-----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, YJPQBNwZ2xUTYsWlXxaGMVtj6uzjHJbLJIKKVkMFPtNmZPhT7fu+4r7HX3uYEsZN +y4dqe5SaujswcL2SRu7sA== 0000898430-94-000695.txt : 19941005 0000898430-94-000695.hdr.sgml : 19941005 ACCESSION NUMBER: 0000898430-94-000695 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19940731 FILED AS OF DATE: 19940926 SROS: NONE 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06101 FILM NUMBER: 94550312 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 10-K 1 FORM 10-K 1994 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED JULY 31, 1994 COMMISSION FILE NUMBER 1-6101 ROHR, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-1607455 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization)
850 LAGOON DRIVE, CHULA VISTA, CALIFORNIA 91910 (Address of principal executive offices) (619) 691-4111 (Telephone No.) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED -------------------- --------------------- Common Stock, $1 par value New York Stock Exchange Pacific Stock Exchange The Stock Exchange, London 7% Convertible Subordinated Debentures New York Stock Exchange due 2012 Pacific Stock Exchange The Stock Exchange, London 7 3/4% Convertible Subordinated Notes due 2004 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] AT SEPTEMBER 16, 1994, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE REGISTRANT, BASED ON MARKET QUOTATIONS AS OF THAT DATE, WAS APPROXIMATELY $183,623,707. AS OF SEPTEMBER 16, 1994, THERE WERE 18,053,932 SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the following documents are incorporated into this report by reference: 1. Part II Registrant's Annual Report to Shareholders for fiscal year ended July 31, 1994. 2. Part III Registrant's definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year. - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- TABLE OF CONTENTS PART I.
PAGE ---- Item 1. Business..................................................... 1 General..................................................... 1 Products.................................................... 1 Contracts................................................... 3 Subcontractors.............................................. 5 Program Funding............................................. 5 Principal Customers......................................... 6 Backlog..................................................... 6 Competition................................................. 6 Raw Materials and Suppliers................................. 7 Employees................................................... 8 Environmental Matters....................................... 8 Research and Development.................................... 8 Patents and Proprietary Information......................... 9 Manufacturing............................................... 9 Miscellaneous............................................... 9 Item 2. Properties................................................... 10 Item 3. Legal Proceedings............................................ 10 Item 4. Submission of Matters to a Vote of Security Holders.......... 14 Additional Item Executive Officers of the Registrant......................... 14 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................................... 15 Item 6. Selected Financial Data...................................... 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 16 Item 8. Financial Statements and Supplementary Data.................. 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 16 PART III. Item 10. Directors and Executive Officers of the Registrant........... 16 Item 11. Executive Compensation....................................... 16 Security Ownership of Certain Beneficial Owners and Item 12. Management................................................... 17 Item 13. Certain Relationships and Related Transactions............... 17 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................................... 17 SIGNATURES Signature Page............................................... 29
PART 1 ITEM 1. BUSINESS GENERAL Rohr Inc., (the "Company"), incorporated in Delaware in 1969, is the successor to a business originally established in 1940 under the name of Rohr Aircraft Corporation. The Company, a leading aerospace supplier, provides nacelle and pylon systems integration, design, development, manufacturing, and support services to the aerospace industry worldwide. The Company focuses its efforts on the market for commercial aircraft which seat 100 or more passengers. Its principal products include nacelles, which are the aerodynamic structures or pods that surround an aircraft's jet engines; thrust reversers, which are part of the nacelle system and assist in the deceleration of jet aircraft after landing; pylons (sometimes referred to as struts) which are the structures that attach the jet engines or the propulsion system to the aircraft; noise suppression systems; engine components; and structures for high-temperature environments. The Company also manufactures solid rocket motor casings and nozzles for the Titan space program. In addition, the Company conducts product research and development in advanced composites and metals, high-temperature materials, acoustics, and manufacturing processes for existing and future applications. The Company sells products and services to the three major commercial airframe manufacturers (Boeing, Airbus, and McDonnell Douglas) and to the five major jet engine manufacturers (General Electric, Rolls-Royce, Pratt & Whitney, CFM International, and International Aero Engines). In addition, the Company has the right to provide customer and product support directly to approximately 150 airline operators and service centers around the world, including on-site field services and the sale of spare parts. The Company's commercial and government (military and space) products represented 86% and 14%, respectively, of its sales in the fiscal year ended July 31, 1994. The Company has over 50 years of experience in the aerospace industry. Originally, the Company operated as a subcontractor to the airframe manufacturers, building parts to the customer's design. Later, it also began to build to its own designs based on customer specifications. Eventually, the Company also began operating as a subcontractor to the engine manufacturers. Over the last decade, the Company significantly expanded its role in many newer programs by becoming a systems integrator for nacelle systems with responsibility for the integration and management of the design, tooling, manufacture, and delivery of complete nacelle systems, directing the efforts of international consortia in some cases. As a result of this range of experience, the Company can provide many different levels of service to its customers depending upon their needs. The Company can build to the customer's design, assist in that design, or assume total responsibility for design, manufacture, integration and product support. In addition, over the last several years, the Company has expanded its services to the airlines through the direct sale of spare parts, the provision of technical support and training, and the operation of repair and overhaul facilities. PRODUCTS General. The Company designs and manufactures nacelle systems, nacelle components, pylons or struts, non-rotating components for jet engines, and other components for commercial and military aircraft. A nacelle system generally includes the nose cowl or inlet, fan cowl, nozzle systems and thrust reverser. 