....................... 49 SECTION 7.10 Eligibility, Disqualification.......................... 49 SECTION 7.11 Preferential Collection of Claims Against Company...... 50 ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE....................... 50 SECTION 8.01 Termination of Company's Obligations................... 50 SECTION 8.02 Application of Trust Money............................. 54 SECTION 8.03 Repayment to Company................................... 54 SECTION 8.04 Reinstatement.......................................... 55 ARTICLE 9 AMENDMENTS.................................................... 55 SECTION 9.01 Without the Consent of Holders......................... 55 SECTION 9.02 With the Consent of Holders............................ 56 SECTION 9.03 Compliance with the Trust Indenture Act................ 58 SECTION 9.04 Revocation and Effect of Consents...................... 58 SECTION 9.05 Notation on or Exchange of Convertible Subordinated Notes................................................ 59 SECTION 9.06 Trustee Protected...................................... 59
ii
PAGE ---- ARTICLE 10 GENERAL PROVISIONS............................................ 59 SECTION 10.01 Trust Indenture Act Controls........................... 59 SECTION 10.02 Notices................................................ 60 SECTION 10.03 Communication by Holders With Other Holders............ 60 SECTION 10.04 Certificate and Opinion as to Conditions Precedent..... 61 SECTION 10.05 Statements Required in Certificate or Opinion.......... 61 SECTION 10.06 Rules by Trustee and Agents............................ 62 SECTION 10.07 Legal Holidays......................................... 62 SECTION 10.08 No Recourse Against Others............................. 62 SECTION 10.09 Counterparts........................................... 62 SECTION 10.10 Other Provisions....................................... 63 SECTION 10.11 Governing Law.......................................... 64 SECTION 10.12 No Adverse Interpretation of Other Agreements.......... 64 SECTION 10.13 Successors............................................. 64 SECTION 10.14 Severability........................................... 64 SECTION 10.15 Table of Contents, Headings, etc....................... 64 ARTICLE 11 SUBORDINATION................................................. 65 SECTION 11.01 Agreement To Subordinate............................... 65 SECTION 11.02 Liquidation; Dissolution; Bankruptcy................... 65 SECTION 11.03 Default on Designated Senior Indebtedness.............. 66 SECTION 11.04 Acceleration of Convertible Subordinated Notes......... 66 SECTION 11.05 When Distributions Must Be Paid Over................... 66 SECTION 11.06 Notice by the Company.................................. 67 SECTION 11.07 Subrogation............................................ 68 SECTION 11.08 Relative Rights........................................ 68 SECTION 11.09 Subordination May Not Be Impaired by the Company....... 69 SECTION 11.10 Distribution of Notice to the Representative........... 69 SECTION 11.11 Rights of the Trustee and Paying Agent................. 69 SECTION 11.12 No Fiduciary Duty to Holders of Senior Indebtedness.... 70 SECTION 11.13 Authorization to Effect Subordination.................. 71 ARTICLE 12 CONVERSION OF CONVERTIBLE SUBORDINATED NOTES.................. 71 SECTION 12.01 Conversion Privilege................................... 71 SECTION 12.02 Manner of Exercise of Conversion Privilege............. 72 SECTION 12.03 Cash Payments in Lieu of Fractional Shares............. 74 SECTION 12.04 Adjustment of Conversion Price......................... 74 SECTION 12.05 Notice to Holders Prior to Certain Corporate Actions... 82 SECTION 12.06 Reservation of Shares of Common Stock.................. 83 SECTION 12.07 Taxes upon Conversion.................................. 83 SECTION 12.08 Covenants as to Common Stock........................... 83 SECTION 12.09 Consolidation or Merger or Sale of Assets.............. 84 SECTION 12.10 Disclaimer of Responsibility for Certain Matters....... 85 SECTION 12.11 Cancellation of Converted Notes........................ 86 SECTION 12.12 Voluntary Reduction.................................... 86
iii CROSS-REFERENCE TABLE* TRUST INDENTURE ACT SECTION INDENTURE SECTION 310(a)(1)................................................................. 7.10 (a)(2)................................................................. 7.11 (a)(3)................................................................. N.A. (a)(4)................................................................. N.A. (b)....................................................... 7.08, 7.10, 10.02 (c).................................................................... N.A. 311(a).................................................................... 7.11 (b).................................................................... 7.11 (c).................................................................... N.A. 312(a).................................................................... 2.05 (b)................................................................... 10.03 (c)................................................................... 10.03 313(a).................................................................... 7.06 (b)(1)................................................................. N.A. (b)(2)................................................................. 7.06 (c)............................................................. 7.06, 10.02 (d).................................................................... 7.06 314(a)............................................................. 4.01, 10.02 (b).................................................................... N.A. (c)(1)................................................................ 10.04 (c)(2)................................................................ 10.04 (c)(3)................................................................. N.A. (d).................................................................... N.A. (e)................................................................... 10.05 (f).................................................................... N.A. 315(a)................................................................. 7.01(b) (b)............................................................. 7.05, 10.02 (c)................................................................. 7.01(a) (d)................................................................. 7.01(c) (e).................................................................... 6.11 316(a)(last sentence)..................................................... 2.09 (a)(1)(A).............................................................. 6.05 (a)(2)(B).............................................................. 6.04 (a)(2)................................................................. N.A. (b).................................................................... 6.02 317(a)(1)................................................................. 6.08 (a)(2)..................................................................6.09 (b).................................................................... 2.04 318(a)................................................................... 10.01 N.A. means not applicable. - --------- * This Cross-Reference Table is not part of the Indenture. iv THIS INDENTURE, dated as of May 15, 1994, is between Rohr, Inc., a Delaware corporation (the "Company"), and The Bank of New York, a New York State bank- ing corporation ("Trustee"). The Company has duly authorized the creation of its % Convertible Subordinated Notes due 2004 (the "Convertible Subordi- nated Notes") and to provide therefor the Company has duly authorized the exe- cution and delivery of this Indenture. Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the hold- ers from time to time of the Convertible Subordinated Notes. ARTICLE 1 Definitions Section 1.01 Definitions. "Acquired Indebtedness" of any specified Person means Indebtedness of any other Person and its subsidiaries existing at the time such other Person merged with or into or became a subsidiary of such specified Person or assumed by the specified Person in connection with the acquisition of assets from such other Person including, without limitation, Indebtedness of such other Person and its subsidiaries incurred in connection with or in anticipation of (a) such other Person and its subsidiaries being merged with or into or becoming a subsidiary of such specified Person or (b) such acquisition by the specified Person. "Affiliate" means, when used with reference to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the referent Person, as the case may be, or any Person who beneficially owns (within the meaning of Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, 10% or more of the equity interests of the referent Person or warrants, options or other rights to acquire or hold more than 10% of any class of equity interests of the referent Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct or cause the direction of management or poli- cies of the referent Person, directly or indirectly, whether through the own- ership of voting securities, by contract or otherwise; and the terms "control- ling" and "controlled" have meanings correlative of the foregoing. 1 "Agent" means any Registrar, Paying Agent, Conversion Agent or co-registrar. "Asset Sale" means any sale, lease, transfer, exchange or other disposition by the Company or any subsidiary (or series of related sales, leases, trans- fers, exchanges or dispositions) in excess of $1,000,000, including, without limitation, dispositions pursuant to merger, consolidation or sale and lease- back transactions, of (a) shares of Capital Stock of a subsidiary of the Com- pany (prorated to the extent of the Company's interest therein), (b) all or substantially all of the properties and assets of any division or line of business of the Company or any subsidiary of the Company or (c) any other property or assets of the Company (prorated to the extent of the Company's in- terest therein) or of any subsidiary of the Company (prorated to the extent of the Company's interest therein) outside the ordinary course of business of the Company or such subsidiary (each referred to for purposes of this definition as a "disposition") by the Company or by any of its subsidiaries (other than (i) dispositions by the Company to a wholly owned subsidiary of the Company or by a subsidiary of the Company to the Company or to a wholly owned subsidiary of the Company, (ii) sales or other dispositions of inventory, (iii) any dis- position of properties or assets that is consummated in accordance with the provisions of Section 5.01, (iv) any disposition of any account receivable pursuant to the Pooling and Servicing Agreement, (v) dispositions by the Com- pany or any subsidiary of the Company of the business jet related product line, the overhaul and repair business as conducted by Rohr Aero Services, Inc. and Rohr Aero Services Europe, respectively, on the Issue Date, the Ha- gerstown, Maryland plant and the Auburn, Washington plant, in each case in- cluding related assets, (vi) the disposition by the Company or any subsidiary of the Company of interests owned on the Issue Date in two trusts which own an Airbus A300 aircraft and a McDonnell Douglas DC10 aircraft, respectively and (vii) the disposition of Building 107 (at the Company's facility in Chula Vis- ta, California) to (a) any pension plan of the Company or (b) to any other Person if the net proceeds of such disposition are delivered to any pension plan referred to in clause (a) of this definition, in either case resulting in the full satisfaction (or in case the full amount of such net proceeds are so delivered and shall be insufficient to effect such full satisfaction, the par- tial satisfaction) of the Company's funding liabilities with respect to any such pension plan or plans). "Bank Agent" means, at any time, the then-acting agent under the Revolving Credit Agreement, which shall initially be Citicorp USA, Inc. 2 "Board of Directors" means the Board of Directors of the Company or any au- thorized committee of the Board of Directors. "Capital Stock" means, with respect to any Person, any and all shares, in- terests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of such Person's capital stock, including each class of Common Stock or Preferred Stock of such Person, whether out- standing on the Issue Date or issued after the Issue Date, and any and all rights, warrants or options exchangeable for or convertible into such capital stock (but excluding any debt security that is exchangeable for or convertible into such capital stock). "Capitalized Lease Obligation" means any obligation under a lease that is required to be classified and accounted for as a capital lease obligation un- der GAAP and, for purposes of this Indenture, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Cash Equivalents" means (a) marketable direct obligations issued by, or un- conditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instru- mentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or Moody's In- vestors Service, Inc. ("Moody's"), (c) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's, (d) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any United States branch of a foreign bank having, at the date of acquisition thereof, combined capital and surplus of not less than $250 million, (e) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a) above entered into with any bank meeting the qualifications specified in clause (d) above and (f) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (a) through (e) above. 3 "Change of Control" means the occurrence of one or more of the following events (whether or not approved by the Board of Directors of the Company): (a) an event or series of events by which any Person or other entity or group of Persons or other entities acting in concert as determined in accordance with Section 13(d) of the Exchange Act, whether or not applicable (a "Group of Per- sons") shall, as a result of a tender or exchange offer, open market pur- chases, privately negotiated purchases, merger or otherwise (i) be or become, directly or indirectly, the beneficial owner (within the meaning of Rule 13d-3 and Rule 13d-5 under the Exchange Act, whether or not applicable) of 50% or more of the combined voting power of the then outstanding Voting Stock of the Company or (ii) have or has the ability to elect, directly or indirectly, a majority of the members of the Board of Directors of the Company or other equivalent governing body thereof, (b) the shareholders of the Company shall approve any Plan of Liquidation of the Company (whether or not otherwise in compliance with the provisions of this Indenture), (c) individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors of the Company (together with any new directors whose elec- tion or appointment by the Board of Directors of the Company or whose nomina- tion for election by the Company's shareholders was approved by a vote of at least a majority of the members of the Board of Directors of the Company then still in office who either were members of the Board of Directors of the Com- pany at the beginning of such period or whose election, appointment or nomina- tion for election was previously so approved) cease for any reason to consti- tute a majority of the members of the Board of Directors of the Company then in office, or (d) the direct or indirect sale, lease, exchange or other trans- fer, in one transaction or a series of related transactions, of all or sub- stantially all of the property or assets of the Company to any Person or Group of Persons (whether or not otherwise in compliance with the provisions of this Indenture). "Commission" means the Securities and Exchange Commission. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and 4 whether voting or non-voting) of any Person's common stock, whether outstand- ing on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Company" means the party named as such above until a successor replaces it in accordance with Article 5 and thereafter means the successor. "Consolidated Net Worth" of a Person at any date means the Consolidated Stockholders' Equity of such Person less (a) the amount of any gain resulting, directly or indirectly, from the extinguishment, retirement or repurchase of any Indebtedness of such Person or of any of its subsidiaries, (b) any revalu- ation or other write-ups subsequent to the Issue Date in the book value of any asset owned by such Person or a Consolidated Subsidiary and (c) any amounts attributable to the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of Capital Stock of such Person or of any of its subsidiaries. Notwithstanding any of the foregoing, net deferred income tax assets recorded in accordance with Statement of Financial Account- ing Standards No. 109, Accounting for Income Taxes ("SFAS 109"), shall be cal- culated without regard to any valuation allowance with respect to such net de- ferred tax asset recorded by the Company in accordance with SFAS 109. "Consolidated Stockholders' Equity" as of any date means, with respect to any Person, the amount by which the assets of such Person and of its subsidi- aries on a consolidated basis exceed (a) the total liabilities of such Person and of its subsidiaries on a consolidated basis, plus (b) any redeemable Pre- ferred Stock of any such Person or any redeemable Preferred Stock of any sub- sidiary of such issued to any Person other than to such Person or to a wholly owned subsidiary of such Person, in each case determined in accordance with GAAP. "Consolidated Subsidiary" of any Person means a subsidiary which for finan- cial reporting purposes is or, in accordance with GAAP, should be, accounted for by such Person as a consolidated subsidiary. "Convertible Subordinated Notes" means the Convertible Subordinated Notes issued under this Indenture. "Conversion Agent" means any Person authorized by the Company to accept Con- vertible Subordinated Notes for conversion pursuant to this inden- 5 ture and deliver shares of Common Stock (or other securities or property) de- liverable upon such conversion. "Conversion Notice" has the meaning specified in Section 12.02. "Conversion Price" means the initial conversion price specified in the form of Note in Section 2 of such form, as adjusted in accordance with the provi- sions of Article 12. "Daily Market Price" when used with reference to the Common Stock or another security means the price of a share of Common Stock or such other security on any date, determined (a) on the basis of the last reported sales price of the Common Stock or such other security for such date (i) as reported on the com- posite tape, or similar reporting system, for issues listed on the New York Stock Exchange (or if the Common Stock or such other security has not been listed on that exchange, for issues listed on such other national securities exchange upon which the Common Stock or such other securities are listed as may be designated by the Board of Directors from time to time for the purposes hereof) or (ii) if the Common Stock or such other security is not listed or admitted to trading on any national securities exchange, as reported on the National Market System of the National Association of Securities Dealers Auto- mated Quotation System ("Nasdaq") or (b) if there is no such reported sale on the date in question, on the basis of the average of the closing bid and asked quotations regular way so reported for such date or (c) if the Common Stock or security is not listed on any national securities exchange or on the Nasdaq National Market System, on the basis of the average of the high bid and low asked quotations regular way on the date in question in the over-the-counter market as reported by Nasdaq, or if not so quoted, as reported by National Quotation Bureau, Incorporated or a similar organization. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default (as defined in Section 6.01). "Designated Senior Indebtedness" means Senior Indebtedness of the Company now or hereafter outstanding under (i) the Revolving Credit Agreement; (ii) the Company's 9.35% Senior Notes due 2000 and 9.33% Senior Notes due 2002; (iii) the Senior Notes; and (iv) any other Senior Indebtedness issued in one or more substantially concurrent issuances on substantially similar terms, the aggregate original principal amount which is $50 million or more. 6 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" or "fair value" means, with respect to any asset or property or Capital Stock, the price which could be negotiated in an arm's- length, free market transaction, for cash, between an informed and willing seller and an informed and willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a written resolution of said Board of Directors (certified by the Secretary or Assistant Secretary of the Compa- ny) delivered to the Trustee, provided that if the aggregate non-cash consid- eration to be received by the Company or any of its subsidiaries from any As- set Sale shall exceed $10,000,000, then Fair Market Value shall be determined by an Independent Financial Advisor. "GAAP" means generally accepted accounting principles set forth in the opin- ions and pronouncements of the Accounting Principles Board of the American In- stitute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), as- sume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Per- son (and "incurrence," "incurred," "incurable" and "incurring" shall have meanings correlative to the foregoing), provided that the accrual of interest (whether such interest is payable in cash or in kind) and the accretion of original issue discount shall not be deemed an incurrence of Indebtedness, provided, further, that (a) any Indebtedness of a Person existing at the time such Person becomes (after the Issue Date) a subsidiary (whether by merger, consolidation, acquisition or otherwise) of the Company shall be deemed to be incurred by such subsidiary at the time it becomes a subsidiary of the Company and (b) any amendment, modification or waiver of any document pursuant to which Indebtedness was previously incurred shall be deemed to be an incurrence of Indebtedness unless such amendment, modification or waiver 7 does not (i) increase the principal or premium thereof or interest rate thereon (including by way of original issue discount), (ii) change to an ear- lier date the Stated Maturity thereof or the date of any scheduled or required principal payment thereon or the time or circumstances under which such In- debtedness may or shall be redeemed, (iii) if such Indebtedness is subordi- nated to the Convertible Subordinated Notes, modify or affect, in any manner adverse to the holders of the Convertible Subordinated Notes, such subordina- tion or (iv) if the Company is the obligor thereon, provide that a subsidiary of the Company not already an obligor thereon shall be an obligor thereon. "Indebtedness" means, with respect to any Person, at any date, any of the following, without duplication, (a) any liability, contingent or otherwise, of such Person (i) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) evidenced by a note, bond, debenture or similar instrument, (iii) for the payment of money relating to a Capitalized Lease Obligation or (iv) with re- spect to an obligation (whether issued or assumed) relating to the deferred purchase price of property but excluding advances, deposits, partial and pro- gress payments, unpaid wages and related employee obligations, trade accounts payable and accrued liabilities in each case arising in the ordinary course of business that are not overdue by 180 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently con- ducted; (b) all conditional sale obligations and all obligations under any ti- tle retention agreement (even if the rights and remedies of the seller under such agreement in the event of default are limited to repossession or sale of such property); (c) reimbursement obligations of such Person with respect to letters of credit and all obligations of such Person in respect of any bank- er's acceptance or similar credit transaction entered into in the ordinary course of business; (d) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or other- wise, to be secured by) any Lien on any asset or property (including, without limitation, leasehold interests and any other tangible or intangible property) of such Person, whether or not such Indebtedness is assumed by such Person or is not otherwise such Person's legal liability, provided that if the obliga- tions so secured have not been assumed in full by such Person or are otherwise not such Person's legal liability in full, the amount of such Indebtedness for the purposes of this definition shall be limited to the lesser of the amount of such Indebtedness secured by such Lien or the Fair Market Value of the as- sets or 8 property securing such Lien; and (e) all Indebtedness of others guaranteed (including all dividends of other Persons the payment of which is guaranteed), directly or indirectly, by such Person or that is otherwise its legal liabil- ity or which such Person has agreed to purchase or repurchase or in respect of which such Person has agreed contingently to supply or advance funds. "Indenture" means this Indenture as amended or supplemented from time to time. "Independent Financial Advisor" means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the reasonable and good faith judgment of the Board of Directors of the Company, qualified to perform the task for which such firm has been engaged and disinterested and independent with respect to the Company and its Affiliates. "Interest Payment Date" means May 15 and November 15 of each year. "Issue Date" means the date on which the Convertible Subordinated Notes are originally issued under this Indenture. "Lien" means, with respect to any Person, any mortgage, pledge, lien, encum- brance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal prop- erty of such Person, or a security interest of any kind (including any condi- tional sale or other title retention agreement, any lease in the nature there- of, including any sale and leaseback transaction, any option or other similar agreement to sell, in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Com- mercial Code (or equivalent statute or statutes) of any jurisdiction other than to reflect ownership by a third party of property leased to the referent Person or any of its subsidiaries under a lease that is not in the nature of a conditional sale or title retention agreement). "Material Subsidiary" means, at any date of determination, any subsidiary of the Company that, together with its subsidiaries, (i) for the most recent fis- cal year of the Company accounted for more than 5% of the consolidated reve- nues of the Company or (ii) as of the end of such fiscal year, was the owner of more than 5% of the consolidated assets of the Company, all as set forth on the most recently available consolidated financial statements of the Company 9 and its Consolidated Subsidiaries for such fiscal year prepared in conformity with generally accepted accounting principles as then in effect. "Maturity Date" means May , 2004. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or Cash Equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or Cash Equivalents, net of (a) reasonable third-party brokerage commissions and other reasonable third-party fees and expenses (including fees and ex- penses of counsel and investment bankers) related to such Asset Sale, (b) pro- visions for all taxes as a result of such Asset Sale computed on a consoli- dated basis reflecting consolidated results of operations of the Company and its subsidiaries, taken as a whole, (c) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that was in- curred in accordance with this Indenture and that either (i) is secured by a Lien incurred in accordance with this Indenture on the property or assets sold or (ii) is required to be paid as a result of such sale in each case to the extent actually repaid in cash and (d) appropriate amounts to be provided by the Company or any subsidiary of the Company as a reserve against liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmen- tal matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with generally accepted accounting principles as then in effect. For purposes of this definition and Section 4.05 "cash" means U.S. dollars or such money as is freely and readily convertible into U.S. dollars. "Officer" means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, the Chief Accounting Officer, any Ex- ecutive Vice President, Senior Vice President or Vice President, the Treasur- er, any other executive officer, the Secretary and any Assistant Treasurer or any Assistant Secretary of the Company. 10 "Officers' Certificate" means a certificate signed by two Officers, one of whom must be the principal executive officer, principal financial officer, the treasurer or principal accounting officer of the Company. "Opinion of Counsel" means a written opinion from legal counsel who may be an employee of or counsel to the Company or the Trustee except to the extent otherwise indicated in this Indenture. "Permitted Program Investment" means an investment in design, engineering, tooling or similar costs related to a program undertaken by the Company in the ordinary course of its business. "Person" means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or po- litical subdivision thereof. "Plan of Liquidation" means a plan (including by operation of law) that pro- vides for, contemplates or the effectuation of which is preceded or accompa- nied by (whether or not substantially contemporaneously) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of the Company to holders of capital stock of the Compa- ny. "Pooling and Servicing Agreement" means the Pooling and Servicing Agreement dated as of December 23, 1992, among the Company, the Company's wholly owned subsidiary RI Receivables, Inc. and Bankers Trust Company, as trustee on be- half of the Certificateholders (as defined therein), and related documentation and any extension, renewal, modification, restatement or replacement thereof (in whole or in part), as the same may be amended, supplemented or otherwise modified from time to time; provided, however, the investors in any such re- ceivables program shall not obtain an interest in receivables sold under such program which exceeds $70 million in aggregate principal amount at any one time. "Preferred Stock" means the Capital Stock of any Person (other than the Com- mon Stock of such Person) of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of 11 assets upon any voluntary or involuntary liquidation, dissolution or winding- up of such Person, to shares of Capital Stock of any other class of such Per- son. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act. "Prospectus" means the Company's final prospectus dated , 1994 in respect of the public offering of the Convertible Subordinated Notes. "Qualified Capital Stock" means, with respect to any Person, any Capital Stock of such Person that is not Disqualified Capital Stock or convertible into or exchangeable or exercisable for Disqualified Capital Stock and in- cludes Rights and other securities issuable under the Company's Amended and Restated Rights Agreement, dated as of April 6, 1990, between the Company and The First National Bank of Chicago, as Rights Agent, as such agreement may be amended or supplemented from time to time. "redemption date" when used with respect to any of the Convertible Subordi- nated Notes to be redeemed, means the date fixed by the Company for such re- demption pursuant to this Indenture and the Convertible Subordinated Notes. "redemption price" when used with respect to any of the Convertible Subordi- nated Notes to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Convertible Subordinated Notes. "Regular Record Date" means the first or immediately preceding each interest payment date. "Representative" means the Bank Agent and each trustee, agent or other rep- resentative of the holders of any class of Senior Indebtedness (or, with re- spect to any class of Senior Indebtedness which does not have any such trust- ee, agent or other representative, any holder of such Senior Indebtedness act- ing with the consent of the required lenders necessary to bind such class of Senior Indebtedness) who has been so identified in writing to the Trustee and the Company provided, however that solely for the purposes of (S) 11.03 here- of, (i) in the case of the Company's 9.33% Senior Notes, holders, acting as a group, who represent in writing to the Trustee and the Company that they are owners of record of at least 66 2/3% in interest of the Company's outstanding 9.33% Senior Notes, or in the case of the 9.35% Senior Notes, holders, acting as a group, who represent in writing to the Trustee and the Company that they 12 are the owners of record of at least 66 2/3% in interest of the Company's out- standing 9.35% Senior Notes. "Revolving Credit Agreement" means the Credit Agreement dated as of April 26, 1989, among the Company, the lenders party thereto, and the Bank Agent, and any agreement governing Indebtedness incurred to refund or refinance the borrowings, letters of credit and commitments then outstanding or permitted to be outstanding under the Revolving Credit Agreement, in each case together with the related notes and any other instruments and agreements executed from time to time in connection therewith, and in each case as amended, modified, supplemented, extended, renewed, restated, refunded, replaced or refinanced (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time. "Securities Act" means the Securities Act of 1933, as amended. "Senior Notes" means the % Senior Notes due 2003 of the Company offered concurrently with the Convertible Subordinated Notes. "Senior Note Indenture" means that certain indenture by and between the Com- pany and IBJ Schroder Bank & Trust Company, as Trustee, governing the Senior Notes as amended or supplemented from time to time. "Senior Indebtedness" means all present or future Indebtedness of the Com- pany described in clauses (a)(i), (a)(ii), (a)(iv) and (c) of the definition of Indebtedness, created, incurred, assumed or, except to the extent described below, guaranteed (to the extent of the guarantee) by the Company (and all re- newals, modifications, extensions or refundings thereof), together with all other obligations owing in connection therewith, including principal, interest (including interest accruing on any such indebtedness which is Designated Se- nior Indebtedness after the filing of a petition by or against the Company un- der any bankruptcy law, whether or not the claim for such interest is allowed as a claim after such filing in any proceeding under such bankruptcy law), premium, if any, fees, costs, expenses and indemnities unless the instrument under which such Indebtedness is created, incurred, assumed or guaranteed pro- vides that such Indebtedness is not senior or superior in right of payment to the Convertible Subordinated Notes. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include (a) any Indebtedness of the Company owing to any of its subsidiaries, (b) Capitalized Lease Obliga- tions, (c) Indebtedness or other obligations in respect of the Pool- 13 ing and Servicing Agreement, (d) the Company's 9.25% Subordinated Debentures due 2017 and its 7% Convertible Subordinated Debentures due 2012 and (e) any advances, deposits or partial progress payments, payables, unpaid wages and related employee obligations, trade accounts and accrued liabilities. "Stated Maturity" means, with respect to any security or Indebtedness, the date specified therein as the fixed date on which any principal of such secu- rity or Indebtedness is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase thereof at the option of the holder thereof). A "subsidiary" of any Person means (a) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more subsidiaries of such Person or by such Person and one or more sub- sidiaries of such Person or (b) any other Person (other than a corporation) in which such Person, one or more subsidiaries of such Person or such Person and one or more subsidiaries of such Person, directly or indirectly, at the date of determination thereof, have (i) at least a majority ownership interest or (ii) the power to elect or direct the election of the directors or other gov- erning body of such Person. "Time of Determination" means the time and date of the earlier of (i) the record date or determining stockholders entitled to receive their rights, war- rants or distributions referred to in Section 12.04(b) and (c), or (ii) the commencement of "ex-dividend" trading on the exchange or market referred to in the definition of the term "Daily Market Price." "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S) (S) 77aaa- 77-bbbb) as in effect on the date of execution of this Indenture, except as provided in Section 9.03. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor. "Trust Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to admin- ister its corporation trust matters. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock of such Person entitling the holders thereof 14 (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the board of directors or other governing body of such Person. Section 1.02 Other Definitions.
DEFINED IN TERM SECTION ---- ---------- "Asset Sale Offer"............................................... 4.05 "Asset Sale Offer Amount"........................................ 4.05 "Asset Sale Offer Payment Date".................................. 4.05 "Asset Sale Offer Termination Date".............................. 4.05 "Asset Sale Offer Trigger Date".................................. 4.05 "Bankruptcy Law"................................................. 6.01 "business day"................................................... 10.07 "Change of Control Date"......................................... 4.08 "Change of Control Offer"........................................ 4.08 "Change of Control Offer Payment Date"........................... 4.08 "Change of Control Offer Termination Date"....................... 4.08 "Custodian"...................................................... 6.01 "Event of Default"............................................... 6.01 "Expiration Time"................................................ 12.04 "Legal Holiday".................................................. 10.07 "non-electing share"............................................. 12.09 "Other Subordinated Notes"....................................... 11.02 "Paying Agent"................................................... 2.03 "Purchased Shares"............................................... 12.04 "Registrar"...................................................... 2.03 "United States Government Obligations"........................... 8.01
Section 1.03 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the Commission; "indenture securities" means the Convertible Subordinated Notes; "indenture security holder" means a holder of a Convertible Subordinated Note; "indenture to be qualified" means this Indenture; 15 "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Convertible Subordinated Notes means the Company or any other obligor on the Convertible Subordinated Notes. All other terms in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them. Section 1.04 Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) the male, female and neuter genders include one another. ARTICLE 2 The Convertible Subordinated Notes Section 2.01 Form and Dating. The Convertible Subordinated Notes and the Trustee's certificate of authen- tication relating thereto shall be substantially in the form set forth in Ex- hibit A, which is part of this Indenture, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture. The Convertible Subordinated Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company shall approve the form of the Convertible Subordinated Notes and any notation, legend or endorsement on them. Each Convertible Subordinated Note shall be dated the date of its authentication. The terms and provisions contained in the Convertible Subordinated Notes shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution 16 and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.02 Execution and Authentication. Two Officers shall sign the Convertible Subordinated Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Convertible Subordinated Notes. If an Officer whose signature is on a Convertible Subordinated Note no longer holds that office at the time the Convertible Subordinated Note is au- thenticated, the Convertible Subordinated Note shall nevertheless be valid. A Convertible Subordinated Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evi- dence that the Convertible Subordinated Note has been authenticated under this Indenture. Upon a written order of the Company signed by an Officer of the Company, the Trustee shall authenticate Convertible Subordinated Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Convertible Subordinated Notes. The aggregate principal amount of Convertible Subordinated Notes outstanding at any time may not exceed that amount except as provided in Section 2.07. The Convertible Subordinated Notes shall be issuable only in registered form without coupons and only in denominations of $1,000 or any integral multiple thereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Convertible Subordinated Notes. An authenticating agent may au- thenticate Convertible Subordinated Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authen- tication by such agent. An authenticating agent has the same right as an Agent to deal with the Company or an Affiliate of the Company. Section 2.03 Registrar and Paying Agent. The Company shall maintain or cause to be maintained in the Borough of Man- hattan, New York, New York (the "New York Office"), and in such other loca- tions as it shall determine, an office or agency: (i) where securities 17 may be presented for registration of transfer or for exchange ("Registrar"); (ii) where Convertible Subordinated Notes may be presented for payment ("Pay- ing Agent"); and (iii) where notices and demand to or upon the Company in re- spect of Convertible Subordinated Notes and this Indenture may be served by the holders of the Convertible Subordinated Notes. The Registrar shall keep a register of the Convertible Subordinated Notes and of their transfer and ex- change. The Company may appoint one or more co-registrars and one or more ad- ditional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent, Registrar or co-registrar without prior notice. The Company shall notify the Trustee of the name and ad- dress of any Agent not a party to this Indenture and shall enter into an ap- propriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company or any of its subsidiar- ies may act as Paying Agent, Registrar or co-registrar, except that for pur- poses of Articles 3 and 8 and Sections 4.05 and 4.08, neither the Company nor any of its subsidiaries shall act as Paying Agent. If the Company fails to ap- point or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such, and the Trustee shall initially act as such. The Trustee shall cause the New York Office to be maintained as long as it acts as Regis- trar or Paying Agent. Section 2.04 Paying Agent To Hold Money in Trust. The Company shall require each Paying Agent (other than the Trustee, who hereby so agrees), to agree in writing that the Paying Agent will hold in trust for the benefit of holders of the Convertible Subordinated Notes or the Trustee all money held by the Paying Agent for the payment of principal or in- terest on the Convertible Subordinated Notes, and will notify the Trustee of any default by the Company in respect of making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a subsidiary of the Company) shall have no further liability for the money. If the Company or a subsidiary of the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the holders of the Convertible Subor- dinated Notes all money held by it as Paying Agent. 18 Section 2.05 Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of holders of Convertible Subordinated Notes. If the Trustee is not the Registrar, the Com- pany shall furnish to the Trustee at least seven days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of holders of Convertible Subordinated Notes. Section 2.06 Transfer and Exchange. Where Convertible Subordinated Notes are presented to the Registrar or a co- registrar with a request to register a transfer or to exchange them for an equal principal amount of Convertible Subordinated Notes for other denomina- tions, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met. To permit registrations of trans- fers and exchanges, the Company shall issue and the Trustee shall authenticate Convertible Subordinated Notes at the Registrar's request. No service charge shall be made for any registration of transfer or exchange (except as other- wise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.10, 3.06 or 9.05. The Company shall not be required (i) to issue, register the transfer of or exchange Convertible Subordinated Notes during a period beginning at the open- ing of business 15 days before the day of any selection of Convertible Subor- dinated Notes for redemption under Section 3.02 and ending at the close of business on the day of selection, or (ii) to register the transfer or exchange of any Convertible Subordinated Note so selected for redemption in whole or in part, except the unredeemed portion of any Convertible Subordinated Note being redeemed in part. Section 2.07 Replacement Convertible Subordinated Notes. If the holder of a Convertible Subordinated Note claims that the Convertible Subordinated Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Convertible Sub- ordinated Note if the Trustee's requirements are met. If required by the Trustee or the Company as a condition of receiving a replacement Convertible 19 Subordinated Note, the holder of a Convertible Subordinated Note must provide an indemnity bond sufficient, in the judgment of both the Company and the Trustee, to fully protect the Company, the Trustee, any Agent and any authen- ticating agent from any loss which any of them may suffer if the Convertible Subordinated Note is replaced. The Company and the Trustee may charge the rel- evant holder for their expenses in replacing any Convertible Subordinated Note. Every replacement Convertible Subordinated Note is an additional obligation of the Company. Section 2.08 Outstanding Convertible Subordinated Notes. The Convertible Subordinated Notes outstanding at any time are all the Con- vertible Subordinated Notes properly authenticated by the Trustee except for those cancelled by the Trustee, those delivered to it for cancellation, and those described in this Section as not outstanding. If a Convertible Subordinated Note is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Convertible Subordinated Note is held by a bona fide pur- chaser. If Convertible Subordinated Notes are considered paid under Section 4.01, they cease to be outstanding and interest on them ceases to accrue. A Convertible Subordinated Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Convertible Subordinated Note. Section 2.09 When Treasury Convertible Subordinated Notes Disregarded. In determining whether the holders of the required principal amount of Con- vertible Subordinated Notes have concurred in any direction, waiver or con- sent, Convertible Subordinated Notes owned by the Company or an Affiliate of the Company shall be considered as though they are not outstanding except that for the purposes of determining whether the Trustee shall be protected in re- lying on any such direction, waiver or consent, only Convertible Subordinated Notes which the Trustee knows are so owned shall be so disregarded. 20 Section 2.10 Temporary Convertible Subordinated Notes. Until definitive Convertible Subordinated Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Convertible Subordinated Notes. Temporary Convertible Subordinated Notes shall be substan- tially in the form of definitive Convertible Subordinated Notes but may have variations that the Company considers appropriate for temporary Convertible Subordinated Notes. If temporary Convertible Subordinated Notes are issued, the Company will cause definitive Convertible Subordinated Notes to be pre- pared without unreasonable delay. After the preparation of definitive Convert- ible Subordinated Notes, the temporary Convertible Subordinated Notes shall be exchangeable for definitive Convertible Subordinated Notes upon surrender of the temporary Convertible Subordinated Notes at any office or agency of the Company designated pursuant to Section 2.03 without charge to the holder of the Convertible Subordinated Note. Upon surrender for cancellation of any one or more temporary Convertible Subordinated Notes the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like princi- pal amount of definitive Convertible Subordinated Notes of authorized denomi- nations. Until so exchanged, the temporary Convertible Subordinated Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Convertible Subordinated Notes. Section 2.11 Cancellation. The Company at any time may deliver Convertible Subordinated Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Convertible Subordinated Notes surrendered to them for registra- tion of transfer, exchange or payment. The Trustee and no one else shall can- cel Convertible Subordinated Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall dispose of cancelled Convertible Subordinated Notes as the Company directs, provided that the Trustee shall not be required to destroy such Convertible Subordinated Notes. The Company may not issue new Convertible Subordinated Notes to replace Con- vertible Subordinated Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12 Defaulted Interest. If the Company fails to make a payment of interest on the Convertible Subor- dinated Notes, it shall pay such defaulted interest plus, to the extent 21 lawful, any interest payable on the defaulted interest. It may pay such de- faulted interest, plus any such interest payable on it, to the persons who are holders of Convertible Subordinated Notes on a subsequent special record date. The Company shall fix any such record date and payment date. At least 15 days before any such record date, the Company shall mail to holders of the Convert- ible Subordinated Notes a notice that states the record date, payment date and amount of such interest to be paid. Section 2.13 CUSIP Number. The Company in issuing the Convertible Subordinated Notes may use a "CUSIP" number, and if so, such CUSIP number shall be included in notices of redemp- tion or exchange as a convenience to holders of Convertible Subordinated Notes; provided, however, that any such notice may state that no representa- tion is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Convertible Subordinated Notes and that reliance may be placed only on the other identification numbers printed on the Convertible Subordinated Notes. The Company will promptly notify the Trustee of any change in the CUSIP number. ARTICLE 3 Redemption Section 3.01 Notices to Trustee. If the Company elects to redeem Convertible Subordinated Notes pursuant to the optional redemption provisions of paragraph 5 of the Convertible Subordi- nated Notes, it shall notify the Trustee of the redemption date and the prin- cipal amount of Convertible Subordinated Notes to be redeemed. The redemption price shall be the amount determined pursuant to paragraph 5 of the Convert- ible Subordinated Notes. The Company shall give each notice provided for in this Section at least 50 days before the redemption date (unless a shorter notice period shall be sat- isfactory to the Trustee). Section 3.02 Selection of Convertible Subordinated Notes To Be Redeemed. If less than all the Convertible Subordinated Notes are to be redeemed, the Trustee shall select the Convertible Subordinated Notes to be redeemed by 22 lot or pro rata or by a method that complies with the requirements of any ex- change on which the Convertible Subordinated Notes are listed that the Trustee considers fair and appropriate. The Trustee shall make the selection not more than 75 days and not less than 30 days before the redemption date from Con- vertible Subordinated Notes outstanding not previously called for redemption. The Trustee may select for redemption portions of the principal of Convertible Subordinated Notes that have a denomination larger than $1,000. Convertible Subordinated Notes and portions thereof will be redeemed in the amount of $1,000 or integral multiples of $1,000. Provisions of this Indenture that ap- ply to Convertible Subordinated Notes called for redemption also apply to por- tions of Convertible Subordinated Notes called for redemption. The Trustee will make the selection of Convertible Subordinated Notes outstanding and not previously called for redemption. The Trustee shall notify the Company promptly of the Convertible Subordinated Notes or portions of Convertible Sub- ordinated Notes to be called for redemption. Section 3.03 Notice of Redemption. At least 30 days but not more than 60 days before a redemption date, the Company shall mail a notice of redemption to each holder whose Convertible Subordinated Notes are to be redeemed. The notice shall identify the Convertible Subordinated Notes to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) if any Convertible Subordinated Note is being redeemed in part, the portion of the principal amount of such Convertible Subordinated Note to be redeemed and that, after the redemption date, upon surrender of such Convertible Subordinated Note, a new Convertible Subordinated Note or Con- vertible Subordinated Notes in principal amount equal to the unredeemed portion will be issued; (4) that Convertible Subordinated Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) that interest on Convertible Subordinated Notes called for redemp- tion and for which funds have been set apart for payment, ceases to accrue on and after the redemption date (unless the Company defaults in the pay- ment of the redemption price); 23 (6) the paragraph of the Convertible Subordinated Notes pursuant to which the Convertible Subordinated Notes are being redeemed; (7) the aggregate principal amount of Convertible Subordinated Notes that are being redeemed; (8) the CUSIP number of the Convertible Subordinated Notes (provided that the disclaimer permitted by Section 2.13 may be made); (9) the name and address of the Paying Agent; and (10) that Convertible Subordinated Notes called for redemption may be converted at any time prior to the close of business on the redemption date and if not converted prior to the close of business on such date, the right of conversion will be lost. At the Company's request, the Trustee shall give notice of redemption in the Company's name and at its expense. Section 3.04 Effect of Notice of Redemption. Once notice of redemption is mailed, Convertible Subordinated Notes called for redemption become due and payable on the redemption date at the price set forth in the Convertible Subordinated Note. Section 3.05 Deposit of Redemption Price. On or before the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money in immediately available funds sufficient to pay the redemption price of and accrued interest on all Convertible Subordi- nated Notes to be redeemed on that date. The Trustee or the Paying Agent shall return to the Company any money not required for that purpose. Section 3.06 Convertible Subordinated Notes Redeemed in Part. Upon surrender of a Convertible Subordinated Note that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the holder of a Convertible Subordinated Note at the expense of the Company a new Convertible Subordinated Note equal in principal amount to the unredeemed portion of the Convertible Subordinated Note surrendered. 24 ARTICLE 4 Covenants Section 4.01 Payment of Convertible Subordinated Notes. The Company shall pay the principal of and interest on the Convertible Sub- ordinated Notes on the dates and in the manner provided in the Convertible Subordinated Notes. Principal and interest shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company or a subsidi- ary of the Company) holds as of 1:00 P.M. Eastern Time on that date immedi- ately available funds designated for and sufficient to pay all principal and interest then due, provided, however, that money held by the Agent for the benefit of holders of Senior Indebtedness pursuant to the provisions of Arti- cle 11 hereof or the payment of which to the holders of the Convertible Subor- dinated Notes is prohibited by Article 11 shall not be considered to be desig- nated for the payment of any principle of or interest on the Convertible Sub- ordinated Notes within the meaning of this Section 4.01. To the extent lawful, the Company shall pay interest (including post-peti- tion interest in any proceeding under any Bankruptcy Law) on (i) overdue prin- cipal, at the rate borne by Convertible Subordinated Notes, compounded semiannually; and (ii) overdue installments of interest (without regard to any applicable grace period) at the same rate, compounded semiannually. Section 4.02 Commission Reports. So long as any Convertible Subordinated Note is outstanding, the Company shall file with the Commission and, within 15 days after it files them with the Commission, file with the Trustee and thereafter mail promptly or cause the Trustee to mail promptly to the holders of Convertible Subordinated Notes at their addresses as set forth in the register of the Convertible Subordi- nated Notes copies of the annual reports and of the information, documents and other reports which the Company is required to file with the Commission pursu- ant to Section 13 or 15(d) of the Exchange Act or which the Company would be required to file with the Commission if the Company then had a class of secu- rities registered under the Exchange Act. In addition, the Company shall cause its annual report to stockholders and any quarterly or other financial reports furnished to its stockholders generally to be filed with the Trustee, no later than the date such materials are mailed or made available to the Company's stockholders, and thereafter mailed promptly to the holders of 25 Convertible Subordinated Notes at their addresses as set forth in the register of Convertible Subordinated Notes. Section 4.03 Compliance Certificate. The Company shall deliver to the Trustee, within 60 days after the end of the first three fiscal quarters and within 120 days after the end of each fis- cal year of the Company, an Officers' Certificate stating that a review of the activities of the Company and its subsidiaries during the preceding fiscal pe- riod has been made under the supervision of the signing Officers with a view to determining whether the Company has fully performed its obligations under this Indenture and further stating, as to each such Officer signing such cer- tificate, that to the best of his or her knowledge the Company has kept, ob- served, performed and fulfilled each and every covenant contained in this In- denture and is not in default in the performance or observance of any of the terms and conditions hereof (or, if any Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest on the Convertible Subordinated Notes are prohib- ited. The Company shall, so long as any of the Convertible Subordinated Notes are outstanding, deliver to the Trustee, forthwith upon becoming aware of any De- fault, Event of Default or default in the performance of any term or condition in this Indenture, without regard to any period of grace or requirement of no- tice provided hereunder, an Officers' Certificate specifying such Default, Event of Default or default. Section 4.04 Maintenance of Office or Agency. The Company shall maintain or cause to be maintained the office or agency required under Section 2.03. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not maintained by the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Convertible Subordinated Notes may be presented or sur- rendered for any or all such purposes and may from time to time rescind such designation; provided, however, that no such designation or rescission 26 shall in any manner relieve the Company of its obligation to maintain or cause to be maintained an office or agency in the City of New York for such purpose. Section 4.05 Limitation on Sale of Assets. The Company will not, and will not permit any of its subsidiaries to, con- summate any Asset Sale unless such Asset Sale is for at least Fair Market Value and at least 80% of the consideration therefrom received by the Company or such subsidiary is in the form of cash or Cash Equivalents. Following any Asset Sale, an amount equal to the Net Cash Proceeds of such Asset Sale shall be applied by the Company or such subsidiary within 365 days of the date of the Asset Sale, at its election, to either: (a) the payment of Senior Indebtedness; provided, however, any Net Cash Proceeds which are ap- plied to reduce Indebtedness under the Revolving Credit Agreement shall result in a permanent reduction of the borrowing availability thereunder; (b) make any Permitted Program Investment or any other investment in capital assets us- able in the Company's or its subsidiaries' lines of business or in an asset or business in the same line of business as the Company; or (c) a combination of payment and investment permitted by the foregoing clauses (a) and (b). On the earlier of (A) the 366th day after the date of an Asset Sale or (B) such date as the Board of Directors of the Company or of such subsidiary determines (as evidenced by a written resolution of said Board of Directors) not to apply an amount equal to the Net Cash Proceeds relating to such Asset Sale as set forth in the immediately preceding sentence (each of (A) and (B), an "Asset Sale Of- fer Trigger Date"), the Company or such subsidiary shall be obligated to apply an amount equal to aggregate amount of Net Cash Proceeds which have not been applied on or before such Asset Sale Offer Trigger Date as permitted by the foregoing clauses (a), (b) and (c) of the immediately preceding sentence (each an "Asset Sale Offer Amount") to make an offer to purchase for cash (the "As- set Sale Offer") from all holders of Convertible Subordinated Notes on a pro rata basis that amount of Convertible Subordinated Notes equal to the Asset Sale Offer Amount at a price equal to 100% of the principal amount of the Con- vertible Subordinated Notes to be repurchased, plus accrued and unpaid inter- est thereon to the date of repurchase. Notwithstanding the foregoing, if an Asset Sale Offer Amount is less than $10 million, the application of such As- set Sale Offer Amount to an Asset Sale Offer may be deferred until such time as such Asset Sale Offer Amount plus the aggregate amount of all Asset Sale Offer Amounts arising subsequent to such 27 Asset Sale Offer Trigger Date from all Asset Sales by the Company and its sub- sidiaries aggregates at least $10 million, at which time the Company or such subsidiary shall apply all Asset Sale Offer Amounts that have been so deferred to make an Asset Sale Offer (the first date the aggregate of all such deferred Asset Sale Offer Amounts is equal to $10 million or more shall be deemed to be an "Asset Sale Offer Trigger Date"). In the event of the transfer of substantially all (but not all) of the prop- erty and assets of the Company as an entirety to a Person in a transaction permitted under Section 5.01, the successor corporation shall be deemed to have sold the properties and assets of the Company not so transferred for pur- poses of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. Each Asset Sale Offer shall be mailed to the holders of the Convertible Sub- ordinated Notes at the addresses shown on the register of holders maintained by the Registrar with a copy to the Trustee and the Paying Agent, within 10 days following the applicable Asset Sale Offer Trigger Date, and shall comply with each of the procedures for notice set forth below. Each Asset Sale Offer shall remain open until a specified date (the "Asset Sale Offer Termination Date") which is at least 20 business days from the date such Asset Sale Offer is mailed. During the period specified in the Asset Sale Offer, holders of Convertible Subordinated Notes may elect to tender their Convertible Subordi- nated Notes in whole or in part in integral multiples of $1,000 in exchange for cash. Payment shall be made by the Company (or applicable subsidiary) in respect of Convertible Subordinated Notes properly tendered pursuant to this Section on a specified business day (the "Asset Sale Offer Payment Date") which shall be no earlier than three business days after the Asset Sale Offer Termination Date and no later then 60 days after such applicable Asset Sale Offer Trigger Date. To the extent holders of Convertible Subordinated Notes properly tender Convertible Subordinated Notes in an amount exceeding the As- set Sale Offer Amount, Convertible Subordinated Notes of tendering holders will be repurchased on a pro rata basis (based on amounts tendered). The notice, which shall govern the terms of the Asset Sale Offer, shall in- clude such disclosures as are required by law and shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 4.05; 28 (b) the purchase price (including the amount of the accrued interest, if any) for each Convertible Subordinated Note, the Asset Sale Offer Termina- tion Date and the Asset Sale Offer Payment Date; (c) that any Convertible Subordinated Note not tendered or accepted for payment will continue to accrue interest in accordance with the terms thereof; (d) that, unless the Company defaults on making the payment, any Con- vertible Subordinated Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Asset Sale Offer Payment Date; (e) that holders electing to have Convertible Subordinated Notes pur- chased pursuant to an Asset Sale Offer will be required to surrender their Convertible Subordinated Notes to the Paying Agent at the address speci- fied in the notice prior to 5:00 p.m., New York City time, on the Asset Sale Offer Termination Date and must complete any form letter of transmit- tal proposed by the Company and acceptable to the Trustee and the Paying Agent; (f) that holders of Convertible Subordinated Notes will be entitled to withdraw their election if the Paying Agent receives, not later than 5:00 p.m., New York City time, on the Asset Sale Offer Termination Date, a tested telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of Convertible Subordinated Notes the holder delivered for purchase, the Convertible Subordinated Note certifi- cate number (if any) and a statement that such holder is withdrawing his election to have such Convertible Subordinated Notes purchased; (g) that if Convertible Subordinated Notes in a principal amount in ex- cess of the Asset Sale Offer Amount are tendered pursuant to the Asset Sale Offer, the Company shall purchase Convertible Subordinated Notes on a pro rata basis among the Convertible Subordinated Notes tendered (with such adjustments as may be deemed appropriate by the Company so that only Convertible Subordinated Notes in denominations of $1,000 or integral mul- tiples of $1,000 shall be acquired); (h) that holders whose Convertible Subordinated Notes are purchased only in part will be issued new Convertible Subordinated Notes equal in princi- pal amount to the unpurchased portion of the Convertible Subordinated Notes surrendered; and 29 (i) the instructions that holders must follow in order to tender their Convertible Subordinated Notes. On the Asset Sale Offer Termination Date, the Company shall (i) accept for payment Convertible Subordinated Notes or portions thereof tendered pursuant to the Asset Sale Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Convertible Subordinated Notes or portions thereof so tendered and accepted and (iii) deliver to the Trustee the Convert- ible Subordinated Notes so accepted together with an Officers' Certificate setting forth the Convertible Subordinated Notes or portions thereof tendered to and accepted for payment by the Company. On the Asset Sale Offer Payment Date, the Paying Agent shall mail or deliver to the holders of Convertible Subordinated Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or deliver to such holders a new Convertible Subordinated Note equal in principal amount to any unpurchased portion of the Convertible Subordinated Note surrendered. Any Con- vertible Subordinated Notes not so accepted shall be promptly mailed or deliv- ered by the Company to the holder thereof. If an offer is made to repurchase the Convertible Subordinated Notes pursu- ant to an Asset Sale Offer, the Company will and will cause its subsidiaries to comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 4.05, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.05 by virtue thereof. Section 4.06 Continued Existence. Subject to Article 5, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate exist- ence. Section 4.07 Taxes. The Company shall pay prior to delinquency all taxes, assessments and gov- ernmental levies, except as contested in good faith and by appropriate pro- ceedings or where the failure to do so (together with all other such failures) would not have a material adverse effect on the financial condition or results of operations of the Company and its subsidiaries, taken as a whole. 