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 purchased or customer- furnished engine equipment such as electrical generators, starters, fuel pumps and oil coolers. The Company also performs engine build-ups ("EBU") by assembling nacelle systems and the related electrical, mechanical, fluid and pneumatic systems onto core aircraft engines. 1 Commercial. The Company manufactures and/or is responsible for the design of nacelle systems, including thrust reversers, for the McDonnell Douglas MD-80, the Pratt & Whitney PW4000 series engine option for the McDonnell Douglas MD-11 and the Airbus A310 and A300-600. The Company manufactures the thrust reverser, nozzle, pylons and fan cowl for Rolls-Royce engine options for the Boeing 757; the nacelle without thrust reverser for the CF6-80C2, which is the General Electric engine option for the Airbus A310 and A300-600 and McDonnell Douglas MD-11, and nacelle components, including the nose cowl, fan cowl, and extension ring, for the Boeing 737. The Company is completing the design and tooling for the manufacture of the aft fan case nozzle and plug for the General Electric GE 90 engine option for the Boeing 777. Major components produced by the Company for the General Electric CF6-80C2 nacelle are also used on the Boeing 747 and 767. The Company is in the development phase of the V2500 nacelle with thrust reverser for the MD-90. Programs for which the Company has become a systems integrator, with responsibility for the integration and management of the design, tooling, manufacture, and delivery of the complete nacelle or pylon system, include the CFM International CFM56-5 and the International Aero Engines (an international consortium) V2500 nacelle program, both of which engines are being competitively marketed for the Airbus A319, A320 and A321; the pylon program for the McDonnell Douglas MD-11 aircraft; the nacelle with thrust reverser for the CFM International-powered Airbus A340; and the nacelle with thrust reverser for the McDonnell Douglas MD-90 aircraft. The Company's enhanced role on these programs broadens the Company's business base in the commercial aerospace industry, but terms and conditions of these contracts require a substantial investment in working capital and subject the Company to increased market risk relative to the ultimate success of such programs. The Company, in turn, has subcontracted the design and production of most components for the CFM56-5, nacelle components on the V2500, and major components of the MD-11 and A340 contracts to foreign and domestic companies. This enables the Company to improve its competitive position and to pass on some of the risks associated with such programs to subcontractors. However, 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. See "Subcontractors". Government (Military and Space). For military aircraft, the Company manufactures nacelles for the 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. The Company is providing technical support in designing the engine bay doors for the U.S. Air Force F-22 tactical fighter aircraft. The Company's government business has declined in recent years and the Company expects the percentage of its revenues attributable to government sales to decline in future years. The production of the Titan rocket motor casing program is expected to decline substantially in fiscal 1995 and may end. The Company's military sales are primarily associated with older programs which are being phased out of production. The Company expects to complete its production of the C-130 program in 1996. The extent of future sales under military and space programs is also dependent, among other things, upon continued government funding. Spare Parts. The Company sells spare parts for both military and commercial aircraft, including those for aircraft in use but no longer in production. Such sales from continuing operations were approximately $161.5 million in fiscal 1994, $166.9 million in fiscal 1993, and $191.8 million in fiscal 1992. 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 level of spare supplies sufficient to keep an airline's entire fleet in operation. Also, improved production quality appears to have reduced spares requirements. 2 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 150 airline operators and service centers 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 33.2%, 35.2% and 27.5% in fiscal 1994, 1993 and 1992, respectively. Business Jets. In the fourth quarter of fiscal 1994 the Company sold and commenced the transfer to the buyer of its business jet line of business which is accounted for as a discontinued operation. The purchase agreement requires the Company, over the next several months, to manufacture and deliver certain components and transfer program engineering and tooling. See "Notes to the Consolidated Financial Statements, Note 11," contained in the Company's 1994 Annual Report to Shareholders. Other Activities. The Company also manufactures other components for military and commercial jet aircraft, including the nozzle and plug used on the Rolls- Royce-powered versions of the Boeing 747 and 767 and the Airbus A330, the fan exit duct for the Rolls-Royce engine used on the Boeing 757, the pylon or strut assemblies for the Boeing 757 and the acoustical ducts and/or acoustic panels for the Pratt & Whitney engine used on the McDonnell Douglas MD-80 and the Boeing 757. The Company has been performing nacelle integration services for Pratt & Whitney, installing Boeing 757 nacelles under a Pratt & Whitney license, on the PW2000 series engine for development program use on the former Soviet Union's IL-96M/T transport aircraft. Pratt & Whitney is currently evaluating competitive bids for the manufacture and integration of the nacelle system to support a possible production program. Recently, the Company signed an agreement to restructure the contract for the supply of V2500 nacelles for use on the Airbus A319, A320, and A321 commercial jet aircraft under which the Company will supply the thrust reverser, common nozzle assembly, exhaust plug and engine mounts. In June 1994, the Company signed an agreement with Boeing to commence work on the design and tooling of the inlet and fan cowl for the Boeing 737-700 aircraft, a derivative of the 737-300. The contract price, schedule and terms remain to be negotiated. 