30 Section 4.08 Change of Control. Following a Change of Control (the date of each such occurrence being the "Change of Control Date"), the Company shall notify the holders of Convertible Subordinated Notes in writing of such occurrence and shall make an offer (the "Change of Control Offer") to purchase all Convertible Subordinated Notes then outstanding at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the "Change of Control Offer Pay- ment Date" (as defined below). Notice of a Change of Control shall be mailed by or at the direction of the Company to the holders of Convertible Subordinated Notes as shown on the reg- ister of such holders maintained by the Registrar not less than 15 days nor more than 30 days after the applicable Change of Control Date at the addresses as shown on the register of holders maintained by the Registrar, with a copy to the Trustee and the Paying Agent. The Change of Control Offer shall remain open until a specified date (the "Change of Control Offer Termination Date") which is at least 20 business days from the date such notice is mailed. During the period specified in such notice, holders of Convertible Subordinated Notes may elect to tender their Convertible Subordinated Notes in whole or in part in integral multiples of $1,000 in exchange for cash. Payment shall be made by the Company in respect of Convertible Subordinated Notes properly tendered pursuant to this Section on a specified business day (the "Change of Control Offer Payment Date") which shall be no earlier than 3 business days after the applicable Change of Control Offer Termination Date and no later than 60 days after the applicable Change of Control Date. The notice, which shall govern the terms of the Change of Control Offer, shall include such disclosures as are required by law and shall state: (a) that a Change of Control Offer is being made pursuant to this Sec- tion 4.08 and that all Convertible Subordinated Notes will be accepted for payment; (b) the purchase price (including the amount of accrued interest, if any) for each Convertible Subordinated Note, the Change of Control Offer Termination Date and the Change of Control Offer Payment Date; (c) that any Convertible Subordinated Note not accepted for payment will continue to accrue interest in accordance with the terms thereof; 31 (d) that, unless the Company defaults on making the payment, any Con- vertible Subordinated Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Offer Payment Date; (e) that holders electing to have Convertible Subordinated Notes pur- chased pursuant to a Change of Control Offer will be required to surrender their Convertible Subordinated Notes to the Paying Agent at the address specified in the notice prior to 5:00 p.m., New York City time, on the Change of Control Offer Termination Date and must complete any form letter of transmittal proposed by the Company and acceptable to the Trustee and the Paying Agent; (f) that holders of Convertible Subordinated Notes will be entitled to withdraw their election if the Paying Agent receives, not later than 5:00 p.m., New York City time, on the Change of Control Offer Termination Date, a tested telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of Convertible Subordinated Notes the holder delivered for purchase, the Convertible Subordinated Note certifi- cate number (if any) and a statement that such holder is withdrawing his election to have such Convertible Subordinated Notes purchased; (g) that holders whose Convertible Subordinated Notes are purchased only in part will be issued Convertible Subordinated Notes equal in principal amount to the unpurchased portion of the Convertible Subordinated Notes surrendered; (h) the instructions that holders must follow in order to tender their Convertible Subordinated Notes; and (i) the circumstances and relevant facts regarding such Change of Con- trol (including, but not limited to, information with respect to pro forma historical financial information after giving effect to such Change of Control, information regarding the Persons acquiring control and such Per- sons' business plans going forward). On the Change of Control Offer Termination the Company shall (i) accept for payment Convertible Subordinated Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money suf- ficient to pay the purchase price of all Convertible Subordi- 32 nated Notes or portions thereof so tendered and accepted and (iii) deliver to the Trustee the Convertible Subordinated Notes so accepted together with an Officers' Certificate setting forth the Convertible Subordinated Notes or por- tions thereof tendered to and accepted for payment by the Company. On the Change of Control Payment Date, the Paying Agent shall mail or deliver to the holders of Convertible Subordinated Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail or deliver to such holders a new Convertible Subordinated Note equal in principal amount to any unpurchased portion of the Convertible Subordinated Note surrendered. Any Convertible Subordinated Notes not so accepted shall be promptly mailed or delivered by the Company to the holder thereof. In addition, in the event of any Change of Control, the Company shall not, and shall not permit any of its subsidiaries to, purchase, redeem or otherwise acquire any Indebtedness subordinated or junior to the Convertible Subordi- nated Notes pursuant to any analogous provision relating to such Indebtedness on or prior to the payment in full in cash or Cash Equivalents of all Convert- ible Subordinated Notes, together with accrued and unpaid interest thereon with respect to which the Change of Control Offer was accepted. If an offer is made to redeem Convertible Subordinated Notes as a result of a Change of Control, the Company will be required to comply with all tender offer rules under state and Federal securities laws, including, but not lim- ited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. Section 4.09 Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 7.08, a Trustee, so that there shall at all times be a Trustee hereunder. Section 4.10 Further Instruments and Acts. Upon request of the Trustee, the Company will execute and deliver such fur- ther instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. 33 Section 4.11 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter enforced, that may affect the Company's obligation to pay the Convertible Subordinated Notes; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or ad- vantage of any such law insofar as such law applies to the Convertible Subor- dinated Notes, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. Section 4.12 Investment Company Act. The Company, as of the Issue Date, is not and shall not become an investment company subject to registration under the Investment Company Act of 1940, as amended. ARTICLE 5 Successors Section 5.01 When the Company May Merge, Etc. The Company will not, in a single transaction or series of related transac- tions, consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any Person or adopt a Plan of Liquidation unless: (a) either (i) the Company shall be the surviving or continuing corpora- tion or (ii) the Person (if other than the Company) formed by such consol- idation or into which the Company is merged or the Person which acquires by conveyance, transfer or lease the properties and assets of the Company substantially as an entirety or in the case of a Plan of Liquidation, the Person to which all or substantially all of the assets of the Company have been transferred (1) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (2) shall expressly assume, by supplemental indenture, ex- ecuted and delivered to the Trustee, the due and punctual 34 payment of the principal of, and premium, if any, and interest on all of the Convertible Subordinated Notes and the performance of every covenant of the Convertible Subordinated Notes and this Indenture on the part of the Company to be performed or observed; (b) immediately after giving effect to such transaction and any assump- tion contemplated by clause (a)(ii)(2) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Com- pany (in the case of clause (i) of the foregoing clause (a)) or such Per- son (in the case of clause (ii) thereof) shall have a Consolidated Net Worth (immediately after the transaction but prior to any purchase ac- counting adjustments relating to such transaction) equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (c) immediately before and after giving effect to such transaction and any assumption contemplated by clause (a)(ii)(2) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred in connec- tion with or in respect of the transaction) no Default and no Event of De- fault shall have occurred and be continuing; and (d) the Company or such Person shall have delivered to the Trustee (i) an Officers' Certificate and an Opinion of Counsel (which counsel may be in-house counsel of the Company), each stating that such consolidation, merger, conveyance, transfer or lease or Plan of Liquidation and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this provision of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied and (ii) a certificate from the Company's independent certified public accountants stating that the Company has made the calculations required by clause (b) above in accordance with the terms of this Indenture. For purposes of this Section 5.01, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the trans- fer of all or substantially all of the properties and assets of the Company. 35 Section 5.02 Successor Corporation Substituted. Upon any such consolidation, merger, conveyance, lease or transfer in accor- dance with Section 5.01, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or trans- fer is made will succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor had been named as the Company therein, and thereafter (ex- cept in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obli- gations and covenants under this Indenture and the Convertible Subordinated Notes. Section 5.03 Purchase Option on Change of Control. This Article 5 does not affect the obligations of the Company (including without limitation any successor to the Company) under Section 4.08. ARTICLE 6 Defaults and Remedies Section 6.01 Events of Default. An "Event of Default" with respect to any Convertible Subordinated Notes oc- curs if: (a) the Company defaults in the payment of principal of, or premium, if any, on the Convertible Subordinated Notes when due at maturity, upon re- purchase, upon acceleration or otherwise, including, without limitation, failure of the Company to repurchase the Convertible Subordinated Notes on the date required pursuant to Section 4.05 or following a Change of Con- trol or failure to make any optional redemption payment when due; or (b) the Company defaults in the payment of any installment of interest on the Convertible Subordinated Notes when due (including any interest payable in connection with any optional redemption payment) and continu- ance of such default for more than 30 days; or (c) the Company fails to observe, perform or comply with any of the pro- visions described in Sections 4.05, 4.08 and 5.01, and the failure to 36 remedy such failure prior to the receipt of written notice from the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Convertible Subordinated Notes; or (d) the Company defaults (other than a default set forth in clauses (a), (b) and (c) above) in the performance of, or breach of, any other covenant or warranty of the Company set forth in this Indenture or the Convertible Subordinated Notes and fails to remedy such default or breach within a pe- riod of 60 days after the receipt of written notice from the Trustee or the holders of at least 25% in aggregate principal amount of the then out- standing Convertible Subordinated Notes; or (e) any Indebtedness (other than the Convertible Subordinated Notes) of the Company or of any subsidiary, whether such Indebtedness exists on the Issue Date or shall be incurred thereafter, having, individually or in the aggregate, an outstanding principal amount of $15 million or more, either (i) is declared due and payable prior to its stated maturity or (ii) is not paid upon the final maturity of such Indebtedness; or (f) a court of competent jurisdiction enters one or more judgments or orders against the Company or any subsidiary of the Company or any of their respective property or assets in an aggregate amount in excess of $15 million and they are not covered by insurance written by third par- ties, which judgments or orders have not been vacated, discharged, satis- fied or stayed pending appeal within 60 days from the entry thereof; or (g) the Company or any Material Subsidiary, pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (iv) makes a general assignment for the benefit of its creditors; or (h) a court of competent jurisdiction enters a judgment, order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any Material Subsidiary in an involuntary case, 37 (ii) appoints a Custodian of the Company or any Material Subsidiary for all or substantially all of its property, or (iii) orders the liquidation of the Company or any Material Subsidi- ary, and the order or decree remains unstayed and in effect for 60 days. The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiv- er, trustee, assignee, liquidator or similar official under any Bankruptcy Law. Section 6.02 Acceleration. If an Event of Default (other than an Event of Default specified in clauses (g) and (h) of Section 6.01) occurs and is continuing, then and in every such case the Trustee, by written notice to the Company (with a copy to the Bank Agent, each of the holders of the Company's 9.33% Senior Notes and its 9.35% Senior Notes and any other Representatives of Designated Senior Indebtedness), or the holders of at least 25% in aggregate principal amount of the then out- standing Convertible Subordinated Notes, by written notice to the Company and the Trustee (with a copy to the Bank Agent, each of the holders of the Company's 9.33% Senior Notes and its 9.35% Senior Notes and any other Repre- sentatives of Designated Senior Indebtedness), may declare the unpaid princi- pal of and accrued interest on all the Convertible Subordinated Notes to be due and payable, provided, however that failure to provide a copy of such no- tice to any party other than the Company and the Trustee shall have no effect on any such declaration. Upon such declaration such principal amount, premium, if any, and accrued and unpaid interest shall become immediately due and pay- able, notwithstanding anything contained in this Indenture or the Convertible Subordinated Notes to the contrary but subject to the provisions of Article 11 hereof; and provided further, that so long as any Designated Senior Indebted- ness is outstanding, any such declaration shall not be effective until the earlier of (a) five business days after the delivery of such notice to the Company or (b) the acceleration of any Designated Senior Indebtedness. If any Event of Default with respect to the Company specified in clauses (g) or (h) of Section 6.01 occurs, all unpaid principal of and premium, if any, and ac- crued and unpaid interest on the Convertible Subordinated Notes then outstand- ing shall become automatically due and payable subject to the provisions of Article 11 hereof, without any declaration or other act on the part of the Trustee or any holder of Convertible Subordinated Notes. 38 The holders of a majority in principal amount of the then outstanding Con- vertible Subordinated Notes by notice to the Trustee may rescind an accelera- tion of the Convertible Subordinated Notes and its consequences if all exist- ing Events of Default (other than nonpayment of principal of or premium, if any, and interest on the Convertible Subordinated Notes which has become due solely by virtue of such acceleration) have been cured or waived and if the rescission would not conflict with any judgment or decree of any court of com- petent jurisdiction. No such rescission shall affect any subsequent Default or Event of Default or impair any right consequent thereto. Section 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Convertible Subordinated Notes or to enforce the performance of any provision of the Convertible Subordinated Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Convertible Subordinated Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any holder of a Convert- ible Subordinated Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04 Waiver of Past Defaults. The holders of a majority in aggregate principal amount of the Convertible Subordinated Notes then outstanding may, on behalf of the holders of all the Convertible Subordinated Notes waive an existing Default or Event of Default and its consequences, except a Default or Event of Default in the payment of the principal of or interest on the Convertible Subordinated Notes (other than the non-payment of principle of and premium, if any, and interest on the Con- vertible Subordinated Notes which has become due solely by virtue of an accel- eration which has been duly rescinded as provided above), or in respect of a covenant or provision of this Indenture which cannot be modified or amended without the consent of all holders of convertible Subordinated Notes. When a Default is waived, it is cured and stops continuing. No waiver shall extend to any subsequent or other Default or impair any right consequent thereon. 39 Section 6.05 Control by Majority. The holders of a majority in principal amount of the then outstanding Con- vertible Subordinated Notes may direct the time, method and place of con- ducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee de- termines may be unduly prejudicial to the rights of other holders of Convert- ible Subordinated Notes or that may involve the Trustee in personal liability; provided, that the Trustee may take any other action the Trustee deems proper that is not inconsistent with such directions. Section 6.06 Limitation on Suits. A holder of a Convertible Subordinated Note may not pursue any remedy with re- spect to this Indenture or the Convertible Subordinated Notes unless: (1) the holder gives to the Trustee notice of a continuing Event of De- fault; (2) the holders of at least 25% in principal amount of the then out- standing Convertible Subordinated Notes make a request to the Trustee to pursue the remedy; (3) such holder or holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (5) during such 60-day period the holders of a majority in principal amount of the then outstanding Convertible Subordinated Notes do not give the Trustee a direction inconsistent with the request. A holder of a Convertible Subordinated Note may not use this Indenture to prejudice the rights of another holder or to obtain a preference or priority over another holder. Section 6.07 Rights of Holders To Receive Payment. Subject to the provisions of Article 11 hereof, notwithstanding any other provision of this Indenture, the right of any holder of a Convertible Subordi- 40 nated Note to receive payment of principal and interest on the Convertible Subordinated Note, on or after the respective due dates expressed in the Con- vertible Subordinated Note, or to bring suit for the enforcement of any such payment on or after such respective dates, and such rights shall not be im- paired or affected without the consent of the holder of a Convertible Subordi- nated Note. Section 6.08 Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal and in- terest remaining unpaid on the Convertible Subordinated Notes and interest on overdue principal and interest and such further amount as shall be sufficient to cover the costs and, to the extent lawful, expenses of collection, includ- ing the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the holders of Convertible Subordinated Notes allowed in any judicial proceed- ings relative to the Company, its creditors or its property. Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any holder of a Convertible Subordinated Note any plan of reorganization, arrangement, adjustment or composition affecting the Convertible Subordinated Notes or the rights of any holder thereof, or to au- thorize the Trustee to vote in respect of the claim of any holder in any such proceeding. Section 6.10 Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.07, including pay- ment of all compensation, expenses and liabilities incurred, and all ad- vances made, by the Trustee, and the costs and expenses of collection; 41 Second: to holders of Senior Indebtedness to the extent required by Ar- ticle 11; Third: to holders of Convertible Subordinated Notes for amounts due and unpaid on the Convertible Subordinated Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Convertible Subordinated Notes for princi- pal and interest, respectively; and Fourth: to the Company. Except as otherwise provided in Section 2.12, the Trustee may fix a record date and payment date for any payment to holders of Convertible Subordinated Notes. Section 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party liti- gant in the suit, other than the Trustee, of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, in- cluding reasonable attorneys fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a holder pursuant to Section 6.07 or a suit by holders of more than 10% in principal amount of the then outstanding Convertible Subordinated Notes. ARTICLE 7 The Trustee The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. Whether or not herein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article 7. Section 7.01 Duties of the Trustee. (a) If an Event of Default known to the Trustee has occurred and is continu- ing, the Trustee shall exercise such of the rights and powers vested in 42 it by this Indenture and use the same degree of care and skill in their exer- cise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) Except during the continuance of an Event of Default known to the Trust- ee: (1) The duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those du- ties that are specifically set forth in this Indenture and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) In the absence of bad faith on its part, the Trustee may conclu- sively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the form required by this Indenture. (c) The Trustee may not be relieved from liability for its own negligent ac- tion, its own negligent failure to act or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section; (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) Whether or not therein expressly so provided, every provision of this Indenture that is in any way related to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability in the performance of any of its du- ties or the exercise of any of its rights and powers hereunder. The Trustee may refuse to perform any duty or exercise any right or power unless it re- ceives indemnity satisfactory to it against any loss, liability or expense. 43 (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02 Rights of the Trustee. (a) The Trustee may rely on and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, or any other certifi- cate, statement, instrument, opinion, report, notice, request, consent, order, security or other document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter contained therein. (b) Any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evi- dence in respect thereof is herein specifically prescribed). In addition, be- fore the Trustee acts or refrains from acting, it may require an Officers' Certificate, an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Of- ficers' Certificate or Opinion of Counsel. The Trustee may consult with coun- sel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in re- liance thereon. (c) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its attorneys and agents and other Persons not regularly in its employ and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its discretion, rights or powers. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by Officers of the Company. (f) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. 44 (g) The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Indenture at the request, order or discretion of any of the holders of Convertible Subordinated Notes pursuant to the provi- sions of this Indenture, unless such holders have offered to the Trustee rea- sonable security or indemnity against the costs, expenses and liabilities which might be incurred therein or thereby. (h) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opin- ion, report, notice, request, consent, order, security or other document un- less requested in writing to do so by the holders of not less than a majority in aggregate principal amount of the Convertible Subordinated Notes then out- standing, provided that, if the Trustee determines in its sole and absolute discretion to make any such investigation, then it shall be entitled, upon reasonable prior notice and during normal business hours, to examine the books and records and the premises of the Company, personally or by agent or attor- ney, and the reasonable expenses of every such examination shall be paid by the Company or, if paid by the Trustee or any predecessor Trustee, shall be reimbursed by the Company upon demand. Section 7.03 Individual Rights of the Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Convertible Subordinated Notes with the same rights it would have if it were not the Trustee and may otherwise deal with the Company or an Af- filiate and receive, collect, hold and retain collections from the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. Section 7.04 Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Convertible Subordinated Notes. It shall not be accountable for the Company's use of the proceeds from the Convertible Subordinated Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture. It shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any state- ment or recital herein or any statement in the Convertible Subordinated 45 Notes or any other document in connection with the sale of the Convertible Subordinated Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05 Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each holder of a Convertible Subor- dinated Note a notice of the Default or Event of Default within 45 days after it occurs. A Default or an Event of Default shall not be considered known to the Trustee unless it is a Default or Event of Default in the payment of prin- cipal or interest when due under Section 6.01(a) or (b) or the Trustee shall have received notice thereof, in accordance with this Indenture, from the Com- pany or from the holders of a majority in principal amount of the outstanding Convertible Subordinated Notes. Except in the case of a Default or Event of Default in payment of principal or interest on any Convertible Subordinated Note, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interest of the holders of the Convertible Subordinated Notes. Section 7.06 Reports by the Trustee to Holders. Within 60 days after the reporting date stated in Section 10.10, the Trustee shall mail to holders of Convertible Subordinated Notes a brief report dated as of such reporting date that complies with TIA ((S)) 313(a) (but if no event described in TIA ((S)) 313(a) has occurred within twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA ((S)) 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA ((S)) 313(c). A copy of each report at the time of its mailing to holders of Convertible Subordinated Notes shall be filed, at the expense of the Company, by the Trustee with the Commission and each stock exchange, if any, on which the Con- vertible Subordinated Notes are listed. The Company shall timely notify the Trustee when the Convertible Subordinated Notes are listed on any stock ex- change. 46 Section 7.07 Compensation and Indemnity. The Company shall pay to the Trustee from time to time and the Trustee shall be entitled to reasonable compensation for its acceptance of this Indenture and its services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by or on behalf of it in addition to the compensation for its services. Such expenses may include the reasonable compensation, disbursements and expenses of the Trustee's agents, counsel and other Persons not regularly in its employ. The Company shall indemnify the Trustee against any loss, liability or ex- pense incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture and the trusts hereunder, including the costs and expenses of defending itself against or investigating any claim of liability in the premises, except as set forth in the next para- graph. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim with counsel designated by the Company, who may be outside counsel to the Company but shall in all events be reasonably satisfactory to the Trustee, and the Trustee shall cooperate in the defense. In addition, the Trustee may retain one separate counsel and, if deemed advisable by such counsel, local counsel, and the Company shall pay the reasonable fees and expenses of such separate counsel and local counsel. The indemnification herein extends to any settlement, provided that the Company will not be liable for any settlement made without its consent, provided, further, that such consent will not be un- reasonably withheld. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or bad faith. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Convertible Subordinated Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on Convertible Subordinated Notes. Such Liens and the Company's obligations under this Section shall survive the satisfac- tion and discharge of this Indenture. 47 When the Trustee incurs expenses or renders services after an Event of De- fault specified in Section 6.01(g) or (h) occurs, the expenses and the compen- sation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bank- ruptcy Law. Section 7.08 Replacement of the Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign at any time and be discharged from the trust hereby created by so notifying the Company. The holders of a majority in principal amount of the then outstanding Convertible Subordinated Notes may remove the Trustee by so notifying the Trustee and the Company in writing and may appoint a successor Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a Custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trust- ee. Within one year after the successor Trustee takes office, the holders of a majority in principal amount of the then outstanding Convertible Subordinated Notes may appoint a successor Trustee to replace the successor Trustee ap- pointed by the Company. If a successor Trustee does not take office within 60 days after the retir- ing Trustee resigns or is removed, the retiring Trustee, the Company or the holders of at least 10% in principal amount of the then outstanding Convert- ible Subordinated Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. 48 If the Trustee after written request by any holder of a Convertible Subordi- nated Note who has been a holder for at least six months fails to comply with Section 7.10, such holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Inden- ture. The successor Trustee shall mail a notice of its succession to holders of Convertible Subordinated Notes. The retiring Trustee shall promptly trans- fer all property held by it as Trustee to the successor Trustee, provided that all sums owing to the retiring Trustee hereunder have been paid and subject to the lien provided for in Section 7.07. Notwithstanding the replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in the preceding paragraph. Section 7.09 Successor Trustee by Merger, etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corpo- ration or national banking association without any further act shall be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee herein. Section 7.10 Eligibility, Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA ((S)) 310(a)(1). The Trustee shall always have a combined capital and sur- plus as stated in Section 10.10. The Trustee is subject to TIA ((S)) 310(b) regarding the disqualification of a trustee upon acquiring a conflicting in- terest. 49 Section 7.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA ((S)) 311(a), excluding any creditor rela- tionship set forth in TIA ((S)) 311(b). A Trustee who has resigned or been re- moved shall be subject to TIA ((S)) 311(a) to the extent indicated therein. ARTICLE 8 Satisfaction and Discharge of Indenture Section 8.01 Termination of Company's Obligations. (i) This Indenture shall cease to be of further effect (except that the Company's obligations under Section 7.07 and 8.03 shall survive) when all outstanding Convertible Subordinated Notes theretofore authenticated and issued have been delivered (other than destroyed, lost or stolen Convert- ible Subordinated Notes that have been replaced or paid) to the Trustee for cancellation and the Company has paid all sums payable hereunder. In addition, the Company may terminate its obligations under this Indenture (except the Company's obligations under Sections 7.07 and 8.03) if, under terms satisfactory to the Trustee: (a) the Convertible Subordinated Notes have either become due and payable or are by their terms due and payable within one year or scheduled for redemption within one year; and (b) the Company irrevocably deposits in trust with the Trustee money or United States Government Obligations (defined below in this Section 8.01), or a combination thereof, sufficient, without consideration of the reinvestment of interest in the opinion of the chief financial officer of the Company expressed in a written certificate delivered to the Trustee, to pay prin- cipal and interest on the Convertible Subordinated Notes to maturity or upon redemption, as the case may be. The Company may make the deposit only if Article 11 permits it. However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 4.01, 4.04, 7.07, 7.08, 8.03 and 8.04 shall survive until the Convertible Sub- ordinated Notes are no longer outstanding. Thereafter, only the Company's ob- ligations in Sections 7.07 and 8.03 shall survive. After a deposit made pursuant to this Section 8.01, the Trustee upon request of the Company shall acknowledge in writing the discharge of the 50 Company's obligations under this Indenture except for those surviving obliga- tions specified above. In addition, the Company may elect to have either clause (ii) or clause (iii) below be applied to the outstanding Convertible Subordinated Notes upon compliance with the conditions set forth in clause (iv) below. (ii) Upon the Company's exercise under the last sentence of paragraph (i) above of the option applicable to this paragraph (ii), the Company shall be deemed to have been released and discharged from its obligations with respect to the outstanding Convertible Subordinated Notes on the date the conditions set forth below are satisfied ("legal defeasance"). For this purpose, legal defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Convertible Subordi- nated Notes, which shall thereafter be deemed to be "outstanding" only for the purpose of the Sections of and matters under this Indenture referred to in subclauses (A), (B), (C) and (D) of this clause (ii), and to have satisfied all its other obligations under such Convertible Subordinated Notes and this Indenture insofar as such Convertible Subordinated Notes are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following, which shall survive until otherwise terminated or discharged hereunder: (A) the rights of holders of outstanding Convertible Subordinated Notes to receive solely from the trust fund described in clause (iv) below and as more fully set forth in such clause, payments in respect of the principal of premium, if any, and interest on such Convertible Subordinated Notes when such payments are due, (B) the Company's obligations with respect to such Convertible Subordinated Notes when such payments are due, (C) the Company's obligations with respect to such Con- vertible Subordinated Notes under Sections 2.03, 2.05, 2.06, 2.07 and 4.04, and, with respect to the Trustee, under Section 7.07, (D) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (E) this Section 8.01 and Sections 8.03 and 8.04. Subject to compliance with this Section 8.01, the Company may exercise its option under this clause (ii) notwithstanding the prior exercise of its option under paragraph (iii) below with respect to the Convertible Subordinated Notes. (iii) Upon the Company's exercise under the last sentence of clause (i) of the option applicable to this clause (iii), the Company shall be released and discharged from its obligations under any covenant contained in Article 4 51 (except for Sections 4.01 and 4.04) and Article 5 with respect to the out- standing Convertible Subordinated Notes on and after the date the conditions set forth below are satisfied ("covenant defeasance"), and the Convertible Subordinated Notes shall thereafter be deemed to be not "outstanding" for the purpose of any direction, waiver, consent or declaration or act of holders of Convertible Subordinated Notes (and the consequences of any thereof) in con- nection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the outstanding Convertible Subordinated Notes, the Com- pany may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such cove- nant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not consti- tute a Default or an Event of Default under Section 6.01 but, except as speci- fied above, the remainder of this Indenture (including without limitation ob- ligations set forth in Sections 8.03 and 8.04 hereof) and such Convertible Subordinated Notes shall be unaffected thereby. (iv) The following shall be the conditions to the application of either clause (ii) or (iii) above to the outstanding Convertible Subordinated Notes: (a) the Company has irrevocably deposited in trust with the Trustee or, at the option of the Trustee, with a trustee, satisfactory to the Trustee and the Company, under terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, cash in U.S. dollars, United States Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of the Chief Financial Officer of the Com- pany expressed in a written certificate delivered to the Trustee, to pay the principal of, premium, if any, and interest on the outstanding Con- vertible Subordinated Notes on the stated maturity or on the applicable redemption date, as the case may be, of such principal or installment of principal of, premium, if any, or interest on the outstanding Convertible Subordinated Notes; provided that (i) the trustee of the irrevocable trust shall have been irrevocably instructed to pay such money or the proceeds of such United States Government Obligations to the Trustee, (ii) the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such United States Government Obligations to 52 the payment of said principal and interest with respect to the Convertible Subordinated Notes, and (iii) such deposit does not violate Article 11 hereto; (b) in the case of an election under clause (ii) above, the Company shall have delivered to the Trustee an Opinion of Counsel from nationally recognized counsel reasonably acceptable to the Trustee stating that(x) the Company has received from, or there has been published by, the Inter- nal Revenue Service a ruling or (y) since the date of this Indenture, there has been a change in the applicable federal income tax law, in ei- ther case to the effect that the holders of the outstanding Convertible Subordinated Notes will not recognize income, gain or loss for federal in- come tax purposes as a result of such legal defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same time as would have been the case if such legal defeasance had not oc- curred; (c) in the case of an election under clause (iii) above, the Company shall have delivered to the Trustee an Opinion of Counsel from nationally recognized counsel reasonably acceptable to the Trustee (i) to the effect that the holders of the outstanding Convertible Subordinated Notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same time as would have been the case if such covenant defeasance had not occurred or (ii) that the Company has received from, or there has been published by, the Internal Revenue Service a ruling to the foregoing effect; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (e) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default or Event of Default under, any material agreement or instrument (including any agreement or instru- ment governing or evidencing Designated Senior Indebtedness) to which the Company or any of its subsidiaries is bound; (f) The Company shall deliver to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolven- cy, reorganization or similar laws affecting creditors' rights generally; 53 (g) the Company shall have delivered to the Trustee an Officers' Certif- icate stating that the deposit was not made by the Company with the intent of preferring the holders of Convertible Subordinated Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (h) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that all conditions precedent provided for relating to the legal defeasance under clause (ii) above or the cove- nant defeasance under clause (iii) above, as the case may be, have been complied with. After such irrevocable deposit made pursuant to this Section 8.01 (and sat- isfaction of the other conditions set forth herein), the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified above. As used herein, "United States Government Obligations" means obligations for which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. Section 8.02 Application of Trust Money. The Trustee shall hold in trust money or United States Government Obliga- tions deposited with it pursuant to Section 8.01. It shall apply the deposited money and the money from United States Government Obligations through the Pay- ing Agent and in accordance with this Indenture to the payment of principal and interest on the Convertible Subordinated Notes. Money and securities so held in trust are not subject to Article 11. Section 8.03 Repayment to Company. The Trustee and the Paying Agent shall promptly pay to the Company upon re- quest any excess money or securities held by them at any time. 54 The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains un- claimed for two years after the date upon which such payment shall have become due; provided, however, that the Company shall have first caused notice of such payment to the Company to be mailed to each holder of a Convertible Sub- ordinated Note entitled thereto no less than 30 days prior to such payment. After payment to the Company, holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned prop- erty law designates another person and all liability of the Trustee and such Paying Agent with respect to such money shall cease. Section 8.04 Reinstatement. If the Trustee or Paying Agent is unable to apply any money in accordance with Section 8.02 by reason of any order or judgment of any court or govern- mental authority enjoining, restraining or otherwise prohibiting such applica- tion, the Company's obligations under this Indenture and the Convertible Sub- ordinated Notes shall be revived and reinstated as though no deposit had oc- curred pursuant to Section 8.01 until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02; provid- ed, however, that if the Company makes any payment of interest on or principal of any Convertible Subordinated Note following the reinstatement of its obli- gations, the Company shall be subrogated to the rights of the holders of such Convertible Subordinated Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 Amendments Section 9.01 Without the Consent of Holders. The Company and the Trustee may amend this Indenture or the Convertible Sub- ordinated Notes without notice to or the consent of any holder of a Convert- ible Subordinated Note for the purposes of: (a) adding to the covenants of the Company for the benefit of the hold- ers of Convertible Subordinated Notes; (b) surrendering any right or power herein conferred upon the Company; 55 (c) providing for conversion rights of holders of Convertible Subordi- nated Notes in the event of consolidation, merger or sale of all or sub- stantially all of the assets of the Company and to otherwise comply with Section 5.01; (d) evidencing the succession of another Person to the Company and the assumption by such successor of the covenants and obligations of the Com- pany thereunder and in the Convertible Subordinated Notes as permitted herein; (e) reducing the Conversion Price, provided that such reduction will not adversely affect the interests of holders of Convertible Subordinated Notes in any material respect; or (f) curing any ambiguity or correcting or supplementing any defective provision contained in this Indenture, or making any other changes in the provisions of this Indenture which the Company and the Trustee may deem necessary or desirable and which will not adversely affect the interest of the holders of Convertible Subordinated Notes in any material respect. Section 9.02 With the Consent of Holders. Subject to Section 6.07, the Company and the Trustee may amend this Inden- ture or the Convertible Subordinated Notes with the written consent of the holders of at least a majority in principal amount of the then outstanding Convertible Subordinated Notes. Subject to Sections 6.04 and 6.07, the holders of a majority in principal amount of the Convertible Subordinated Notes then outstanding may also waive compliance in a particular instance by the Company with any provision of this Indenture or the Convertible Subordinated Notes. However, without the consent of each holder of a Convertible Subordinated Note affected, an amendment or waiver under this Section may not: (a) reduce the amount of Convertible Subordinated Notes whose holders must consent to an amendment or waiver; (b) reduce the rate of, or extend the time for payment of, interest, in- cluding defaulted interest, on any Convertible Subordinated Note; 56 (c) reduce the principal of or premium on or change the fixed maturity of any Convertible Subordinated Note or alter redemption provisions with respect thereto; (d) make the principal of, or premium, if any, or interest on, any Con- vertible Subordinated Note payable in money other than as provided for herein and in the Convertible Subordinated Notes; (e) waive continuing default in the payment of the principal of or pre- mium, if any, or interest on, redemption or repurchase payment with re- spect to, any Convertible Subordinated Notes, including without limitation a continuing failure to make payment when required upon a Change of Con- trol or after an Asset Sale Offer Trigger Date; (f) after the Company's obligation to purchase the Convertible Subordi- nated Notes arises hereunder, to then amend, modify or change the obliga- tion of the Company to make or consummate a Change of Control Offer in the event of a Change of Control or an Asset Sale Offer in the event of an As- set Sale Offer Trigger Date or waive any default in the performance thereof or modify any of the provisions or definitions with respect to such offers; (g) modify the provision contained herein relating to conversion of or subordination of the Convertible Subordinated Notes in a manner adverse to the holders thereof; or (h) make any change in provisions relating to waivers of defaults, the abilities of holders of Convertible Subordinated Notes to enforce their rights hereunder or the provisions of clauses (a) through (h) of this Sec- tion 9.02. To secure a consent of the holders of Convertible Subordinated Notes under this Section, it shall not be necessary for such holders to approve the par- ticular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment or waiver under this Section becomes effective, the Com- pany shall mail to holders of Convertible Subordinated Notes a notice briefly describing the amendment or waiver. The Company agrees that no amendment, supplement or waiver under this Arti- cle 9 may make any change that adversely affects the rights under Article 11 of any holders of any Designated Senior Indebtedness unless the 57 percentage of holders necessary to amend or waive terms of such Designated Se- nior Indebtedness consent to such change. Section 9.03 Compliance with the Trust Indenture Act. Every amendment to this Indenture or the Convertible Subordinated Notes shall be set forth in a supplemental indenture that complies with the TIA as then in effect. Section 9.04 Revocation and Effect of Consents. Until an amendment or waiver becomes effective, a consent to it by a holder of a Convertible Subordinated Note is a continuing consent by the holder and every subsequent holder of a Convertible Subordinated Note or portion of a Convertible Subordinated Note that evidences the same debt as the consenting holder's Convertible Subordinated Note, even if notation of the consent is not made on any Convertible Subordinated Note. However, any such holder or subse- quent holder may revoke the consent as to his or her Convertible Subordinated Note or portion of a Convertible Subordinated Note if the Trustee receives the notice of revocation before the date on which the Trustee receives an Offi- cers' Certificate certifying that the holders of the requisite principal amount of Convertible Subordinated Notes have consented to the amendment or waiver. The Company may, but shall not obligated to, fix a record date for the pur- pose of determining the holders of Convertible Subordinated Notes entitled to consent to any amendment or waiver. If a record date is fixed, then notwith- standing the provisions of the immediately preceding paragraph, those persons who were holders of Convertible Subordinated Notes at such record date (or their duly designated proxies), and only those persons, shall be entitled to consent to such amendment or waiver or to revoke any consent previously given, whether or not such persons continue to be holders after such record date. No consent shall be valid or effective for more than 90 days after such record date unless consents from holders of the principal amount of Convertible Sub- ordinated Notes required hereunder for such amendment or waiver to be effec- tive shall have also been given and not revoked within such 90-day period. After an amendment or waiver becomes effective it shall bind every holder of a Convertible Subordinated Note, unless it is of the type described in any of 58 clauses (1) through (9) of Section 9.02. In such case, the amendment or waiver shall bind each holder of a Convertible Subordinated Note who has consented to it. Section 9.05 Notation on or Exchange of Convertible Subordinated Notes. Convertible Subordinated Notes authenticated and delivered after the execu- tion of any supplemental indenture pursuant to this Article 9 may, and shall if required by the Trustee, bear a notation in the form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Convertible Subordinated Notes so modified as to conform, in the opinion of the Company and the Trustee, to any such supple- mental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for outstanding Convertible Subordi- nated Notes. Section 9.06 Trustee Protected. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if such amendment or supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing such amendment or supplemental indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or supplemental indenture is authorized or permitted by this Indenture, that it is not incon- sistent herewith, and that it will be valid and binding upon the Company in accordance with its terms. ARTICLE 10 General Provisions Section 10.01 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA ((S)) 318(c), the imposed duties shall control. 59 Section 10.02 Notices. Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person or mailed by first-class mail, with postage prepaid (registered or certified, return receipt request- ed), facsimile or overnight air couriers guaranteeing next day delivery, to the other's address stated in Section 10.10. The Company or the Trustee by no- tice to the other may designate additional or different addresses for subse- quent notices or communications. All notices and communications (other than those sent to holders of Convert- ible Subordinated Notes) shall be deemed to have been duly given at the time delivered by hand, if personally delivered; five business days after being de- posited in the mail, postage prepaid, if mailed; when transmission confirmed, if transmitted by facsimile; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day deliv- ery. Any notice or communication to a holder of a Convertible Subordinated Note shall be mailed by first-class mail, with postage prepaid, to his or her ad- dress shown on the register kept by the Registrar. Failure to mail a notice or communication to a holder or any defect in it shall not affect its sufficiency with respect to other holders. If a notice or communication is sent in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company sends a notice or communication to holders of Convertible Subordinated Notes, it shall send a copy to the Trustee and each Agent at the same time. All other notices or communications shall be in writing. Section 10.03 Communication by Holders With Other Holders. Holders may communicate pursuant to TIA ((S)) 312(b) with other holders with respect to their rights under this Indenture or the Convertible Subordinated Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA ((S)) 312(c). 60 Section 10.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfac- tory to the Trustee (which shall include the statements set forth in Sec- tion 10.05) stating that, in the opinion of such person, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 10.05) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. Section 10.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA ((S)) 314(a)(4)) shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such cer- tificate or opinion are based; (3) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condi- tion has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Any Officers' Certificate may be based, insofar as it relates to legal mat- ters, upon an Opinion of Counsel, unless such Officer knows that the opinion with respect to the matters upon which his certificate may be based as afore- said is erroneous. Any Opinion of Counsel may be based, insofar as it relates to factual matters, upon certificates, statements or opinions of, or represen- tations by an officer or officers of the Company, or other persons or firms deemed 61 appropriate by such counsel, unless such counsel knows that the certificates, statements or opinions or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are er- roneous. Any Officers' Certificate, statement or Opinion of Counsel may be based, in- sofar as it relates to accounting matters, upon a certificate or opinion of or representation by an accountant (who may be an employee of the Company), or firm of accountants, unless such Officer or counsel, as the case may be, knows that the certificate or opinion or representation with respect to the account- ing matters upon which his certificate, statement or opinion may be based as aforesaid is erroneous. Section 10.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or a meeting of holders of Convertible Subordinated Notes. The Registrar or Paying Agent may make rea- sonable rules and set reasonable requirements for its functions. Section 10.07 Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institu- tions in the City of New York are not required to be open, and a business day is any day that is not a Legal Holiday. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next suc- ceeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 10.08 No Recourse Against Others. No director, officer, employee or stockholder, as such, of the Company from time to time shall have any liability for any obligations of the Company under the Convertible Subordinated Notes or this Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each holder by accepting a Convertible Subordinated Note waives and releases all such liability. This waiver and release are part of the consideration for the Convertible Subordinated Notes. Each of such directors, officers, employees and stockholders is a third party beneficiary of this Section 10.08. Section 10.09 Counterparts. This Indenture may be executed in any number of counterparts and by the par- ties hereto in separate counterparts, each of which when so executed 62 shall be deemed to be an original and all of which taken together shall con- stitute one and the same agreement. Section 10.10 Other Provisions. The Company initially appoints the Trustee as Paying Agent, Registrar and authenticating agent. The first certificate pursuant to Section 4.03 shall be for the first full fiscal quarter of the Company following the issuance of Convertible Subordi- nated Notes hereunder. The reporting date for Section 7.06 is April 15 of each year. The first re- porting date is the first April 15 following the issuance of Convertible Sub- ordinated Notes hereunder. The Trustee shall always have, or shall be a subsidiary of a bank or bank holding company which has, a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condi- tion. The Company's address is: Rohr, Inc. 850 Lagoon Drive Chula Vista, CA 91910 Attention: General Counsel Facsimile: (619) 691-4222 Telephone: (619) 691-2025 The Trustee's address is: The Bank of New York 101 Barclay Street, 21st Floor West New York, New York 10286 Attention: Corporate Trust Administration Facsimile: (212) 815-5915 Telephone: (212) 815-5736 63 The Bank Agent's address is: Citicorp USA, Inc. c/o Citicorp North America, Inc. 725 South Figueroa Street Los Angeles, CA 90017 Attention: Airline and Aerospace Group Facsimile: (213) 623-3592 Section 10.11 Governing Law. The internal laws of the State of New York shall govern this Indenture and the Convertible Subordinated Notes, without regard to the conflict of laws provisions thereof. Section 10.12 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a subsidiary. Any such other indenture, loan or debt agreement may not be used to interpret this Indenture. Section 10.13 Successors. All agreements of the Company in this Indenture and the Convertible Subordi- nated Notes shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. Section 10.14 Severability. In case any provision in this Indenture or in the Convertible Subordinated Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 10.15 Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or re- strict any of the terms or provisions hereof. 64 ARTICLE 11 Subordination Section 11.01 Agreement To Subordinate. The Company agrees, and each holder by accepting a Convertible Subordinated Note agrees, that the indebtedness evidenced by the Convertible Subordinated Notes is subordinated and junior in right of payment, to the extent and in the manner provided in this Article, to the prior payment in full in cash [or Cash Equivalents] of all Senior Indebtedness and that the subordination is for the benefit of the holders of Senior Indebtedness from time to time. Section 11.02 Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation, reorga- nization or dissolution of the Company (in each case whether total or partial) or in a bankruptcy, reorganization, insolvency, receivership or similar pro- ceeding or upon assignment for the benefit of creditors relating to the Com- pany or its property, or a marshalling of assets or liabilities of the Company (in each case whether voluntary or involuntary); (1) holders of Senior Indebtedness shall first be entitled to be paid all obligations owing thereon or in respect thereof in full in cash or Cash Equivalents before any payment or distribution may be made on or in respect of the Convertible Subordinated Notes, except to the extent that holders receive securities that are subordinated to Senior Indebtedness to at least the same extent as the Convertible Subordinated Notes (the "Other Subordinated Securities"); and (2) holders of Convertible Subordinated Notes (or the Trustee on their behalf) will be required to pay over their share of such distribution di- rectly to any Representative of the holders of Senior Indebtedness for payment thereto or, if such holders have no Representative, directly to such holders of Senior Indebtedness, until such Senior Indebtedness is paid in full in cash or Cash Equivalents except to the extent that holders of Convertible Subordinated Notes receive Other Subordinated Securities. For purposes of this Article 11, a distribution may consist of cash, securi- ties or other property, by payment, transfer, set-off or otherwise. 65 Section 11.03 Default on Designated Senior Indebtedness. The Company may not make any direct or indirect payment on or in respect of any obligations on the Convertible Subordinated Notes and may not acquire or defease any Convertible Subordinated Notes from the Trustee or any holder of Convertible Subordinated Notes for cash or property (other than Other Subordi- nated Securities) if: (a) a default in the payment of any principal or other obligation in re- spect of Designated Senior Indebtedness occurs and is continuing beyond any applicable grace period; or (b) a default, other than a default referred to in clause (a) above, on any Designated Senior Indebtedness occurs and is continuing that then per- mits holders of such Designated Senior Indebtedness to accelerate its ma- turity and the Trustee receives a notice of the default from the Bank Agent or other Representative on behalf of Designated Senior Indebtedness requesting that payments in respect of the Convertible Subordinated Notes be prohibited. So long as payments on the Convertible Subordinated Notes are otherwise per- mitted, then the Company may and shall resume payments on the Convertible Sub- ordinated Notes and may acquire them upon the earlier of: (x) the date upon which such default is cured or waived, or (y) in the case of a default and notice referred to in (b) above, the passage of 179 days after such notice is received by the Trustee (the "Payment Blockage Period"). Only one Payment Blockage Period may be commenced within any consecutive 365-day period with respect to the Convertible Subordinated Notes. Section 11.04 Acceleration of Convertible Subordinated Notes. If payment of the Convertible Subordinated Notes is accelerated because of an Event of Default, the Company and the Trustee each shall promptly notify holders of Senior Indebtedness of the acceleration. Section 11.05 When Distributions Must Be Paid Over. In the event that any payment or distribution of assets of the Company, whether in cash, property or securities (other than Other Subordinated Secu- 66 rities) shall be received by the Trustee on account of the principal or inter- est on or other obligations in respect of the Convertible Subordinated Notes at a time when the Trustee shall have received notice in accordance with Sec- tion 11.11 that such payment is prohibited by Section 11.02 or 11.03, such payment or distribution shall be segregated and held by the Trustee in trust for the benefit of, and shall forthwith be paid over and delivered to any Rep- resentative of the holders of Senior Indebtedness for payments thereto, or, if such holders have no Representative, directly to such holders of Senior In- debtedness (pro rata as to each of such holders on the basis of the respective amounts of Senior Indebtedness held by them), as their respective interests may appear, for application to the payment of all Senior Indebtedness remain- ing unpaid to the extent necessary to pay all Senior Indebtedness in full in cash or Cash Equivalents in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebt- edness. Any distribution to the holders of the Senior Indebtedness or their Representatives of assets other than cash or Cash Equivalents may be held by such holders or Representatives as collateral securing the payment of such Se- nior Indebtedness without any duty to liquidate or otherwise realize on such assets or to apply such assets to any Senior Indebtedness. If a payment or distribution is made to holders of Convertible Subordinated Notes that because of this Article 11 should not have been made to them, the holders of Convertible Subordinated Notes who receive the payment or distribu- tion shall hold it segregated from other assets and hold it in trust for hold- ers of Senior Indebtedness and pay it over to them as their interests may ap- pear for application to the payment of all Senior Indebtedness remaining un- paid to the extent necessary to pay all Senior Indebtedness in full in cash or Cash Equivalents in accordance with its terms, after giving effect to any con- current payment or distribution to or for the holders of Senior Indebtedness. Section 11.06 Notice by the Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of principal of or in- terest on the Convertible Subordinated Notes to violate this Article, but failure to give such notice shall not affect the subordination of the Convert- ible Subordinated Notes to the Senior Indebtedness provided in this Article. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. 67 Section 11.07 Subrogation. After all Senior Indebtedness is paid in full in cash or Cash Equivalents and all letters of credit under the Revolving Credit Agreement have expired or been terminated or the reimbursement obligations of the Company in respect of such letters of credit then outstanding have been fully secured by cash or Cash Equivalents and until the Convertible Subordinated Notes are paid in full, holders of Convertible Subordinated Notes shall be subrogated to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the holders of Convertible Subordinated Notes have been applied to the payment of Senior Indebtedness. A distribution made under this Article to holders of Senior Indebtedness which otherwise would have been made to holders of Con- vertible Subordinated Notes is not, as between the Company and such holders, a payment by the Company on Senior Indebtedness. Section 11.08 Relative Rights. This Article defines the relative rights of holders of Convertible Subordi- nated Notes and holders of Senior Indebtedness. Nothing in this Indenture shall: (1) impair, as between the Company and holders of Convertible Subordi- nated Notes, the obligation of the Company, which is absolute and uncondi- tional, to pay principal of and interest on the Convertible Subordinated Notes in accordance with their terms; (2) affect the relative rights of holders of Convertible Subordinated Notes and creditors of the Company, other than their rights in relation to holders of Senior Indebtedness; or (3) prevent the Trustee or any holder of a Convertible Subordinated Note from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders of Senior Indebtedness to receive pay- ments and distributions otherwise payable to holders of Convertible Subor- dinated Notes. If the Company fails because of this Article to pay principal of or interest on a Convertible Subordinated Note on the due date, the failure is still a De- fault or Event of Default. 68 Section 11.09 Subordination May Not Be Impaired by the Company. No right of any holder of Senior Indebtedness to enforce the subordination of the indebtedness evidenced by the Convertible Subordinated Notes shall be impaired by any act or failure to act by the Company or by its failure to com- ply with this Indenture (regardless of any knowledge thereof that such holder may have or otherwise be charged with), or by any act or failure to act by such holder. If at any time any payment of any obligations with respect to any Senior In- debtedness is rescinded or must otherwise be returned upon the insolvency, bankruptcy, reorganization or liquidation of the Company or otherwise, the provisions of this Article 11 shall continue to be effective or reinstated, as the case may be, to the same extent as though such payment had not been made. Section 11.10 Distribution of Notice to the Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Rep- resentative, if any. Whenever a distribution is to be made or notice is to be given to holders of the Company's outstanding 9.33% Senior Notes or its 9.35% Senior Notes, such distribution shall be made and such notice shall be given to each holder of record of such notes at the address specified in the regis- ter of holders of such notes maintained by the Company. Upon any payment or distribution of assets of the Company referred to in this Article 11, the Trustee and the holders of Convertible Subordinated Notes shall be entitled to rely conclusively upon any order or decree made by any court of competent jurisdiction or upon any certificate of any Representative (as to the Senior Debt for which it is the Representative) or of any liquidat- ing trustee or agent or an Officers' Certificate (as to any Senior Debt for which there is no Representative) for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior In- debtedness and other indebtedness of the Company, the amount thereof or pay- able thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 11. Section 11.11 Rights of the Trustee and Paying Agent. Notwithstanding any provision of this Article 11 or any other provision of this Indenture, the Trustee and the Paying Agent shall not at any time be 69 charged with knowledge of the existence of any facts which would prohibit the making of any payment or distribution to or by the trustee or a Paying Agent or the taking of any other action (pursuant to this Article 11) by the Trustee or a Paying Agent unless and until the Trustee or such Paying Agent, as the case may be, shall have received at its office specified in Section 10.10 written notice thereof from the Company, a Representative or a holder of Se- nior Indebtedness entitled to give such notice and, prior to the receipt of any such written notice, the Trustee and such paying Agent shall be entitled in all respects conclusively to assume that no such fact exists. The Trustee or the Paying Agent may continue to make payments on the Convertible Subordi- nated Notes unless it receives such a notice at least one business day prior to the date upon which payment is due. The Trustee shall be entitled to rely in good faith on the delivery to it of a written notice by a Person representing himself, herself or itself to be a Representative on behalf of a holder of Senior Indebtedness to establish that such notice has been given by a Representative or a holder of such Senior In- debtedness. Only the Company, a Representative or a holder of Senior Indebted- ness that has no Representative may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebt- edness with the same rights it would have if it were not the Trustee. Any Agent may do the same with like rights. Section 11.12 No Fiduciary Duty to Holders of Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 11, and no implied covenants or obliga- tions with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee or the Paying Agent. Neither the Trustee nor the Paying Agent shall be deemed to owe any fiduciary duty to the holders of such Senior Indebtedness, and the Trustee shall not be liable to any holder of such Senior Indebtedness if it shall, in the absence of bad faith, pay over or deliver to holders of Convertible Subordinated Notes, the Company or any other person monies or assets to which any holder of such Senior Indebtedness shall be entitled by virtue of this Article 11 or otherwise. 70 Section 11.13 Authorization to Effect Subordination. Each holder of a Convertible Subordinated Note by its or his acceptance thereof authorizes and expressly directs the Trustee on its or his behalf to take such action as may be necessary or appropriate to effect the subordina- tion provisions contained in this Article 11, and appoints the Trustee its or his attorney-in-fact for such purpose, including, in the event of any liquida- tion, reorganization or dissolution of the Company, whether in a bankruptcy, reorganization, insolvency, receivership or similar proceeding or otherwise, the immediate filing of a claim for the unpaid balance of its or his Convert- ible Subordinated Notes in the form required in such proceeding, and to cause such claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of any Senior Indebtedness or their Representatives are hereby authorized to file an appropriate claim for and on behalf of the holders of the Convertible Sub- ordinated Notes. ARTICLE 12 Conversion of Convertible Subordinated Notes Section 12.01 Conversion Privilege. Subject to and upon compliance with the provisions of this Article 12, the holder of any Convertible Subordinated Note shall have the right, at his op- tion, at any time on or prior to the close of business on , 2004 (or, if such Note or portion thereof is called for redemption prior to , 2004, then in respect of such Convertible Subordinated Note or portion thereof, on or prior to the close of business on the date fixed for redemption, unless the Company shall default in payment due upon redemption thereof in which case such conversion right will terminate at the close of business on the date such default is cured), to convert the principal amount of any such Convertible Subordinated Note, or any portion of such principal amount which is $1,000 or an integral multiple thereof, into that number of fully paid and nonassessable whole shares of Common Stock obtained by dividing the principal amount of the Convertible Subordinated Note or portion thereof to be converted by the Conversion Price in effect at such time and by surren- der of the Convertible Subordinated Note so to be converted in whole or in part, such surrender to be made in the manner provided in Section 12.02. 71 Section 12.02 Manner of Exercise of Conversion Privilege. In order to exercise the conversion privilege, the holder of any Convertible Subordinated Note to be converted in whole or in part shall surrender such Convertible Subordinated Note, duly endorsed or assigned to the Company or in blank, at any of the offices or agencies to be maintained for such purpose by the Company pursuant to Section 4.04, accompanied by the funds, if any, re- quired by the last paragraph of this Section, and shall give irrevocable writ- ten notice of conversion in the form provided on the Convertible Subordinated Notes (or such other notice as is acceptable to the Company) to the Company (a "Conversion Notice") at such office or agency that the holder elects to con- vert such Convertible Subordinated Note or the portion thereof specified in said notice. Such Conversion Notice shall also state the name or names, to- gether with the address or addresses, in which the certificate or certificates for shares of Common Stock which shall be issuable in such conversion shall be issued. Each Convertible Subordinated Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the name in which such Convertible Subordinated Note is registered, be accom- panied by instruments of transfer, in form satisfactory to the Company, duly executed by the holder or his duly authorized attorney and in amount suffi- cient to pay any transfer or similar tax. As promptly as practicable after the surrender of such Convertible Subordinated Note and the receipt of such Con- version Notice, instruments of transfer and funds, if any, as aforesaid, the Company shall issue and shall deliver at such office or agency to such holder, or on his written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Convertible Subor- dinated Note or portion thereof in accordance with the provisions of this Ar- ticle 12 and a check or cash in respect of any fractional interest in a share of Common Stock arising upon such conversion, as provided in Section 12.03. In case any Convertible Subordinated Note of a denomination greater than $1,000 shall be surrendered for partial conversion, the Company shall execute and the Trustee shall register or cause to be registered and shall authenticate and deliver to or upon the order of the holder of the Convertible Subordinated Note so surrendered at the expense of the Company, a new Note or Convertible Subordinated Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Note. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which such Convertible Subordinated 72 Note shall have been surrendered and such Conversion Notice (and any applica- ble instruments of transfer and any required funds) received by the Company as aforesaid, and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date, unless the stock transfer books of the Company shall be closed on that date, in which event such Person or Persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Convertible Subordinated Note shall have been surrendered and such Conversion Notice received by the Compa- ny. Any Convertible Subordinated Note or portion thereof surrendered for conver- sion after the close of business on a Regular Record Date for payment of in- terest and before the close of business on the next succeeding Interest Pay- ment Date (unless such Convertible Subordinated Note or portion thereof being converted is called for redemption on a redemption date in that period) shall be accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest thereon that is to be paid on such Interest Payment Date on the principal amount being converted; provided, however, that no such pay- ment need be made if there shall exist at the time of conversion a default in the payment of interest on the Convertible Subordinated Notes. An amount equal to such payment shall be paid by the Company on such Interest Payment Date to the holder of such Convertible Subordinated Notes at the close of business on such Regular Record Date; provided, however, that, if the Company shall de- fault in the payment of interest on such Interest Payment Date, such amount shall be paid to the Person who made such required payment. Except as provided for above in this Section, no payments or adjustments shall be made upon con- version on account of accrued interest on the Convertible Subordinated Notes or for any dividends or distributions on any shares of Common Stock delivered upon the conversion of such Convertible Subordinated Notes as provided in this Article. 73 Section 12.03 Cash Payments in Lieu of Fractional Shares. No fractional shares or scrip representing fractions of shares of Common Stock shall be issued upon conversion of the Convertible Subordinated Notes. If more than one Convertible Subordinated Note shall be surrendered for con- version at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Convertible Subordinated Notes, or specified portions thereof to be converted, so surrendered. Instead of any fractional interest in a share of Common Stock which would otherwise be deliverable upon the conversion of any Convertible Subordinated Note or Convertible Subordi- nated Notes, the Company shall pay to the holder of such Convertible Subordi- nated Note an amount in cash (computed to the nearest cent) equal to the Daily Market Price thereof at the close of business on the business day next preced- ing the day of conversion multiplied by the fractional interest (expressed as a percentage) that otherwise would have been deliverable to such holder upon such conversion of the Convertible Subordinated Notes. Section 12.04 Adjustment of Conversion Price. The Conversion Price shall be as specified in the form of Convertible Subor- dinated Note set forth in Article 17 thereof subject to adjustment as provided below. The Conversion Price shall be adjusted from time to time by the Company as follows: (a) In case the Company, after the date of this Indenture, shall (i) pay a dividend or make a distribution on its Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares, or (iv) issue by reclassification of its Common Stock any shares of Capital Stock of the Company, the Con- version Price in effect immediately prior to such action shall be adjusted so that the holder of any Convertible Subordinated Note thereafter surren- dered for conversion shall be entitled to receive the number of shares of Common Stock or other Capital Stock of the Company that it would have owned or been entitled to receive immediately following such action had such Convertible Subordinated Note been converted immediately prior to the occurrence of such event. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date, in the case of a dividend or distribution, or immediately after the 74 effective date, in the case of a subdivision, combination or reclassifica- tion. If, as a result of an adjustment made pursuant to this subsection (a), the holder of any Convertible Subordinated Note thereafter surren- dered for conversion shall become entitled to receive shares of two or more classes of Capital Stock or shares of Common Stock and other Capital Stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a statement filed by the Company with the Trustee and with any Conversion Agent as soon as practicable) shall determine the allocation of the adjusted Conversion Price between or among shares of such classes of Capital Stock or shares of Common Stock and other Capital Stock. (b) In case the Company, after the date of this Indenture, shall issue rights, warrants or options to all holders of its outstanding shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price per share less than the current market price per share (as determined pursuant to subsection (h) of this Section 12.04) of the Common Stock, the Conversion Price in effect immediately prior thereto shall be adjusted so that it shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of issuance of such rights, warrants or options by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, warrants or options (immediately prior to such issuance), plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase (or the aggregate conversion price of the convertible securities so of- fered for subscription or purchase) would purchase at such current market price, and of which the denominator shall be the number of shares of Com- mon Stock outstanding on the date of issuance of such rights, warrants or options (immediately prior to such issuance) plus the number of additional shares of Common Stock so offered for subscription or purchase (or into which the convertible securities so offered for subscription or purchase are convertible). Such adjustment shall be made successively whenever any such rights, warrants or options are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, warrants or options. In determining whether any rights, warrants or options entitle the holders to subscribe for or purchase shares of Common Stock (or 75 securities convertible into Common Stock) at less than such current market price, and in determining the aggregate offering price of such shares of Common Stock (or conversion price of such convertible securities), there shall be taken into account any consideration received by the Company for such rights, warrants or options (and for such convertible securities), the value of such consideration, if other than cash, to be determined by the Board of Directors (whose determination shall be conclusive and shall be described in a certificate filed with the Trustee and with any Conver- sion Agent by the Company as soon as practicable). If at the end of the period during which such warrants, rights or options are exercisable not all such warrants, rights or options shall have been exercised, the ad- justed Conversion Price shall be immediately readjusted to what it would have been based on the number of additional shares of Common Stock actu- ally issued (or the number of shares of Common Stock issuable upon conver- sion of convertible securities actually issued). (c) In case the Company, after the date of this Indenture, shall dis- tribute to all or substantially all holders of its outstanding Common Stock any shares of Capital Stock (other than Common Stock), evidences of its indebtedness or assets (including securities and cash, but excluding any cash dividend paid out of current or retained earnings of the Company and dividends or distributions payable in stock for which adjustment is required pursuant to subsection (a) of this Section 12.04) or rights, war- rants or options to subscribe for or purchase securities of the Company (excluding those referred to in subsection (b) of this Section 12.04), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the record date of such distribution by a fraction of which the numerator shall be the current market price per share (as determined pursuant to subsection (h) of this Section 12.04) of the Common Stock less the fair market value on such record date (as deter- mined by the Board of Directors, whose determination shall be conclusive and shall be described in a certificate filed with the Trustee and with any Conversion Agent by the Company as soon as practicable) of the portion of the Capital Stock or the evidences of indebtedness or the assets so distributed to the holder of one share of Common Stock or of such sub- scription rights, warrants or options applicable to one share of Common Stock and of which the denominator shall be such current market price per share of Common Stock. Such adjustment shall become effective im- 76 mediately after the record date for the determination of stockholders en- titled to receive such distribution. In the event of a distribution to all or substantially all holders of Common Stock of rights to subscribe for additional shares of the Company's Capital Stock (other than those re- ferred to in subsection (b) of this Section 12.04), the Company may, in- stead of making an adjustment in the Conversion Price, make proper provi- sion so that each holder of a Convertible Subordinate Note who converts such Convertible Subordinated Note after the record date for such distri- bution and prior to the expiration or redemption of such rights shall be entitled to receive upon such conversion, in addition to shares of Common Stock, an appropriate number of such rights. If at the end of the period during which warrants, rights or options described in this subsection (c) are exercisable not all such warrants, rights or options shall have been exercised, the adjusted Conversion Price shall be immediately readjusted to what it would have been based on the number of warrants, rights or op- tions actually exercised. (d) Notwithstanding anything in subsection (b) or (c) of this Section 12.04 to the contrary, with respect to any rights, warrants or options covered by subsection (b) or (c) of this Section 12.04, if such rights, warrants or options are only exercisable upon the occurrence of certain triggering events, then for purposes of this Section 12.04 such rights, warrants or options shall not be deemed issued or distributed, and any ad- justment to the Conversion Price required by subsection (b) or (c) of this Section 12.04 shall not be made until such triggering events occur and such rights, warrants or options become exercisable. (e) In case the Company, after the date of this Indenture, shall issue to an Affiliate shares of its Common Stock (excluding those rights, war- rants, options, shares of Capital Stock or evidences of its indebtedness or assets referred to in subsection (b) or (c) to this Section 12.04) at a net price per share less than the current market price per share (as de- termined pursuant to subsection (h) of this Section 12.04) on the date the Company fixes the offering price of such additional shares, the Conversion Price shall be reduced immediately thereafter so that it shall equal the price determined by multiplying such Conversion Price in effect immedi- ately prior thereto by a fraction of which the numerator shall be the num- ber of shares of Common Stock outstanding immediately prior to the issu- ance of such additional shares plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Com- 77 mon Stock so offered would purchase at the current market price and the denominator shall be the number of shares of Common Stock that would be outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made. This subsection (e) shall not apply to Common Stock issued to any Affili- ate under a bona fide employee or director benefit plan or agreement adopted by the Company or any subsidiary thereof and approved by either the stockholders of the Company or a majority of the Company's outside di- rectors. (f) In case the Company, after the date of this Indenture, shall, by dividend or otherwise, at any time distribute to all holders of its Common Stock cash (including any cash that is distributed as part of a distribu- tion referred to in subsection (c) of this Section) in an aggregate amount that, together with (i) the aggregate amount of any other distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date fixed for determining the stockholders entitled to such distribution and in respect of which no Conversion Price adjust- ment pursuant to this subsection (f) has been made and (ii) the aggregate of any cash plus the fair market value (as determined by the Board of Di- rectors, whose determination shall be conclusive and described in a Board Resolution), as of such date of determination, of consideration payable in respect of any tender offer by the Company or a subsidiary for all or any portion of the Common Stock consummated within 12 months preceding the date fixed for determining the stockholders entitled to such distribution and in respect of which no Conversion Price adjustment pursuant to subsec- tion (g) of this Section has been made, exceeds 15% of the product of the current market price per share (determined as provided in subsection (h) of this Section) on the date fixed for the determination of stockholders entitled to receive such distribution times the number of shares of Common Stock outstanding on such date, the Conversion Price shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the current market price per share (determined as provided in subsection (h) of this Section) on the date fixed for such determination less the amount of cash so distributed at such time applicable to one share of Common Stock and the denominator shall be such current market price, such reduction to become effective immediately prior to the opening of business on the date after the date fixed for such determination. 78 (g) In case a tender offer made by the Company or any subsidiary, after the date of this Indenture, for all or any portion of the Common Stock shall be consummated and such tender offer shall involve an aggregate con- sideration having a fair market value (as determined by the Board of Di- rectors, whose determination shall be conclusive and described in a Board Resolution) as of the last time (the "Expiration Time") that tenders may be made pursuant to such tender offer (as it may be amended) that, to- gether with (i) aggregate of the cash plus the fair market value (as de- termined by the Board of Directors, whose determination shall be conclu- sive and described in a Board Resolution), as of the consummation of such tender offer, of other consideration paid or payable in respect of any tender offer by the Company or a subsidiary for all or any portion of the Common Stock consummated within the 12 months preceding the consummation of such tender offer and in respect of which no Conversion Price adjust- ment pursuant to this subsection (g) has been made and (ii) the aggregate amount of any distributions to all holders of Common Stock made exclu- sively in cash within the 12 months preceding the consummation of such tender offer and in respect of which no Conversion Price adjustment pursu- ant to subsection (f) of this Section has been made, exceeds 15% of the product of the current market price per share (determined as provided in subsection (h) of this Section) immediately prior to the Expiration Time times the number of shares of Common Stock outstanding (including any ten- dered shares) at the Expiration Time, the Conversion Price shall be re- duced by multiplying the Conversion Price in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be (i) the product of the current market price per share (determined as provided in subsection (h) of this Section) immediately prior to the Expiration Time times the number of shares of Common Stock outstanding (including any ten- dered shares) at the Expiration Time minus (ii) the fair market value (de- termined as aforesaid) of the aggregate consideration payable to stock- holders upon consummation of such tender offer (the shares accepted for payment in the tender offer being referred to as the "Purchased Shares") and the denominator shall be the product of (x) such current market price per share times (y) such number of outstanding shares at the Expiration Time minus the number of Purchased Shares, such reduction to become effec- tive immediately prior to the opening of business on the day following the Expiration Time; provided that, if the number of Purchased Shares or the aggregate considera- 79 tion payable therefor have not been finally determined by such opening of business, the adjustment required by this subsection (g) shall, pending such final determination, be made based upon the preliminary announced re- sults of such tender offer, and, after such final determination shall have been made, the adjustment required by this subsection (g) shall be made based upon the number of Purchased Shares and the aggregate consideration payable therefor as so finally determined. (h) For the purpose of any computation under subsections (b) through (g) of this Section 12.04, the current market price per share of Common Stock on any date shall be deemed to be the average of the Daily Market Prices for the shorter of (i) 30 consecutive business days ending on the last full trading day on the exchange or market referred to in determining such Daily Market Prices prior to the Time of Determination or (ii) the period commencing on the date next succeeding the first public announcement of the issuance of such rights or warrants or such distribution through such last full trading day prior to the Time of Determination. (i) In any case in which this Section 12.04 shall require that an adjustment be made immediately following a record date or an effective date, the Company may elect to defer (but only until five business days following the filing by the Company with the Trustee and any Conversion Agent of the certificate re- quired by subsection (k) of this Section 12.04) issuing to the holder of any Convertible Subordinated Note converted after such record date or effective date the shares of Common Stock issuable upon such conversion over and above the shares of Common Stock issuable upon such conversion on the basis of the Conversion Price prior to adjustment, and paying to such holder any amount of cash in lieu of a fractional share. (j) No adjustment in the Conversion Price shall be required to be made un- less such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this subsection (j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 12.04 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. No adjustment to the Conversion Price need be made if only the par value of the Common Stock is changed (including any change to no par value Common Stock). To the extent that the Notes become convertible into cash, no adjustment need be made thereafter as to such cash and interest 80 will not accrue on such cash. Anything in this Section 12.04 to the contrary notwithstanding, the Company shall be entitled to make such reduction in the Conversion Price, in addition to those required by this Section 12.04, as it in its discretion shall determine to be advisable in order that any stock div- idend, subdivision of shares, distribution of rights to purchase stock or se- curities, or distribution of securities convertible into or exchangeable for stock hereafter made by the Company to its stockholders shall not be taxable to the recipients. (k) Whenever the Conversion Price is adjusted as herein provided, (i) the Company shall promptly file with the Trustee and any Conversion Agent other than the Trustee a certificate signed by the President, any Vice President or the Treasurer of the Company setting forth the Conversion Price after such ad- justment and setting forth a brief statement of the facts requiring such ad- justment and the manner of computing the same, which certificate shall be con- clusive evidence of the correctness of such adjustment, and (ii) a notice stating that the Conversion Price has been adjusted and setting forth the ad- justed Conversion Price shall forthwith be given by the Company to the holders of Convertible Subordinated Notes in the manner provided in Section 10.02. The Company may correct any previous certificate and notice given pursuant to this subsection (k) by (i) promptly filing with the Trustee and any Conversion Agent other than the Trustee a new certificate in the form required by this subsection (k) and (ii) giving a new notice to the holders of Convertible Sub- ordinated Notes in the form and manner required by this subsection (k). Such new certificate and notice shall state that such certificate and notice are being provided to correct the previous certificate and notice. Except as oth- erwise provided in Section 7.01, neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to the certificate re- quired by this subsection (k) except to exhibit the same to any holder of Con- vertible Subordinated Notes who requests to inspect it. The certificate re- quired by this subsection (k) shall be filed at each office or agency main- tained for the purposes of conversion of Notes pursuant to Section 2.03. (l) In the event that at any time, as a result of an adjustment made pursu- ant to subsection (a) of this Section 12.04, the holder of any Convertible Subordinated Note thereafter surrendered for conversion shall become entitled to receive any shares of the Company other than shares of Common Stock, there- after the Conversion Price of such other shares so receivable upon conversion of any Note shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with 81 respect to Common Stock contained in this Article 12 and the other provisions of this Article 12 applicable to Common Stock shall apply to such other shares. Section 12.05 Notice to Holders Prior to Certain Corporate Actions. In case: (a) the Company shall take any action that would require an adjustment in the Conversion Price pursuant to Section 12.04(c); or (b) the Company shall authorize the granting to the holders of its Com- mon Stock generally of rights, warrants or options to subscribe for or purchase any shares of stock of any class or of any other rights (other than employee or director stock options); or (c) there shall be any reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock and other than a change in the par value of the Common Stock), or any consolidation or merger to which the Company is a party, or any con- veyance, transfer, sale or lease of the Company's properties and assets as, or substantially as, an entirety; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed with the Trustee and any Conversion Agent, and shall cause to be given to the holders of Convertible Subordinated Notes, in the manner provided in Section 10.02, as promptly as possible, but in any event at least 10 days prior to the applicable date hereinafter speci- fied, a notice stating (i) the date on which a record is to be taken for the purpose of such dividend, or distribution or rights or warrants, or, if a rec- ord is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such distribution or rights are to be determined, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective or occur, and, if applicable, the date as of which it is expected that holders of Common Stock of record shall be enti- tled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reorganization, reclassification, consolida- tion, merger, conveyance, transfer, sale, lease, liquidation or winding up. Failure to give such notice or any defect therein shall not affect the legal- ity or validity of the proceedings described in subsection (a), (b), (c) or (d) of this Section 12.05. 82 Section 12.06 Reservation of Shares of Common Stock. The Company shall at all times reserve and keep available, free from preemp- tive rights, out of the aggregate of its authorized but unissued shares of Common Stock or its issued shares of Common Stock held in its treasury, or both, for the purpose of effecting conversions of Convertible Subordinated Notes, the full number of shares of Common Stock deliverable upon the conver- sion of all outstanding Notes not theretofore converted. Before taking any action that would cause an adjustment reducing the Conver- sion Price below the then par value (if any) of the shares of Common Stock de- liverable upon conversion of the Convertible Subordinated Notes, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price. Section 12.07 Taxes upon Conversion. The Company shall pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversions of Notes pursuant hereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the Convertible Subordinated Note or Convertible Subordinated Notes to be converted and no such issue or delivery shall be made unless and until the Person requesting such issue or delivery has paid to the Company the amount of any such tax or has established to the satisfaction of the Company that such tax has been paid. Section 12.08 Covenants as to Common Stock. The Company covenants that all shares of Common Stock which may be delivered upon conversions of Convertible Subordinated Notes will upon delivery be duly and validly issued and fully paid and nonassessable, free of all Liens and charges and not subject to any preemptive rights. The Company further covenants that, for so long as the Common Stock shall be listed on the New York Stock Exchange or any other national securities ex- change, the Company will, if permitted by the rules of such exchange, 83 list and keep listed all Common Stock issuable upon conversion of the Convert- ible Subordinated Notes. Section 12.09 Consolidation or Merger or Sale of Assets. Notwithstanding any other provision herein to the contrary, in case of any consolidation or merger to which the Company is a party (other than a merger or consolidation which does not result in any reclassification, conversion, exchange or cancellation of the outstanding shares of Common Stock of the Com- pany), or in case of any conveyance, transfer, sale or lease to another corpo- ration of the properties and assets of the Company as, or substantially as, an entirety, the corporation formed by such consolidation, or the corporation whose securities, cash or other property will immediately after the merger or consolidation be owned, by virtue of the merger or consolidation, by the hold- ers of Common Stock of the Company immediately prior to the merger or the cor- poration which shall have acquired such properties and assets of the Company, as the case may be, shall promptly execute and deliver to the Trustee a sup- plemental indenture providing that the holder of each Convertible Subordinated Note then outstanding shall have the right thereafter to convert such Note, during the period such Note is convertible as specified in this Article 12, into the kind and amount of securities, cash or other property receivable upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of the number of shares of Common Stock into which such Note might have been con- verted immediately prior to such consolidation, merger, conveyance, transfer, sale or lease, assuming such holder of Common Stock (i) is not a Person with which the Company consolidated or into which the Company merged or was merged or to which such conveyance, transfer, sale or lease was made or an Affiliate of such Person and (ii) did not exercise statutory rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, conveyance, transfer, sale or lease (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, conveyance, transfer, sale or lease is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purposes of this Section 12.09 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, conveyance, trans- fer, sale or lease for each non-electing share shall be deemed to be the kind and amount so receivable per share by the holders of a plurality of the non- electing shares). Such supplemental indenture 84 shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 12 in relation to any shares of stock or other securities or property thereafter deliverable on the conversion of the Notes. The above provisions of this Section 12.09 shall similarly apply to succes- sive consolidations, mergers, conveyances, transfers, sales or leases. The Company shall give notice of the execution of such a supplemental inden- ture to the holders of Convertible Subordinated Notes in the manner provided in Section 10.02 within 30 days after the execution thereof; provided, howev- er, that such notice need not be given if such information has been provided prospectively in the notice given pursuant to Section 12.05. Failure to give such notice, or any defects therein, shall not affect the legality or validity of any such supplemental indenture or any transaction contemplated in this Section 12.09. Section 12.10 Disclaimer of Responsibility for Certain Matters. Neither the Trustee nor any Conversion Agent shall at any time be under any duty or responsibility to any holder of Convertible Subordinated Notes to de- termine whether any facts exist which may require any adjustment of the Con- version Price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supple- mental indenture provided to be employed, in making the same. Neither the Trustee nor any Conversion Agent shall be accountable with respect to the listing or registration referred to in Section 12.08 or the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities, cash or other property, which may at any time be issued or delivered upon the conversion of any Note; and neither the Trustee nor any Conversion Agent makes any representation with respect thereto. Neither the Trustee nor any Conver- sion Agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or to make any cash payment upon the surrender of any Note for the purpose of conversion or, subject to the provisions of Section 7.01, to comply with any of the covenants of the Company contained in this Ar- ticle 12. 85 Section 12.11 Cancellation of Converted Notes. All Notes delivered for conversion shall be delivered to the Trustee to be cancelled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 2.11. Section 12.12 Voluntary Reduction. The Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days or such longer period as may be required by law and if the reduction is irrevocable during such pe- riod. 86 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly exe- cuted and attested, all as of the date first above written, signifying their agreements contained in this Indenture. ROHR, INC. By _________________________________________ Name: Title: Attest: - ------------------------- THE BANK OF NEW YORK By _________________________________________ Name: Title: Attest: - ------------------------- S-1 EXHIBIT A (Face of Security) No. $ CUSIP ROHR, INC. % CONVERTIBLE SUBORDINATED NOTE DUE 2004 promises to pay to or registered assigns, the principal sum of Dollars on , 2004 Interest Payment Dates: and Regular Record Dates: and Certificate of Authentication This is one of the Convertible Subordinated Notes described in the within-mentioned Indenture. THE BANK OF NEW YORK, ROHR, INC. as Trustee By______________________________ By___________________________________________ Authorized Signatory President and Chief Executive Officer Dated: By___________________________________________ Secretary (SEAL) EXHIBIT A (Back of Security) ROHR, INC. % CONVERTIBLE SUBORDINATED NOTE DUE 2004 1. INTEREST. Rohr, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Convertible Subordinated Note at the rate per annum shown above. The Company will pay interest semiannually on May 15 and November 15 of each year. Interest on the Convertible Subordinated Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from , 1994. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on overdue principal and (to the extent permitted by law) on overdue installments of interest will accrue at a rate of % per annum. 2. METHOD OF PAYMENT. The Company will pay interest on the Convertible Sub- ordinated Notes (except defaulted interest) to the person in whose name each Convertible Subordinated Note is registered at the close of business on the May 1 or November 1 immediately preceding the relevant interest payment date (each a "Regular Record Date") even though Convertible Subordinated Notes are cancelled after the record date and on or before the interest payment date. Holders must surrender Convertible Subordinated Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money, and may mail such check to the holder's registered address. 3. PAYING AGENT AND REGISTRAR. The Bank of New York, a New York State bank- ing corporation (together with any successor Trustee under the Indenture re- ferred to below, the "Trustee"), will act as Paying Agent and Registrar. The Company may change the Paying Agent, Registrar or co-registrar without prior notice. Subject to certain limitations in the Indenture, the Company or any of its subsidiaries may act in any such capacity. A-2 4. INDENTURE. The Company issued the Convertible Subordinated Notes under an Indenture dated as of May 15, 1994 (the "Indenture") between the Company and the Trustee. The terms of the Convertible Subordinated Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ((S))((S)) 77aaa-77bbbb) as in effect on the date of the Indenture. The Convertible Subordinated Notes are subject to, and qualified by, all such terms, certain of which are summarized hereon, and holders are referred to the Indenture and such Act for a statement of such terms. The Convertible Subordinated Notes are unsecured general obli- gations of the Company limited to $50,000,000 in aggregate principal amount. Capitalized terms not defined below have the same meaning as is given to them in the Indenture. 5. OPTIONAL REDEMPTION. The Company may redeem the Convertible Subordinated Notes, in whole or in part, prior to maturity at any time on or after , 1998 at the following redemption prices (expressed as per- centages of the principal amount), plus accrued and unpaid interest to the date fixed for redemption, if redeemed during the twelve-month period begin- ning of each year indicated below:
REDEMPTION YEAR PRICE ---- ---------- 1998.......................................................... % 1999.......................................................... % 2000.......................................................... % 2001.......................................................... % 2002.......................................................... % 2003.......................................................... % 2004.......................................................... 100.00%
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the date fixed for redemption to each holder of Convertible Subordinated Notes to be redeemed at his or her regis- tered address. Convertible Subordinated Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. In the event of a redemption of less than all of the Convertible Subordinated Notes, the Convertible Subordinated Notes will be chosen for redemption by the Trustee by lot or pro rata or, if required, in compliance with the require- ments of the principal national securities exchange, if any, on which the Con- vertible Subordinated Notes are listed. On and after the redemption date in- A-3 terest ceases to accrue on Convertible Subordinated Notes or portions of them called for redemption (unless the Company defaults in the payment of the re- demption price). If this Convertible Subordinated Note is redeemed subsequent to a record date with respect to any interest payment date specified above and on or prior to such interest payment date, then any accrued interest will be paid to the person in whose name this Convertible Subordinated Note is regis- tered at the close of business on such record date. 7. CHANGE OF CONTROL. Upon a Change of Control, the Company shall make a Change of Control Offer to purchase all outstanding securities at a price equal to 101% of the aggregate principal amount of the Convertible Subordi- nated Notes, plus accrued and unpaid interest to the date of purchase, such offer to be made as provided in the Indenture. To accept the Change of Control Offer, the holder hereof must comply with the terms thereof, including surren- dering this Convertible Subordinated Note, with the "Option of Holder to Elect Purchase" portion hereof completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent, at the address specified in the notice of the Change of Control Offer mailed to holders as provided in the Indenture, prior to termination of the Change of Control Offer. 8. SUBORDINATION. To the extent set forth in Article 11 of the Indenture the Convertible Subordinated Notes are subordinated to Senior Indebtedness. Senior Indebtedness shall not include (i) any indebtedness of the Company to any of its subsidiaries, (ii) Capitalized Lease Obligations, (iii) indebtedness in respect of the Pooling and Services Agreement, (iv) the Company's 9.25% Subor- dinated Debentures due 2017 and its 7% Convertible Subordinated Debentures due 2012, and (v) any advances, deposits or partial progress payments, payables, unpaid wages and related employee obligations, trade accounts and accrued lia- bilities. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Convertible Subordinated Notes may be paid. The Company agrees, and each holder by accepting a Convertible Subordinated Note agrees, to the subordination and authorizes the Trustee to give it effect. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Convertible Subordinated Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Convertible Subor- A-4 dinated Notes may be registered and Convertible Subordinated Notes may be ex- changed as provided in the Indenture. As a condition of transfer, the Regis- trar may require a holder, among other things, to furnish appropriate endorse- ments and transfer documents and the Company may require a holder to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Convertible Subordinated Note or portion of a Convertible Subordinated Note selected for redemption. Also, it need not exchange or register the transfer of any Convertible Subor- dinated Note for a period of 15 days before a selection of Convertible Subor- dinated Notes to be redeemed. 10. PERSONS DEEMED OWNERS. The registered holder of a Convertible Subordi- nated Note may be treated as its owner for all purposes. 11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture or the Convertible Subordinated Notes may be amended with the consent of the holders of at least a majority in principal amount of the then outstanding Convertible Subordinated Notes and any existing default may be waived with the consent of the holders of a majority in principal amount of the then outstand- ing Convertible Subordinated Notes. Without the consent of any holder, the In- denture or the Convertible Subordinated Notes may be amended to: add to the covenants of the Company for the benefit of the holders of Convertible Subor- dinated Notes; surrender any right or power conferred upon the Company; pro- vide for conversion rights of holders of Convertible Subordinated Notes in the event of consolidation, merger or sale of all or substantially all of the as- sets of the Company; evidence the succession of another person to the Company and the assumption by such successor of the covenants and obligations of the Company thereunder and in the Convertible Subordinated Notes as permitted by the Indenture; reduce the Conversion Price, provided that such reduction will not adversely affect the interest of holders of Convertible Subordinated Notes in any material respect; cure any ambiguity or correct or supplement any de- fective provision contained in the Indenture, or make any other change in the provisions of the Indenture in which the Company and the Trustee may deem nec- essary or desirable and which will not adversely affect the interest of the holders of Convertible Subordinated Notes in any material respect. 12. DEFAULTS AND REMEDIES. An Event of Default is: default for 30 days in payment of interest on the Convertible Subordinated Notes; default A-5 in payment of principal of or premium, if any, on the Convertible Subordinated Notes; failure by the Company to comply with certain covenants of the Inden- ture upon the receipt of written notice of such default as set forth in the Indenture; failure by the Company for 60 days after notice to it to comply with any of its other agreements in the Indenture or the Convertible Subordi- nated Notes; certain defaults under and accelerations prior to maturity of certain indebtedness; certain final judgments which remain undischarged; and certain events of bankruptcy or insolvency. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding Convertible Subordinated Notes may declare all the Convertible Subordinated Notes to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Convertible Subordinated Notes become due and payable without further action or notice. Holders may not enforce the Inden- ture or the Convertible Subordinated Notes except as provided in the Inden- ture. The Trustee may require an indemnity satisfactory to it before it en- forces the Indenture or the Convertible Subordinated Notes. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Convertible Subordinated Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders notice of any continuing default (except a default in payment of principal or interest) if it deter- mines that withholding notice is in their interests. The Company must furnish quarterly compliance certificates to the Trustee. 13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee or any of its Affiliates, in their individual or any other capacities, may make or continue loans to or guaranteed by, accept deposits from and perform services for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates as if it were not Trustee. 14. NO RECOURSE AGAINST OTHERS. No director, officer, employee or stockhold- er, as such, of the Company shall have any liability for any obligations of the Company under the Convertible Subordinated Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each holder by accepting a Convertible Subordinated Note waives and releases all such liability. The waiver and release are part of the considera- tion for the Convertible Subordinated Notes. A-6 15. AUTHENTICATION. This Convertible Subordinated Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticat- ing agent. 16. ABBREVIATIONS. Customary abbreviations may be used in the name of a holder or an assignee, such as: TEN CO = tenants in common, TEN ENT = tenants by the entireties, JT TEN = joint tenants with right of survivorship and not as tenants in common, CUST = Custodian and U/G/M/A = Uniform Gifts to Minors Act. 17. CONVERSIONS. Subject to and upon compliance with the provisions of the Indenture, the registered holder of this Note has the right, at his option, at any time or prior to the close of business on , 2004 (or in case this Con- vertible Subordinated Note or any portion hereof shall be called for redemp- tion prior to such date, then on or prior to the close of business on the fifth business day immediately preceding the date fixed for redemption), to convert the principal amount hereof, or any portion of such principal amount which is $1,000 or an integral multiple thereof, into that number of fully paid and nonassessable whole shares of common stock of the Company ("Common Stock") obtained by dividing the principal amount of the Convertible Subordi- nated Note or portion thereof to be converted by the conversion price of $ per share, or the conversion price as adjusted from time to time as provided in the Indenture, upon surrender of this Convertible Subordinated Note to the Company at the office or agency maintained for such purpose in New York, New York (and at such other offices or agencies designated for such pur- pose by the Company), accompanied by written notice of conversion duly exe- cuted and (if the shares of Common Stock to be issued on conversion are to be issued in any name other than that of the registered holder of this Convert- ible Subordinated Note) by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or his duly authorized at- torney and, in case such surrender shall be made during the period starting after the close of business on the Regular Record Date immediate preceding any Interest Payment Date through the close of business on such Interest Payment Date (unless this Note or the portion thereof being converted is subject to redemption on a redemption date in that period), also accompanied by payment in funds acceptable to the Company of an amount equal to the interest other- wise payable on such Interest Payment Date on the principal amount of this Note then being converted. Subject to the aforesaid requirement for a payment in the event of conversion after the close of business A-7 on a Regular Record Date immediately preceding an Interest Payment Date, no payment or adjustment shall be mae on conversion for interest accrued hereon or for dividends on Common Stock delivered on conversion. The right to convert this Note is subject to the provisions of the Indenture relating to conversion rights in the case of certain consolidations, mergers, or sales or transfers of substantially all the Company's assets. The Company shall not issue fractional shares or scrip representing fractions of shares of Common Stock upon any such conversion, but shall make an adjust- ment therefor in cash on the basis of the then current market value of such fractional interest as provided in the Indenture. The Company will furnish to any holder upon written request and without charge a copy of the Indenture. Requests may be made to: General Counsel, Rohr, Inc., 850 Lagoon Drive, Chula Vista, California 91910. A-8 FORM OF CONVERSION NOTICE To: ROHR, INC. The undersigned registered owner of the Convertible Subordinated Note hereby irrevocably exercises the option to convert this Convertible Subordinated Note, or portion hereof (which is $1,000 or an integral multiple thereof) be- low designated, into shares of Common Stock of Rohr, Inc. in accordance with the terms of the Indenture referred to in this Convertible Subordinated Note, and directs that the shares issuable and deliverable upon the conversion, to- gether with any check in payment for fractional shares and Convertible Subor- dinated Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Convertible Subordinated Note not converted are to be issued in the name of a person other than the un- dersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of in- terest and taxes accompanies this Convertible Subordinated Note. Dated: ____________________________________________ ____________________________________________ Signature(s) Principal amount to be converted (if less Fill in for registration of than all): shares if to be delivered, $ ,000 and Notes if to be issued, other than to and in the name of the registered holder (Please Print): ____________________________________________ Social Security or other Taxpayer Identification Number ______________________________ (Name) ______________________________ (Street Address) Signature Guarantee: ______________________________ ____________________________________________ (City, State and zip code) ______________________________ Social Security or other Tax- payer Identification Number A-9 ASSIGNMENT FORM If you the holder want to asssign this Convertible Subordinated Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Convertible Subordinated Note to ____ _____. (Insert assignee's social security or tax ID number) ______ _______ ______. (Print or type assignee's name, address and zip code) and irrevocably appoint _____ agent to transfer this Convertible Subordinated Note on the books of the Company. The agent may substitute another to act for him. Date: ________________________ Your signature: _______________________________________________________________ (Sign exactly as your name appears on the other side of this Convertible Subordinated Note) Signature Guarantee: __________________________________________________________ A-10 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Convertible Subordinated Note purchased by the Com- pany pursuant to Sections 4.05 or 4.08 of the Indenture, check the Box: [_] If you wish to have a portion of this Convertible Subordinated Note pur- chased by the Company pursuant to Section 4.05 of the Indenture, state the amount (in multiples of $1,000): $_____________ Date: __________ Your signature: _______________________________________________________________ (Sign exactly as your name appears on the other side of this Convertible Subordinated Note) Signature Guarantee: __________________________________________________________ A-11 EX-5 5 PUB. OFF. OF NOTES [LETTERHEAD FOR GIBSON, DUNN & CRUTCHER] (619) 544-8000 C 77023-01260 Rohr, Inc. 850 Lagoon Drive Chula Vista, California 91910 Re: Public Offering of Notes ------------------------ Gentlemen: Acting as counsel for Rohr, Inc., a Delaware corporation (the "Company"), in connection with its proposed offering of $100,000,000 principal amount of Senior Notes due 2003 (the "Senior Notes") and up to $57,500,000 principal amount of Convertible Subordinated Notes due 2004 (the "Convertible Subordinated Notes," and together with the Senior Notes, the "Securities"), we have examined, among other things, the Registration Statement on the Form S-3 to which this letter is an exhibit. We have also examined the proceedings and other actions taken by the Company in connection with the authorization, issuance and sale of the Securities and the authorization and reservation of the shares of the Company's Common Stock, $1.00 par value, issuable upon conversion of the Convertible Subordinated Notes. Based upon the foregoing, and in reliance thereon, and subject to receipt from the Commission of an order declaring the Registration Statement effective, we are of the opinion that: Exhibit 5 [LETTERHEAD FOR GIBSON, DUNN & CRUTCHER] Rohr, Inc. May 11, 1994 Page 2 1. The Senior Notes, when issued and delivered and paid for in the manner described in the Registration Statement, and when executed and authenticated as specified in the Indenture relating thereto dated as of May 15, 1994 between the Company and IBJ Schroder Bank & Trust Company, as Trustee, and the Convertible Subordinated Notes, when issued and delivered and paid for in the manner described in the Registration Statement, and when executed and authenticated as specified in the Indenture relating thereto dated as of May 15, 1994 between the Company and The Bank of New York, as Trustee, will be duly issued and delivered and will constitute valid and binding obligations of the Company, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and by the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 2. The shares of Common Stock issuable upon conversion of the Convertible Subordinated Notes have been duly authorized and reserved, and when issued upon conversion in accordance with the terms of the Indenture relating thereto, will be duly and validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement relating to the Securities, and we further consent to the use of our name under the caption "Legal Matters" in each Prospectus forming a part of said Registration Statement. Very truly yours, GIBSON, DUNN & CRUTCHER EX-25.1 6 FORM T-1 SR. NOTES - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 -------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305 (b) (2)__ -------------------- IBJ SCHRODER BANK & TRUST COMPANY (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) New York 13-5375195 (State of Incorporation (I.R.S. employer if not a U.S. national bank) identification No.) One State Street, New York, New York 10004 (Address of principal executive offices) (Zip code) Barbara McCluskey, Assistant Vice President IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 (212) 858-2000 (Name, Address and Telephone Number of Agent for Service) ROHR, INC. (Exact name of obligor as specified in its charter) Delaware 95-1607455 (State or jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 850 Lagoon Drive Chula Vista, California 91910 (Address of principal executive office) (zip code) -------------------- ____ % SENIOR NOTES DUE 2003 (Title of Indenture Securities) - -------------------------------------------------------------------------------- Item 1. General information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department, Two Rector Street, New York, New York Federal Deposit Insurance Corporation Washington, D.C. Federal Reserve Bank of New York Second District, 33 Liberty Street, New York, New York (b) Whether it is authorized to exercise corporate trust powers. Yes Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. The obligor is not an affiliate of the trustee. Item 3. Voting securities of the trustee. Furnish the following information as to each class of voting securities of the trustee: As of May 9, 1994 Col. A Col. B Title of class Amount Outstanding -------------- ------------------ Not Applicable - 2 - Item 4. Trusteeships under other indentures. If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, furnish the following information: (a) Title of the securities outstanding under each such other indenture Not Applicable (b) A brief statement of the facts relied upon as a basis for the claim that no conflicting interest within the meaning of Section 310 (b) (1) of the Act arises as a result of the trusteeship under any such other indenture, including a statement as to how the indenture securities will rank as compared with the securities issued under such other indenture. Not Applicable Item 5. Interlocking directorates and similar relationships with the obligor or underwriters. If the trustee or any of the directors or executive officers of the trustee is a director, officer, partner, employee, appointee, or representative of the obligor or of any underwriter for the obligor, identify each such person having any such connection and state the nature of each such connection. Not Applicable Item 6. Voting securities of the trustee owned by the obligor or its officials. Furnish the following information as to the voting securities of the trustee owned beneficially by the obligor and each director, partner, and executive officer of the obligor: As of May 9, 1994 Col A Col. B Col. C Col. D Name of Owner Title of class Amount owned Percent of voting beneficially securities repre- sented by amount given in Col. C - --------------- --------------- ------------- ------------------ Not Applicable - 3 - Item 7. Voting securities of the trustee owned by underwriters or their officials. Furnish the following information as to the voting securities of the trustee owned beneficially by each underwriter for the obligor and each director, partner and executive officer of each such underwriter: As of May 9, 1994 Col A Col. B Col. C Col. D Name of Owner Title of class Amount owned Percent of voting beneficially securities repre- sented by amount given in Col. C - ------------- --------------- ------------ ----------------- Not Applicable Item 8. Securities of the obligor owned or held by the trustee Furnish the following information as to securities of the obligor owned beneficially or held as collateral security for obligations in default by the trustee: As of May 9, 1994 Col A Col. B Col. C Col. D Title of Class Whether the secur- Amount owned bene- Percent of class ities are voting ficially or held represented or nonvoting as collateral sec- by amount securities urity for oblig- given in Col. C ations in default - --------------- ------------------ ------------------ ---------------- Not Applicable - 4 - Item 9. Securities of underwriters owned or held by the trustee. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of an underwriter for the obligor, furnish the following information as to each class of securities of such underwriter any of which are so owned or held by the trustee: As of May 9, 1994 Col A Col. B Col. C Col. D Title of Class Whether the secur- Amount owned bene- Percent of class ities are voting ficially or held represented or nonvoting as collateral sec- by amount securities urity for oblig- given in Col. C ations in default by trustee - ---------------- ------------------ ------------------ ---------------- Not Applicable Item 10. Ownership or holdings by the trustee of voting securities of certain affiliates or securityholders of the obligor. If the trustee owns beneficially or holds as collateral security for obligations in default voting securities of a person who, to the knowledge of the trustee (1) owns 10 percent or more of the voting securities of the obligor or (2) is an affiliate, other than a subsidiary, of the obligor, furnish the following information as to the voting securities of such person: As of May 9, 1994 Col A Col. B Col. C Col. D Title of Class Whether the secur- Amount owned bene- Percent of class ities are voting ficially or held represented or nonvoting as collateral sec- by amount securities urity for oblig- given in Col. C ations in default by trustee - ---------------- ------------------ ------------------ ----------------- Not Applicable - 5 - Item 11. Ownership or holdings by the trustee of any securities of a person owning 50 percent or more of the voting securities of the obligor. If the trustee owns beneficially or holds as collateral security security for obligations in default any securities of a person who, to the knowledge of the trustee, owns 50 percent or more of the voting securities of the obligor, furnish the following information as to each class of securities of such any of which are so owned or held by the trustee: As of May 9, 1994 As of May 9, 1994 Col. A Col. B Col. C Nature of Amount Date Indebtedness Outstanding Due --------------- ----------------- ------ Not Applicable Item 12. Indebtedness of the Obligor to the Trustee. Except as noted in the instructions, if the obligor is indebted to the trustee, furnish the following information: As of May 9, 1994 Col A Col. B Col. C Col. D Title of Class Whether the secur- Amount owned bene- Percent of class ities are voting ficially or held represented or nonvoting as collateral sec- by amount securities urity for oblig- given in Col. C ations in default by trustee - --------------- ------------------ ------------------ ----------------- Not Applicable Item 13. Defaults by the Obligor. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. Not Applicable - 6 - (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. Not Applicable Item 14. Affiliations with the Underwriters If any underwriter is an affiliate of the trustee, describe each such affiliation. Not Applicable Item 15. Foreign Trustees. Identify the order or rule pursuant to which the foreign trustee is authorized to act as sole trustee under indentures qualified or to be qualified under the Act. Not Applicable Item 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. *1. A copy of the Charter of IBJ Schroder Bank & Trust Company as amended to date. (See Exhibit 1A to Form T-1, Securities and Exchange Commission File No. 22-18460). *2. A copy of the Certificate of Authority of the Trustee to Commence Business (Included in Exhibit I above). *3. A copy of the Authorization of the Trustee, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-19146). *4. A copy of the existing By-Laws of the Trustee, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-19146). - 7 - 5. A copy of each Indenture referred to in Item 4, if the Obligor is in default. Not Applicable. 6. The consent of the United States institutional trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. * The Exhibits thus designated are incorporated herein by reference as exhibits hereto. Following the description of such Exhibits is a reference to the copy of the Exhibit heretofore filed with the Securities and Exchange Commission, to which there have been no amendments or changes. NOTE ---- In answering any item in this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor and its directors or officers, the trustee has relied upon information furnished to it by the obligor. Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base responsive answers to Item 2, the answer to said Item are based on incomplete information. Item 2, may, however, be considered as correct unless amended by an amendment to this Form T-1. Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and 16 of this form since to the best knowledge of the trustee as indicated in Item 13, the obligor is not in default under any indenture under which the applicant is trustee. - 8 - SIGNATURE --------- Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility & qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 9th day of May, 1994. IBJ SCHRODER BANK & TRUST COMPANY By: /s/ Barbara McCluskey _______________________________ Assistant Vice President - 9 - EXHIBIT 6 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the issue by Rohr, Inc. of its ____% Senior Notes due 2003, we hereby consent that reports of examinations by Federal, State, Territorial, or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. IBJ SCHRODER BANK & TRUST COMPANY By: /s/ Barbara McCluskey _______________________________ Assistant Vice President Dated: May 9th 1994 - 10 - EXHIBIT II CONSOLIDATED REPORT OF CONDITION OF IBJ SCHRODER BANK & TRUST COMPANY of New York, New York And Foreign and Domestic Subsidiaries Report as of December 31, 1993
DOLLAR AMOUNTS ASSETS IN THOUSANDS -------------- Cash and balance due from depository institutions: Noninterest-bearing balances and currency and coin........... $ 35,636 Interest-bearing balances.................................... 185,418 Securities..................................................... 78,890 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank................... 1,258,914 Loans and lease financing receivables: Loan and leases, net of unearned income........... 2,312.323 LESS: Allowance for loan and lease losses......... 53,518 --------- Loans and leases, net of unearned income, allowance, and reserve..................................................... 2,258,805 Assets held in trading accounts................................ 1,280,907 Premises and fixed assets...................................... 11,812 Other real estate owned........................................ 1,403 Customers' liability to this bank on acceptances outstanding... 644 Intangible assets.............................................. 71,463 Other assets................................................... 891,284 ---------- TOTAL ASSETS................................................... $6,075,196 ========== LIABILITIES Deposits: In domestic offices......................................... 646,723 Noninterest-bearing............................... 193,754 Interest-bearing.................................. 452,969 In foreign offices, Edge and Agreement subsidiaries, and IBFs.................................................... 870,804 Noninterest-bearing................................ 14,095 Interest-bearing.................................. 856,709 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank............... 3,091,600 Demand notes issued to the U.S. Treasury....................... 95,000 Other borrowed money........................................... 891,854 Mortgage indebtedness and obligations under capitalized leases...................................................... 10,381 Bank's liability on acceptances executed and outstanding....... 664 Other liabilities.............................................. 123,560 ---------- TOTAL LIABILITIES.............................................. 5,730,046 ---------- EQUITY CAPITAL Perpetual preferred stock...................................... 50,000 Common Stock................................................... 41,473 Surplus........................................................ 282,945 Undivided profits and capital reserves......................... (29,373) Plus: Net unrealized gain on marketable equity securities...... 105 ---------- TOTAL EQUITY CAPITAL........................................... 345,105 TOTAL LIABILITIES AND EQUITY CAPITAL........................... $6,075,196 ==========
- 11 - EX-25.2 7 FORM T-1 CONV. SUB. NOTES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ___ ________________ THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (Jurisdiction of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) 48 Wall Street, New York, New York 10286 (Address of principal executive offices) (Zip Code) ROHR, INC. (Exact name of obligor as specified in its charter) Delaware 95-1607455 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 850 Lagoon Drive Chula Vista, CA 91910 (Address of principal executive offices) (Zip Code) ________________ Convertible Subordinated Notes Due 2004 (Title of the indenture securities) GENERAL ITEM 1. General Information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. Superintendent of Banks 2 Rector Street, of the State of New York New York, N.Y. 10006 and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045-001 Federal Deposit Insurance Corporation Washington, D.C. 20549 New York Clearing House Association 100 Broad Street New York, N.Y. 10004 (b) Whether it is authorized to exercise corporate trust powers: Yes. ITEM 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. (See Note on page 2.) ____________________ ITEM 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the Commission's Rules of Practice. 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (See Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and 2 Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (See Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (See Exhibit 6 to Form T-1, Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. NOTE ---- Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee of all facts on which to base a responsive answer to Item 2, the answer to said Item is based on incomplete information. Item 2 may, however, be considered as correct unless amended by an amendment to this Form T-1. __________________ SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 10th day of May, 1994. The Bank of New York By: /s/Robert F. McIntyre ------------------------- Title: Assistant Vice President 3 EXHIBIT INDEX Description Number ----------- ------ Latest report of condition of 99.7 the Trustee published pursuant to law or to the requirements of its supervising or examining authority. 4 EXHIBIT 99.7 Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business December 31, 1993, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS in Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ........................................ $ 4,393,393 Interest-bearing balances .................................. 652,315 Securities ................................................... 3,809,834 Federal funds sold in domestic offices of the bank ................................................ 331,075 Loans and lease financing receivables: Loans and leases, net of unearned income ................... 23,708,678 Less Allowance for loan and lease losses ................... 773,597 Less allocated transfer risk reserve ....................... 28,427 Loans and leases, net of unearned income, allowance, and reserve .............................................. 22,906,654 Assets held in trading accounts .............................. 851,615 Premises and fixed assets (including capitalized leases) ..... 657,247 Other real estate owned ...................................... 60,806 Investments in unconsolidated subsidiaries and associated companies ....................................... 170,378 Customers' liability to this bank on acceptances outstanding . 885,751 Intangible assets ............................................ 42,689 Other assets ................................................. 1,326,362 ----------- Total assets ................................................. $36,088,119 ===========
5
LIABILITIES Deposits In domestic offices ......................................... $19,486,153 Noninterest-bearing ......................................... 7,388,636 Interest-bearing ............................................ 12,097,517 In foreign offices, Edge and Agreement subsidiaries, and IBFs .................................................. 8,230,444 Noninterest-bearing ......................................... 53,571 Interest-bearing ............................................ 8,176,873 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal funds purchased ..................................... 1,207,881 Securities sold under agreements to repurchase .............. 350,492 Demand notes issued to the U.S. Treasury ...................... 300,000 Other borrowed money .......................................... 530,559 Bank's liability on acceptances executed and outstanding ...... 897,899 Subordinated notes and debentures ............................. 1,064,780 Other liabilities ............................................. 1,139,025 Total liabilities ............................................. 33,207,233 =========== EQUITY CAPITAL Perpetual preferred stock and related surplus ................. 75,000 Common stock .................................................. 942,284 Surplus ....................................................... 525,666 Undivided profits and capital reserves ........................ 1,342,860 Cumulative foreign currency translation adjustments ........... (4,924) ----------- Total equity capital .......................................... 2,880,886 ----------- Total liabilities, limited-life preferred stock and equity capital .............................................. $36,088,119 ===========
6 I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Robert E. Keilman We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. J. Carter Bacot ) Alan R. Griffith ) Directors Samuel F. Chevalier ) 7 EX-99.1 8 SEVENTH AMENDMENT SEVENTH AMENDMENT This SEVENTH AMENDMENT, dated as of May 10, 1994 among ROHR, INC. (formerly known as Rohr Industries, Inc.) (the "Borrower"), the financial institutions listed on the signature pages hereof under the heading "Lenders" (collectively the "Lenders"), BANKERS TRUST COMPANY, as "Assignor" under, and as defined in, Section 3 hereof, and CITIBANK, N.A. ("Citibank"), as resigning Agent for such Lenders pursuant to Section 2 below, and CITICORP USA, INC., a Delaware corporation ("CUSA"), as successor Agent for the Lenders from time to time pursuant to said Section 2. PRELIMINARY STATEMENT. The Borrower has entered into a Credit Agreement dated as of April 26, 1989, as amended by the First Amendment dated as of July 21, 1989, the Second Amendment dated as of January 25, 1990, the Third Amendment dated as of April 30, 1990, the Letter Amendment dated as of October 31, 1992, the Fifth Amendment dated as of July 9, 1993, and the Sixth Amendment dated as of September 24, 1993 (said Credit Agreement, as so amended, being the "Credit Agreement", the terms defined therein being used herein as therein defined unless otherwise defined herein), with the Lenders party thereto and the Agent. The Borrower and the Lenders have agreed to amend and modify the Credit Agreement as hereinafter set forth. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Amendment to Credit Agreement. The Credit Agreement is, ----------------------------- effective as of the date hereof and subject to the satisfaction of the conditions set forth in Section 4 below, hereby amended as follows: (a) Section 1.01 is hereby amended by adding the following definitions in appropriate alphabetical order: "'Affiliate' means, as to any Person, any other Person that, --------- directly or indirectly, controls, is controlled by or is under common control with such Person." "'Agent's Account' means the account of the Agent maintained by --------------- the Agent with Citibank at its office at 399 Park Avenue, New York, New York 10043, Account No. 36852248, Attention: Rohr, Inc. Account." "'Agent's Syndication Account' means the account of the Agent --------------------------- maintained by the Agent with Citibank at its office at 399 Park Avenue, New York, 2 New York 10043, Account No. 36852248, Attention: Rohr, Inc. Account." "'Borrower's Account' means the account of the Borrower maintained ------------------ by the Borrower with Citibank at its offices at 399 Park Avenue, New York, New York 10043, Account No. 38007777." "'CUSA' means Citicorp USA, Inc., a Delaware corporation." ---- "'Debt Date' means the date of issuance and sale by the Borrower --------- of the Senior Notes and the Subordinated Debt." "'Environmental Action' means any administrative, regulatory or -------------------- judicial action, suit, demand, demand letter, claim, notice of non- compliance or violation, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, Environmental Permit or Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief." "'Environmental Permit' means any permit, approval, identification -------------------- number, license or other authorization required under any applicable Environmental Law." "'Gross Operating Income' means, for any period, sales less costs ---------------------- ---- and expenses attributable to sales (other than amortization and depreciation), in each case as reflected on the consolidated statements of operations and cash flows of the Borrower and the Subsidiaries for such period." "'Hazardous Materials' means petroleum and petroleum products, by ------------------- products or breakdown products, radioactive materials, asbestos- containing materials, radon gas and any other chemicals, materials or substances designated, classified or regulated as being 'hazardous' or 'toxic', or words of similar import, under any federal, state, local or foreign statute, law, ordinance, rule, 3 regulation, code, order, judgment, decree or judicial or agency interpretation, policy or guidance." "'Insufficiency' means, with respect to any Plan, the amount, if ------------- any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA." "'Material Adverse Effect' means a material adverse effect of (a) ----------------------- the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower and its Subsidiaries taken as a whole, (b) the rights and remedies of the Agent or any Lender under this Agreement or any Note or (c) the ability of the Borrower to perform its obligations under this Agreement or any Note." "'Senior Notes' means promissory notes of the Borrower that are ------------ (i) publicly issued after April 1, 1994 and (ii) subject to such terms and provisions as shall be (a) acceptable to the Majority Lenders and the Agent and (b) substantially similar to those terms and provisions described in the draft prospectus of April 19, 1994 filed by the Borrower with the Securities and Exchange Commission in connection with the offering of the Borrower's Senior Notes due 2003." "'Seventh Amendment' means the Seventh Amendment, dated as of May ----------------- 10, 1994 among the Borrower, the Lenders, Bankers Trust Company (as an 'Assignor' thereunder) and the Agent (including Citibank as resigning Agent and CUSA as successor Agent)." (b) The definitions of "Commitment", "Eligible Assignee", "Environmental Laws", "ERISA Event", "Lenders", "Permitted Liens", "Repayment Date", "Subordinated Debt", and "Termination Date" in Section 1.01 are hereby amended to read, respectively, as follows: "'Commitment' means, with respect to any Lender at any time, the ---------- amount set forth opposite such Lender's name on the signature pages of the Seventh Amendment or, if such Lender has entered into one or more Assignments and Acceptances after the date of the Seventh Amendment, set forth for such Lender in the Register maintained by the Agent pursuant to 4 Section 8.07(c) as such Lender's 'Commitment', as such amount may be reduced at or prior to such time pursuant to Section 2.05." "'Eligible Assignee' means (a) any Affiliate of any Lender, (b) ----------------- any Federal Reserve Bank (other than with respect to any assignment of a Commitment) or (c) any Person approved by the Agent and the Borrower, such approval not to be unreasonably withheld; provided, that in the -------- case of clauses (a) and (c) of this definition, such Affiliate or Person is a financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business; and provided, further, however, that an -------- ------- ------- Affiliate of the Borrower shall not qualify as an Eligible Assignee under clause (c) of this definition." "'Environmental Law' means any federal, state, local or foreign ----------------- statute, law, ordinance, rule, regulation, code, order, judgment or decree or written judicial or agency interpretation, policy or guidance having the force of law relating to the environment, health, safety or Hazardous Materials." "'ERISA Event' means (i) the occurrence of a reportable event, ----------- within the meaning of Section 4043(b) of ERISA (other than an event described in Section 4043(b)(3)), unless the 30-day notice requirement with respect thereto was waived by the PBGC as of the date of the Seventh Amendment, (ii) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA), (iii) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA, (iv) the withdrawal by the Borrower or an ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA, (v) the failure by the Borrower or any ERISA Affiliate to make a payment to a Plan required under Section 302(f)(1) of ERISA, which Section imposes a lien for failure to make required payments, (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to 5 Section 307 of ERISA, or (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which would constitute grounds under Section 4042(a)(i) and (ii) of ERISA for the termination of, or the appointment of a trustee to administer, a Plan." "'Lenders' means (i) the financial institutions listed on the ------- signature pages of the Seventh Amendment under the heading 'Lenders' and (ii) each Eligible Assignee that shall become a party hereto pursuant to Section 8.07." "'Permitted Liens' means such of the following as to which no --------------- enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced (except as permitted below): [clauses (i) through (viii) remain unchanged] . . . "(ix) pledges or deposits of cash or Permitted Investments to secure obligations in respect of letters of credit issued in connection with any workers' compensation or self-insurance or reinsurance program established by the Borrower or any of its Subsidiaries;" [clauses (x) and (xi) remain unchanged] . . . "(xii) the lien required by paragraph 5I(ii) of the Amended and Restated Note Agreements relating to the Borrower's 9.33% and 9.35% senior notes, respectively, and satisfying the requirements of Section 4(d) of the Seventh Amendment." "'Repayment Date' means the date on which any Debt (other than (i) -------------- Debt resulting from Advances, (ii) Debt owed to any Subsidiary of the Borrower, and (iii) Debt described in clause (vi) of the definition of "Debt" contained in Section 1.01) of the Borrower is prepaid, redeemed, purchased, defeased or otherwise satisfied prior to the scheduled repayment date or stated maturity thereof; provided, however, that the -------- ------- date on which any of the following occurs shall not be a Repayment Date: (a) the satisfaction 6 of Debt through its surrender to the Borrower in payment for stock issuable upon exercise of a warrant issued pursuant to the Warrant Agreement dated as of July 31, 1993 between the Borrower and the purchasers identified therein, and (b) prepayments, redemptions, purchases, defeasances or other satisfactions of Debt (other than Debt evidenced by the Borrower's 9.35% and 9.33% senior notes due 2000 and 2002, respectively, 9.25% subordinated notes due 2017, 7% convertible subordinated notes due 2012, Senior Notes and Subordinated Debt) aggregating not more than $500,000 in any Fiscal Year, and provided, -------- further, that it is understood and agreed that the scheduled repayment ------- date or stated maturity of the industrial development bonds (in an aggregate principal amount up to $16,500,000) related to the Borrower's San Marcos, Texas facility shall include the date on which such bonds shall be prepaid, redeemed or purchased in connection with the expiration of the letter of credit related thereto or upon tender by the holders thereof in accordance with the terms of the indenture governing such bonds." "'Subordinated Debt' means Debt of the Borrower that is (i) ----------------- publicly issued after April 1, 1994, (ii) convertible into shares of common stock of the Borrower, and (iii) subject to such other terms and provisions as shall be (A) acceptable to the Majority Lenders and the Agent and (B) substantially similar to those terms and provisions described in the draft prospectus of April 19, 1994 filed by the Borrower with the Securities and Exchange Commission in connection with the offering of the Borrower's Convertible Subordinated Notes due 2004." "'Termination Date' means April 25, 1997 or the earlier date of ---------------- termination in whole of the Commitments pursuant to Section 2.05 or 6.01." (c) Section 1.01 is hereby further amended by deleting the definitions of "Consolidated Cash Flow", "Liquidity Fund", "Liquidity Fund Amount", "P Commitment", "P Commitment Increase Date", "P Commitment Reduction Date", "S Commitment" and "Subordinated Debt Date". (d) Section 1.01 is hereby further amended by amending in their entirety the last sentence of the definition of the term "Adjusted Consolidated Tangible Net Worth" and the proviso to the definition of the ------- term "Tangible Net Worth" to read as follows, respectively: 7 "Notwithstanding the foregoing, (A) net deferred income tax assets recorded in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ('SFAS 109') shall be treated as a tangible asset (and not deducted pursuant to clause (i) or (iv) of this definition) and shall be calculated without regard to any valuation allowance with respect to such net deferred tax asset recorded by the Borrower in accordance with SFAS 109, and (B) any asset established pursuant to Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions ('SFAS 87') which corresponds to an additional minimum pension liability recorded pursuant to SFAS 87 and any prepaid pension asset which arises from amounts funded by the Borrower in accordance with Internal Revenue Service regulations in excess of amounts expensed in accordance with SFAS 87 shall be treated as a tangible asset (and not deducted pursuant to clause (i) or (iv) of this definition)." "; provided, however, that in calculating Tangible Net Worth (A) a net -------- ------- deferred tax asset recorded by the Borrower in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ('SFAS No. 109'), shall be treated as a tangible asset and shall be calculated without regard to any valuation allowance with respect to such net deferred tax asset recorded by the Borrower in accordance with SFAS No. 109 and (B) any asset established pursuant to Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions ('SFAS No. 87'), which corresponds to an additional minimum pension liability recorded by the Borrower in accordance with SFAS No. 87 and any prepaid pension asset which arises from amounts funded by the Borrower in accordance with Internal Revenue Service regulations in excess of amounts expensed in accordance with SFAS 87, shall be treated as a tangible asset." (e) Section 2.01 is hereby amended in its entirety to read as follows: "SECTION 2.01. The A Advances. Each Lender severally agrees, on -------------- the terms and conditions hereinafter set forth, to make A Advances to the Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date in an aggregate amount not to exceed at any time outstanding (i) such Lender's Commitment on such Business Day less (ii) the aggregate amount of such ---- 8 Lender's Participation in the then outstanding aggregate amount of all Letter of Credit Liability related to all Letters of Credit; provided -------- that the aggregate amount of the Commitments of the Lenders shall be deemed used from time to time to the extent of the aggregate amount of the B Advances then outstanding and such deemed use of the aggregate amount of the Commitments shall be applied to the Lenders ratably according to their respective Commitments (such deemed use of the aggregate amount of the Commitments being a 'B Reduction'). Each A Borrowing shall be in an aggregate amount of $4,000,000 or an integral multiple of $1,000,000 in excess thereof and shall, subject to the provisions of Section 2.02(b), consist of A Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment in effect from time to time, the Borrower may borrow under this Section 2.01, repay pursuant to Section 2.06 or prepay pursuant to Section 2.09 and reborrow under this Section 2.01." (f) Section 2.02(a) is hereby amended by amending: (i) the first sentence thereof by replacing the time "11:00 A.M. (New York City time)" with the time "12:00 Noon (New York City time)" and the words "the third Business Day prior to the date of the proposed A Borrowing" with the words "the first Business Day prior to the date of the proposed A Borrowing if it is comprised of Base Rate Advances, or the third Business Day prior to the date of the proposed A Borrowing if it is comprised of A Advances of any other Type", and (ii) the fourth and fifth sentences thereof to read as follows: "Each Lender shall, before 1:00 P.M. (New York City time) on the date of such A Borrowing, make available for the account of its Applicable Lending Office to the Agent at the Agent's Syndication Account, in same day funds, such Lender's ratable portion of such A Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the Borrower by crediting the Borrower's Account; provided, however, that the -------- ------- Agent shall first make a portion of such funds equal to any drawing 9 under any Letter of Credit which has remained unreimbursed for at least two Business Days available to Citibank, as issuing bank of such Letter of Credit, for reimbursement of such drawing as contemplated by Section 2.14(c)." (g) Section 2.03(a)(v) is hereby amended by adding to the end thereof the following sentence: "The failure of any Lender to make the B Advance to be made by it, if any, as part of any B Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make the B Advance to be made by such other Lender, if any, on the date of such B Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the B Advance, if any, to be made by such other Lender on the date of any B Borrowing." (h) Section 2.05 is hereby amended in its entirety to read as follows: "SECTION 2.05. Reduction of the Commitments. ---------------------------- (a) Automatic Reduction. The Commitment of each Lender ------------------- (determined without giving effect to any B Reduction on such day) shall automatically reduce on October 25, 1995, April 25, 1996 and October 25, 1996 (each such day being an 'Amortization Date'), to the amount obtained by multiplying the percentage set opposite the applicable Amortization Date below times the Commitment of such Lender on the date of the Seventh Amendment (determined after giving effect to any subsequent Assignment and Acceptance but without giving effect to any B Reduction on such day):
Amortization Date Percentage ----------------- ---------- October 25, 1995 90.90909% April 25, 1996 81.81818% October 25, 1996 72.72727%
provided, however, that on the Termination Date the Commitment of each -------- ------- Lender shall be zero. (b) Optional Reduction. The Borrower shall have the right, upon ------------------ at least two Business Days' 10 notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders; provided that each partial reduction shall be in the aggregate amount -------- of $4,000,000 or an integral multiple of $1,000,000 in excess thereof. (c) Mandatory Reduction. On each Repayment Date, the Commitment ------------------- of each Lender shall automatically reduce by such Lender's ratable share of the Pro Rata Amount in respect of such Repayment Date." (i) Section 2.10 is hereby amended by deleting subsections (b), (e), (f) and (g) thereof, and by amending subsection (d) thereof, to read as follows: "(d) On the Debt Date, the Borrower shall prepay (ratably, if in part) the outstanding aggregate principal amount of the Advances in an amount equal to the lesser of (i) the aggregate principal amount of the Advances then outstanding and (ii) the net cash proceeds (net of all related taxes, costs and expenses) of the issuance of the Senior Notes and the Subordinated Debt, together with (y) accrued interest to the date of such prepayment on the principal amount prepaid and (z), in the case of any prepayment of any Adjusted CD Rate Advance or Eurodollar Rate Advance, any additional amount for which the Borrower shall be obligated pursuant to Section 8.04(b). The Agent shall immediately distribute such prepayment in accordance with Section 2.12." (j) Section 2.12(a) is hereby amended by amending the first sentence thereof to read as follows: "The Borrower shall make each payment hereunder and under the Notes, irrespective of and without condition or deduction for any counterclaim, defense, recoupment or setoff, not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Agent at the Agent's Account in same day funds." (k) Section 2.14(a) is hereby amended by (i) increasing the figure "$8,500,000" contained therein as the Letter of Credit Subfacility to the figure "$30,000,000" and (ii) replacing the parenthetical "(except itself)" contained in the third sentence thereof 11 with the parenthetical "(except itself but including CUSA)". (l) Section 2.14(b)(i) is hereby amended by amending the second sentence thereof by adding to the end thereof a new clause (F) to read as follows: "and (F) purpose for such Letter of Credit, which purpose may only be to support the Borrower's or any Subsidiary's industrial revenue or similar bonds, or the Borrower's or any Subsidiary's obligations in connection with any workers' compensation or self-insurance or reinsurance program, or the Borrower's or any Subsidiary's trade obligations incurred in the ordinary course of its business." (m) Section 2.14(c) is hereby amended by: (i) amending the first sentence thereof to add after the words "which shall be a Base Rate Advance" the parenthetical "(or, if the Borrower shall request an A Borrowing comprised of A Advances of any other Type on any day after the second Business Day following such drawing, on which day any amount of such drawing shall remain unreimbursed, an Advance of the Type so requested by the Borrower)", (ii) amending the third and fourth sentences thereof to read as follows: "Each such Lender shall, on the first Business Day following such notification, make an A Advance, which shall be a Base Rate Advance, in an amount equal to the amount of its Participation in such drawing for application to reimburse Citibank (but without any requirement for compliance with the provisions of Sections 2.01 and 2.02 or the conditions set forth in Article III) and ---- ---- ------- --- shall make available for the account of its Applicable Lending Office to the Agent for the account of Citibank, by deposit to the Agent's Account in same day funds, the amount of such A Advance. If and to the extent that any such Lender shall not have so made the amount of such A Advance available to the Agent, such Lender and the Borrower severally agree to pay to the Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by Citibank until the date such amount 12 is paid to the Agent, at (i) in the case of the Borrower, the Base Rate (or, if the Borrower shall request an A Borrowing comprised of A Advances of a Type other than Base Rate Advances on any day after the second Business Day following the applicable drawing, on which day any amount of such drawing shall remain unreimbursed, the Eurodollar Rate or Adjusted CD Rate, as applicable to such A Advances), and (ii) in the case of such Lender, the Federal Funds Rate." and (iii) amending the last sentence thereof to read as follows: "For purposes of Sections 2.14(a) and 3.03, until any A Advance made by Citibank under this subsection (c) is repaid from the A Advances made by the other Lenders under this subsection (c), such A Advance made by Citibank shall not be considered outstanding as an A Advance but rather outstanding solely as Letter of Credit Liability." (n) Section 2.16 is hereby amended in its entirety to read as follows: "SECTION 2.16. Use of Proceeds. The proceeds of the Advances --------------- shall be available (and the Borrower agrees that it shall use such proceeds) solely to provide working capital for the Borrower (it being understood that such working capital shall not include funds for repayment, prepayment, redemption, purchase, defeasance or other satisfaction of Debt or for providing cash or other collateral to secure any Debt)." (o) Section 3.03 is hereby amended in its entirety to read as follows: "SECTION 3.03. Conditions Precedent to Certain A Borrowings and ------------------------------------------------ each Letter of Credit. The obligation of the Lenders to make that --------------------- portion of the A Advances on the occasion of any A Borrowing which would be used to repay any B Advances or would otherwise cause the sum of the aggregate outstanding amount of A Advances owing to the Lenders plus the then outstanding aggregate amount of all Letter of Credit ---- Liability related to all Letters of Credit, to increase over the sum of such aggregate outstanding amount of A Advances plus outstanding ---- 13 aggregate amount of Letter of Credit Liability immediately prior to the making of such A Advances on the occasion of such A Borrowing, and the right of the Borrower to request, and the obligation of Citibank in respect of, the Issuance of each Letter of Credit which Issuance would cause the sum of the aggregate outstanding amount of all Letter of Credit Liability related to all Letters of Credit plus the then ---- outstanding aggregate amount of all A Advances owing to the Lenders, to increase over the sum of such aggregate outstanding amount of Letter of Credit Liability plus outstanding aggregate amount of A Advances ---- immediately prior to the Issuance of such Letter of Credit, shall in each such case be subject to the further conditions precedent that on the date of such A Borrowing or Issuance the following statements shall be true (and the acceptance by the Borrower of the proceeds of such A Borrowing, and the Issuance of such Letter of Credit, shall constitute a representation and warranty made by the Borrower that on the date of such A Borrowing or Issuance such statements are true): (i) the representations and warranties contained in subsections (e), (f) and (j) of Section 4.01 are correct on and as of the date of such A Borrowing or Issuance, before and after giving effect to such A Borrowing or Issuance and to the application of the proceeds therefrom, as though made on and as of such date, and (ii) no event has occurred and is continuing, or would result from such A Borrowing or Issuance or from the application of the proceeds therefrom, which would constitute an Event of Default but for the requirement that notice be given or time elapse or both." (p) Article III is hereby amended by renumbering Sections 3.04 and 3.05 as Sections 3.05 and 3.06, respectively, and by adding to Article III a new Section 3.04 to read as follows: "SECTION 3.04. Conditions Precedent to certain Letters of Credit. ------------------------------------------------- The right of the Borrower to request, and the obligation of Citibank in respect of, the Issuance of each Letter of Credit that supports any Debt described in clause (i) or (ii) of the definition of 'Debt' contained in Section 1.01 (subject to the requirements of clause (F) of Section 2.14(b)(i)) shall be subject to the further conditions precedent that on the date of such Issuance this Agreement shall have been amended, and the Agent shall have received such documents, as the 14 Agent shall reasonably request in order to secure and otherwise protect the obligations of the Borrower to Citibank and the Lenders in respect of such Letter of Credit in the same manner as such Debt is secured and otherwise protected." (q) Section 4.01(e) is hereby amended in its entirety to read as follows: "(e) The Consolidated balance sheet of the Borrower and the Subsidiaries as at July 31, 1993 and the related Consolidated statements of operations, shareholders' equity and cash flows of the Borrower and the Subsidiaries for the Fiscal Year then ended, accompanied by an opinion of Deloitte & Touche, independent public accountants, and the Consolidated balance sheet of the Borrower and the Subsidiaries as at January 30, 1994, and the related Consolidated statements of operations, shareholders' equity and cash flows of the Borrower and the Subsidiaries for the six months then ended, duly certified by the chief financial officer of the Borrower, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheet as at January 30, 1994, and said statements of operations, shareholders' equity and cash flows for the six months then ended, to year-end audit adjustments, the Consolidated financial condition of the Borrower and the Subsidiaries as at such dates and the Consolidated results of the operations and cash flows of the Borrower and the Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis; and since July 31, 1993, there has been no material adverse change in the financial condition or operations of the Borrower and the Subsidiaries taken as a whole. The Lenders agree that charges in the third Fiscal Quarter of Fiscal Year 1994 to shareholders' equity in connection with increases in the underfunded status of the Borrower's pension plans, and to income in connection with the expensing of unamortized pension benefit past service costs, each as described in the Borrower's Quarterly Report on Form 10-Q for the Fiscal Quarter ended January 30, 1994, will not constitute such a material adverse change." (r) Section 4.01 is hereby amended by amending subsection (k) to read as follows: 15 "(k) Set forth in Schedule V is a complete and accurate list, as of the date of the Seventh Amendment, of all the outstanding Debt of the Borrower and its Subsidiaries (other than Debt owed by the Borrower to any of its Subsidiaries or by any of its Subsidiaries to the Borrower or any other of its Subsidiaries and Debt described in clause (vi) of the definition of 'Debt' contained in Section 1.01) and the instruments and agreements, and amendments, supplements and other modifications thereto, evidencing such Debt." and by adding to Section 4.01 a new subsection (l) to read as follows: "(l) The obligations of the Borrower under this Agreement and the Notes constitute, and are entitled to the benefits of, 'Senior Indebtedness' and 'Designated Senior Indebtedness' as defined in, and under, the indenture related to the Subordinated Debt." (s) Section 5.01(c) is hereby amended in its entirety to read as follows: "(c) Maintenance of Consolidated Tangible Net Worth. Maintain ---------------------------------------------- for each day (or, for any day on which all of the long-term public senior debt securities of the Borrower are rated at least BBB- by Standard & Poor's Corporation and Baa3 by Moody's Investors Service, Inc., for the last day of the Fiscal Quarter in which such day occurs) a Consolidated Tangible Net Worth of not less than $125,000,000 to and including July 31, 1994, and thereafter the sum of (i) $125,000,000 plus (ii) 50% of the sum of the positive Consolidated Net Income, if ---- any, during the period from August 1, 1994 to such day (or, for any day on which all of the long-term public senior debt securities of the Borrower have such ratings, to the last day of such Fiscal Quarter), plus (iii) the aggregate amount of all capital contributions ---- (including, without limitation, all amounts attributable to the conversion of Debt of the Borrower to equity of the Borrower) received by the Borrower or any Subsidiary (other than such contributions originally made by the Borrower or any of its Subsidiaries) in cash, in other property, or by conversion of Debt of the Borrower at any time after the date of the Seventh Amendment." 16 (t) Section 5.01(d) is hereby amended in its entirety to read as follows: "(d) Maintenance of Ratio of Net Income Available for Fixed ------------------------------------------------------ Charges to Fixed Charges. Maintain for each day (or, for any day on ------------------------ which all of the long-term public senior debt securities of the Borrower are rated at least BBB- by Standard & Poor's Corporation and Baa3 by Moody's Investors Service, Inc., for the last day of the Fiscal Quarter in which such day occurs) a ratio of Consolidated Net Income Available for Fixed Charges for the period of 365 consecutive days (or 366 consecutive days for any such period that includes February 29) ending on such day (or, for any day on which all of the long-term public senior debt securities of the Borrower have such ratings, ending on the last day of the Fiscal Quarter in which such day occurs), to Consolidated Fixed Charges for such period of not less than the ratio set forth opposite the period set forth below in which such day occurs:
Period Ratio ------ ----- From the date of the 1.40 to 1 Seventh Amendment to July 31, 1994 From August 1, 1994 to 1.55 to 1 July 31, 1995 From August 1, 1995 to 1.90 to 1 July 31, 1996 From August 1, 1996 to 2.00 to 1" the Termination Date
(u) Section 5.01 is hereby amended by deleting the existing subsection (e) thereof and by adding thereto a new subsection (e) to read as follows: "(e) Compliance with Environmental Laws. Comply, cause each of ---------------------------------- its Subsidiaries to comply and use its best efforts to cause all other Persons occupying its properties to comply, with all Environmental Laws and Environmental Permits applicable to its operations and properties; obtain and renew all Environmental Permits necessary for its operations and properties; and conduct, and cause each of its Subsidiaries to conduct, any 17 investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all applicable Environmental Law; in each case unless ------ the failure to so act would not be reasonably likely to have a Material Adverse Effect; provided, however, that neither the Borrower nor any of -------- ------- its Subsidiaries shall be required to undertake any such investigation, study, sampling and testing, cleanup, removal, remedial or other action to the extent that its obligations to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances." (v) Section 5.02(a) is hereby amended in its entirety to read as follows: "(a) Debt Ratio. Permit the Debt Ratio for any day (or, for any ---------- day on which all of the long-term public senior debt securities of the Borrower are rated at least BBB- by Standard & Poor's Corporation and Baa3 by Moody's Investors Service, Inc., for the last day of the Fiscal Quarter in which such day occurs) to be greater than the ratio set forth opposite the period set forth below in which such day occurs:
Period Ratio ------ ----- From the date of the 5.60 to 1 Seventh Amendment to July 31, 1994 From August 1, 1994 to 5.00 to 1 July 31, 1995 From August 1, 1995 to 4.10 to 1 July 31, 1996 From August 1, 1996 to 3.20 to 1" the Termination Date
(w) Section 5.02(d) is hereby amended by adding to the end thereof a new clause (iii) to read as follows: "and (iii) all or substantially all of the assets of Rohr Aero Services, Inc. and Rohr Aero Services 18 Europe may be sold (whether in one transaction or in a series of transactions and, in the case of the assets of Rohr Aero Services Europe, whether indirectly through the sale of its stock or directly) if such sales comply with the requirements of Section 5.02(j)." (x) Section 5.02(e) is hereby amended by deleting in its entirety paragraph (v) of the except clause thereof, and Section 5.02(h) is hereby ------ amended by deleting in its entirety clause (iii) thereof. (y) Section 5.02(j) is hereby amended by: (i) replacing the term "Consolidated Cash Flow" contained in Section 5.02(j) with the term "Gross Operating Income"; and (ii) amending Section 5.02(j)(iii) to read as follows: "(iii) in the good faith opinion of the board of directors of the Borrower (or a committee of such board to whom such matter has been properly delegated), the sale, lease, transfer or other disposition is for fair market value and is in the best interests of the Borrower; and". (z) Section 5.02 is hereby amended by adding to the end thereof a new subsection (k) to read as follows: "(k) Incurrence of Debt. Incur, or permit any Subsidiary to ------------------ incur, any Debt other than: (i) Debt incurred from time to time hereunder; (ii) Debt evidenced by the Senior Notes in an aggregate principal amount not to exceed $100,000,000, and Subordinated Debt in an aggregate principal amount not to exceed $57,500,000; (iii) Debt in an aggregate principal amount not to exceed $10,000,000 at any time outstanding; provided, however, that no -------- ------- more than $5,000,000 of such amount may be Debt of Subsidiaries at any time; 19 (iv) Debt of Subsidiaries under revolving credit facilities, so long as the aggregate amount of all such Debt outstanding at any time shall not exceed $5,000,000; (v) Debt of any Subsidiary to the Borrower or any of its other Subsidiaries or of the Borrower to any of its Subsidiaries, provided that in each case such Debt was incurred in the ordinary -------- course of business; (vi) any refinancing, renewal, extension or refunding of outstanding Debt not resulting in an increase in the principal amount thereof, provided that such Debt is pari passu in right of -------- ---- ----- payment to the Debt refinanced, renewed, extended or refunded; (vii) Debt described in clause (vi) of the definition of 'Debt' contained in Section 1.01; (viii) Debt in an aggregate principal amount not to exceed $16,500,000 incurred in connection with the sale or resale of industrial development bonds relating to the Borrower's San Marcos, Texas facility, provided, however, that such Debt may be -------- ------- incurred only if the Borrower previously prepaid, redeemed or purchased $16,500,000 principal amount of such bonds in connection with the expiration of the letter of credit related thereto; and (ix) Debt incurred in connection with the resale of the industrial development bonds referred to in clause (viii) above that were prepaid or purchased by the Borrower upon tender by the holders thereof in accordance with the terms of the indenture governing such bonds; provided, that in the case of clauses (ii) through (vii) above the Debt -------- referred to in such clauses shall be unsecured." (aa) Section 5.03 is hereby amended by deleting subsection (m) thereof. (bb) Section 6.01 is hereby amended by amending subsection (g) to read as follows: 20 "(g) There shall occur any 'Change of Control' as defined in the indenture relating to the Senior Notes or the Subordinated Debt; or" and by adding to Section 6.01 new subsections (h), (i), (j) and (k) to read as follows: "(h) any non-monetary judgment or order shall be rendered against the Borrower or any of its Subsidiaries that is reasonably likely to have a Material Adverse Effect, and there shall be any period of 45 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or "(i) any ERISA Event shall have occurred with respect to a Plan of the Borrower or any of its ERISA Affiliates and the sum (determined as of the date of occurrence of such ERISA Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans of the the Borrower and its ERISA Affiliates with respect to which an ERISA Event shall have occurred and then exist (or the liability of the Borrower and its ERISA Affiliates related to such ERISA Event) exceeds $5,000,000; or "(j) the Borrower or any of its ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower and its ERISA Affiliates as Withdrawal Liability (determined as of the date of such notification, exceeds $5,000,000 or requires payments exceeding $2,500,000 per annum; or "(k) the Borrower or any of its ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan of the Borrower or any of its ERISA Affiliates that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Borrower and its ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan 21 year in which such reorganization or termination occurs by an amount exceeding $5,000,000;". (cc) Section 8.07 is hereby amended by: (i) replacing the words "P Commitment and S Commitment" each place such words appear therein with the term "Commitment"; (ii) amending the proviso to the first sentence of subsection (a) ------- thereof by adding to the end thereof new clauses (vi) and (vii) thereof to read as follows: ", (vi) any Lender assigning all of its obligations shall not be released from its obligations under Section 7.05 to the extent relating to the period during which it was a Lender and (vii) in the case of any assignee organized under the laws of a jurisdiction outside the United States, such assignee shall have delivered to the Agent the forms prescribed by the Internal Revenue Service of the United States certifying as to such assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such assignee under this Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty"; (iii) amending clause (y) of the second sentence of subsection (a) thereof by adding after the words "an assigning Lender's rights and obligations" in the parenthetical contained therein the parenthetical "(other than its obligations under Section 7.05 to the extent relating to the period during which it was a Lender)"; and (iv) amending the first sentence of subsection (d) thereof by adding after the words "representing that it is an Eligible Assignee" the words ", and, if such assignee is organized under the laws of a jurisdiction outside the United States, the forms referred to in clause (vii) of the proviso to Section 8.07(a),". ------- (dd) Article VIII is hereby amended by adding thereto new Sections 8.10, 8.11 and 8.12 to read as follows: 22 "SECTION 8.10. Indemnification. (a) The Borrower agrees to --------------- indemnify and hold harmless the Agent and each Lender and each of their Affiliates and their officers, directors, employees and agents (each, an 'Indemnified Party') from and against any and all claims, damages, ----------------- losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with (i) any credit extended or used under the Notes or this Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances or (ii) the actual or alleged presence of Hazardous Materials on any property of the Borrower or any of its Subsidiaries or any Environmental Action relating in any way to the Borrower or any of its Subsidiaries, in each case whether or not such investigation, litigation or proceeding is brought by the Borrower or its directors or shareholders (other than in the case of any litigation for breach of this Agreement by any Indemnified Party which litigation results in a final, non-appealable judgment against such Indemnified Party) or its creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated; provided, -------- however, that no Indemnified Party shall be entitled to be indemnified ------- or held harmless hereunder to the extent such claim, damage, loss, liability or expense resulted from (x) a dispute solely between or among the Agent, one or more Lenders, any other Indemnified Party and/or one or more holders of participations herein, or (y) such Indemnified Party's gross negligence or willful misconduct. (b) Without prejudice to the survival of any other agreement of the Borrower hereunder, the obligations of the Borrower contained in subsection (a) of this Section 8.10 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the Notes. "SECTION 8.11. Jurisdiction, Etc. (a) The Borrower hereby ------------------ irrevocably and unconditionally submits to the nonexclusive jurisdiction of any 23 New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the Notes, or for recognition or enforcement of any judgment, and the Borrower hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. The Borrower hereby also consents to the service of copies of the summons and complaint and any other process which may be served in any such action or proceeding by the mailing of copies of such summons, complaint and other process to the Borrower at its address specified in Section 8.02. The Borrower agrees that a final, non-appealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Borrower, any Lender or the Agent may otherwise have to bring any action or proceeding relating to this Agreement or the Notes in the courts of any other jurisdiction. (b) The Borrower irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or the Notes in any New York State or federal court. The Borrower hereby irrevocably waives, to the fullest extent permitted by law, the defense of any inconvenient forum to the maintenance of such action or proceeding in any such court. "SECTION 8.12. Waiver of Jury Trial. Each of the Borrower, the -------------------- Agent and the Lenders hereby irrevocably waives all right to trail by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the Notes or the actions of the Borrower, the Agent or any Lender in the negotiation, administration, performance or enforcement thereof or any amendment thereof." (ee) The term "P Commitment", used throughout the Credit Agreement in provisions that have not been amended by the foregoing subsections (a) through (dd), is hereby amended to read "Commitment". 24 (ff) Paragraph 3 of Exhibit C to the Credit Agreement is hereby amended by adding to the end thereof a new clause (vii) to read as follows: "and (vii) if the Assignee is organized under the laws of a jurisdiction outside the United States, delivers to the Agent herewith the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty." (gg) A new Schedule V is hereby added to the Credit Agreement, to read in the form of Schedule V attached hereto. SECTION 2. Successor Agent. Notwithstanding anything to the contrary --------------- contained in Section 7.06 of the Credit Agreement, effective as of the date hereof and subject to the satisfaction of the conditions set forth in Section 4 below: (a) Citibank hereby resigns as Agent under the Credit Agreement. (b) The Lenders hereby appoint CUSA as successor Agent under the Credit Agreement as amended by this Seventh Amendment, the Borrower hereby approves such appointment of CUSA as Agent, and CUSA hereby accepts such appointment as Agent. (c) The term "Agent" as used in the Credit Agreement and each Note, in each case as amended by this Seventh Amendment and by each subsequent amendment or other modification of the Credit Agreement or such Note, is and shall be and mean CUSA in its capacity as Agent under such Credit Agreement. (d) Each reference to "Citibank, N.A." as Agent in (i) each Note, (ii) the form of B Note attached to the Credit Agreement as Exhibit A-2, (iii) the form of Notice of A Borrowing attached to the Credit Agreement as Exhibit B-1, (iv) the form of Notice of B Borrowing attached to the Credit Agreement as Exhibit B-2, (v) the form of Assignment and Acceptance attached to the Credit Agreement as Exhibit C, and (vi) the form of Business Status Report attached to the Credit Agreement as 25 Exhibit F, is and shall be amended to be a reference to "Citicorp USA, Inc." in its capacity as Agent under the Credit Agreement as amended hereby and by each subsequent amendment thereof. SECTION 3. Assignment. Notwithstanding anything to the contrary ---------- contained in Section 8.07 of the Credit Agreement, effective as of the date hereof and subject to the satisfaction of the conditions set forth in Section 4 below: (a) Citibank hereby sells and assigns to CUSA, and Bankers Trust Company (together with Citibank, the "Assignors") hereby sells and assigns to each Lender listed as an Assignee on Annex A hereto (each, together with CUSA, an "Assignee"), and CUSA hereby purchases and assumes from Citibank one hundred percent of, and each other Assignee hereby purchases and assumes from Bankers Trust Company the percentage interest specified on Annex A hereto for such Assignee in and to, all of such Assignor's rights and obligations under the Credit Agreement as amended by this Seventh Amendment (without giving effect to the reduction in the Commitment of such Assignor pursuant to Section 3 of this Seventh Amendment) as of the date hereof (other than such Assignor's obligations under Section 7.05 thereof to the extent relating to the period during which it was a Lender and, in the case of the assignment by Citibank, its rights and obligations under Sections 2.14 and 2.15 thereof and otherwise in connection with any Letter of Credit or any Issuance thereof), including, without limitation, (i) such Commitment of such Assignor, (ii) the aggregate outstanding principal amount of A Advances owing to such Assignor as of the date hereof, and (iii) the A Note held by such Assignor, so that as a result of such sale, assignment, purchase and assumption, the Commitment of CUSA is as set forth on the signature pages hereof and the aggregate outstanding principal amount of A Advances owing to CUSA is the aggregate outstanding principal amount of A Advances owing to Citibank immediately prior to giving effect to this Seventh Amendment, and the Commitment of each such other Assignee is as set forth on Annex A hereto and the signature pages hereof and the aggregate outstanding principal amount of A Advances (prior to any payment required under Section 2.10(d) of the Credit Agreement and Section 4(c) hereof) owing to such Assignee is as set forth on Annex A hereto. (b) Each Assignor and each Assignee hereby agrees that the sale and assignment by such Assignor and to such Assignee, respectively, pursuant to subsection (a) above, 26 and the purchase and assumption by such Assignee and from such Assignor, respectively, pursuant to subsection (a) above, is and shall be made on the terms set forth in paragraphs 2 and 3 of the form of Assignment and Acceptance attached to the Credit Agreement as Exhibit C thereto, as amended by this Seventh Amendment. Without limiting the generality of the foregoing, each Assignee hereby (i) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as amended by this Seventh Amendment as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (ii) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement as amended by this Seventh Amendment are required to be performed by it as a Lender, and (iii) other than in the case of CUSA, delivers herewith the forms referred to in clause (vii) of such paragraph 3. (c) Each Assignee specifies as its CD Lending Office, Domestic Lending Office (and address for notices) and Eurodollar Lending Office the office set forth next to its name on the Annex A hereto or, in the case of CUSA, on the signature pages hereof. (d) This Section 3 and Annex A hereto, and the signature pages hereof, is and will be referred to as the Assignment and Acceptance pursuant to which each Assignee became a Lender under, and for purposes of, the Credit Agreement. (e) The Borrower hereby approves each Assignee as an "Eligible Assignee" under the Credit Agreement for purposes of Section 8.07 thereof and otherwise. SECTION 4. Conditions of Effectiveness. This Seventh Amendment shall --------------------------- become effective as of the date hereof when (a) the Agent shall have received (i) counterparts of this Seventh Amendment executed by the Borrower and all of the Lenders and the Assignor, or, as to any of the Lenders or the Assignor, advice satisfactory to the Agent that such Lenders have, or that the Assignor has, executed counterparts of this Seventh Amendment, and (ii) for purposes of Section 3 above, in the case of any Assignee other than CUSA, the forms referred to in clause (iii) of Section 3(b), 27 (b) the Borrower shall have paid to the Agent (i) for the ratable account of the Lenders, (A) the amendment fee equal to 1/4 of 1% of the Lenders' Commitments (as defined in the Credit Agreement in effect immediately before the effectiveness of the Seventh Amendment) and (B) the maturity extension fee equal to 3/4 of 1% of such Commitments, (ii) for the account of each Lender whose new Commitment (as defined in the Credit Agreement as amended by this Seventh Amendment) exceeds such Lender's old Commitment (as defined in the Credit Agreement immediately before the effectiveness of this Seventh Amendment), the increased commitment fee equal to 2% of the amount by which such new Commitment exceeds such old Commitment, and (iii) for the account of the Agent (as defined in the Credit Agreement as modified by Section 2 of this Seventh Amendment) the agency fee as shall have been agreed upon between the Borrower and the Agent, (c) the Borrower shall have received at least $100,000,000 in gross cash proceeds from the issuance and sale of the Senior Notes and at least $50,000,000 in gross cash proceeds from the issuance and sale of the Subordinated Debt, and shall have paid to the Agent, pursuant to Section 2.10(d), the amount of such proceeds specified by Section 2.10(d), (d) the Agent shall have received (i) copies, certified to be true, of the instruments, agreements, amendments, supplements and modifications listed in Schedule V of the Credit Agreement as amended hereby, and (ii) copies, certified to be true, of amendments to that Debt listed in such Schedule V indicated therein as being amended, which amendments will (A) permit the transactions contemplated by subsection (c) above, (B) provide for the elimination of all requirements relating to the Liquidity Fund, and (C) otherwise be in form and substance satisfactory to the Majority Lenders, and (e) the Agent shall have additionally received all of the following documents, each document (unless otherwise indicated) being dated the date of receipt thereof by the Agent (which date shall be the same for all such documents), in form and substance satisfactory to the Agent: (1) New Notes to the order of the Lenders, respectively, in the principal amounts of their respective Commitments (in exchange for the existing Notes cancelled by the Banks), 28 (2) certified copies of the executed indentures relating to the Senior Notes and the Subordinated Debt, (3) certified copies of the resolutions of the Board of Directors of the Borrower approving this Seventh Amendment and the matters contemplated thereby, (4) a certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of its officers authorized to sign this Seventh Amendment and the other documents to be delivered hereunder, (5) a favorable opinion of Gibson, Dunn & Crutcher, counsel for the Borrower, in substantially the form of Exhibit A hereto, (6) a favorable opinion of Richard W. Madsen, Esq., general counsel for the Borrower, in substantially the form of Exhibit B hereto, (7) a favorable opinion of Shearman & Sterling, counsel for the Agent, in substantially the form of Exhibit C hereto, and (8) a certificate of a duly authorized officer of the Borrower to the effect that: (A) the representations and warranties contained in Section 4.01 of the Credit Agreement as amended by this Seventh Amendment, and in Section 5 of this Seventh Amendment, are correct on and as of the date of such certificate as though made on and as of such date, (B) no event has occurred and is continuing, or would result from the issuance and sale of the Senior Notes and the Subordinated Debt or from the application of the proceeds therefrom, which would constitute an Event of Default or an event which with the lapse of time or the giving of notice, or both, would constitute an Event of Default, and (C) the Borrower has issued and sold, and received proceeds from the issuance and sale of, the Senior Notes and the Subordinated Debt as required by Section 4(c) above. 29 Each statement made by the Borrower in the certificate delivered pursuant to clause (8) of Section 4(e) above shall be a representation and warranty made by the Borrower in connection with the Credit Agreement for purposes of, and within the meaning of, Section 6.01(b) of the Credit Agreement. SECTION 5. Representations and Warranties of the Borrower. The ------------------------------------- -------- Borrower represents and warrants as follows: (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified and in good standing as a foreign corporation in the State of California. (b) The execution, delivery and performance by the Borrower of this Seventh Amendment are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action and do not contravene (i) the Borrower's charter or by-laws, or (ii) law or any contractual restriction binding on or affecting the Borrower. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Seventh Amendment. (d) This Seventh Amendment constitutes legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with its terms. SECTION 6. Reference to and Effect on the Credit Agreement. (a) Upon ----------------------------------------------- the effectiveness of this Seventh Amendment, on and after the date hereof (i) each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the Notes to the "Credit Agreement", "thereunder", "thereof", "therein" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended or otherwise modified by this Seventh Amendment and (ii) each reference in each Note to "this Note", "hereunder", "hereof", "herein" or words of like import referring to such Note, and each reference in the Credit Agreement to any or all of the Notes, "thereunder", "thereof", "therein" or words of like import referring to such Note or Notes, shall mean and be a reference to such Note or Notes as amended by this Seventh Amendment. 30 (b) Except as specifically amended above, the Credit Agreement and the A Notes, and each B Note outstanding on the date hereof, shall remain in full force and effect and are hereby ratified and confirmed. (c) Except as the Credit Agreement may expressly be modified hereby, the execution, delivery and effectiveness of this Seventh Amendment shall not operate as a waiver of any right, power or remedy of any Lender or the Agent under the Credit Agreement or any of the Notes nor constitute a waiver of any of the provisions contained therein. SECTION 7. Costs and Expenses. The Borrower agrees to pay on demand ------------------ all costs and expenses of the Agent in connection with the preparation, execution and delivery of this Seventh Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect hereto and with respect to advising the Agent as to its rights and responsibilities hereunder. SECTION 8. Execution in Counterparts. This Seventh Amendment 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 to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Seventh Amendment, or of any document required to be delivered hereunder, by telecopier shall be effective as delivery of a manually executed counterpart of this Seventh Amendment or such document. SECTION 9. Governing Law. This Seventh Amendment shall be governed ------------- by, and construed in accordance with, the laws of the State of New York. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 31 IN WITNESS WHEREOF, the parties hereto have caused this Seventh Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. ROHR, INC. By:____________________________ Title: CITIBANK, N.A., as resigning Agent By:____________________________ Vice President CITICORP USA, INC., as successor Agent By:____________________________ Vice President Lenders ------- Commitment - ---------- $ 0 CITIBANK, N.A. By:____________________________ Vice President $ 30,000,000 CITICORP USA, INC. By:____________________________ Vice President 399 Park Avenue New York, New York 10043 c/o Citicorp USA, Inc. 725 South Figueroa Street Los Angeles, California 90017 Attention: National Corporate Division/Loan Administration Telex No.: 127001 GCN:LAXIS Telephone: 213-239-1432 Telecopy: 213-623-3592 32 $ 30,000,000 WELLS FARGO BANK, N.A. By:____________________________ Title: $ 25,000,000 THE FIRST NATIONAL BANK OF CHICAGO By:____________________________ Title: $ 5,000,000 MANUFACTURERS BANK By:____________________________ Title: $ 5,000,000 ROYAL BANK OF CANADA By:____________________________ Title: $ 5,000,000 THE LONG-TERM CREDIT BANK OF JAPAN, LTD., Los Angeles Agency By:____________________________ Title: $ 2,500,000 BANQUE FRANCAISE DU COMMERCE EXTERIEUR By:____________________________ Title: By:____________________________ Title: $ 2,500,000 BANCA COMMERCIALE ITALIANA, Los Angeles Foreign Branch By:____________________________ Title: By:____________________________ Title: 33 $ 2,500,000 BANCO CENTRAL HISPANOAMERICANO, S.A. By:____________________________ Title: $ 2,500,000 THE MITSUBISHI TRUST AND BANKING CORPORATION, LOS ANGELES AGENCY By:____________________________ Title: - --------------------------- $110,000,000 Total of the Commitments =========== Assignors --------- CITIBANK, N.A. (other than with respect to Letters of Credit) By:____________________________ Vice President BANKERS TRUST COMPANY By:____________________________ Title: -----END PRIVACY-ENHANCED MESSAGE-----