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 3 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 estimated 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 spares 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 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 such funding 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. 4 Under all contracts, the Company may encounter, and on several programs from time to time has encountered, preproduction and/or production cost overruns caused by increased material, labor or overhead costs, design or production difficulties, increased quality, redefined acceptance criteria on government programs, and various other factors such as technical and manufacturing complexity. The Company seeks recovery of such cost overruns from the customer if they are caused by the action or inaction of the customer; otherwise, such cost overruns will be, and in many cases have been, borne by the Company. Incident to the manufacture and sale by the Company of its products, the Company is subject to possible liability by reason of (i) warranties against defects in design, material and workmanship; (ii) potential product liability responsibility arising out of the use of its products; and (iii) strict liability arising from the disposal of certain wastes covered by environmental protection laws. The Company also has varying contractual obligations to maintain the ability to produce and service spare parts as long as there are specified numbers of aircraft still in operation. Provisions of the Company's contracts provide remedies ranging from actual damages to specified daily penalties for late deliveries of products. SUBCONTRACTORS The competitive market has required the Company to make substantial financial investments in programs on which it participates. Both to reduce the burden and risk of such financial investments, and also in some cases to participate in foreign programs, the Company has further 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. Over the next several years, the Company expects that the production from its key subcontractors to represent approximately one-fourth of value of the products and services to be delivered by the Company during such period. 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. 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 receivables. 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. 5 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 non-recurring costs or for amounts which had been deferred pending aircraft certification. 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. With respect to those new programs which are developed, the Company intends to team with partners, or obtain financial commitments from one or more qualified subcontractors, prior to entering bids for work. 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 Operation--Liquidity and Capital Resources" in the Company's 1994 Annual Report to Shareholders. PRINCIPAL CUSTOMERS For a discussion of the Company's sales to its principal customers, see "Notes to the Consolidated Financial Statements" in the Company's 1994 Annual Report to Shareholders, Note 3--"Accounts Receivable--Sales." 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 authorization. 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 July 31, 1994, was approximately $1.2 billion, compared to $1.4 billion at July 31, 1993. Of such backlog, approximately $0.7 billion is scheduled for delivery on or before July 31, 1995, with the balance to be delivered in subsequent periods. A portion of the Company's expected sales for FY95 is not included in firm backlog. Anticipated backlog approximated $2.5 billion at July 31, 1994, and $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. COMPETITION 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. Military aerospace contractors are 6 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, which may result in increasingly intense price competition for orders. While the Company believes it competes effectively, there can be no assurance that the Company can maintain its share of the market for these products. See "Management's Discussion and Analysis of Financial Condition and Results of Operation--Company Outlook" in the Company's 1994 Annual Report to Shareholders. 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. 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 a 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. 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 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. 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 7 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. EMPLOYEES At July 31, 1994, the Company had approximately 4,900 full-time employees, of whom approximately 1,639 were represented by the International Association of Machinists and Aerospace Workers under agreements which expire on February 11, 1996, and approximately 175 were represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America under an agreement which expires on October 29, 1995. The Company considers its relationship with its employees generally to be satisfactory. 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. If the Company were to violate or otherwise to have liability pursuant to any of these laws or regulations, it could be subject to judicial or administrative enforcement proceedings requiring the Company to investigate the nature and extent of any pollution it caused, to remediate such pollution, to install control devices in its manufacturing facilities to reduce the amount of pollutants entering the environment and to otherwise respond to orders and requests of the courts and the various regulatory agencies. These proceedings could result in the Company expending additional funds to satisfy judicial or regulatory decisions. 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 laws 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 Operation--Environmental Matters" and "Notes to the Consolidated Financial Statements, Note 8, Commitments and Contingencies," in the Company's 1994 Annual Report to Shareholders. See, also, Item 3, "Legal Proceedings" in this report. The Company is involved in several proceedings and investigations related to waste disposal sites and other environmental matters. See Item 3. "Legal Proceedings" for a discussion of these matters, and additional suits and matters that are pending or have been threatened against the Company. 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. 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 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 8 processing and joining of new materials. From time to time, the Company also enters into joint research and development programs with its customers. 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 inventions 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. 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's European final assembly sites, which are located adjacent to the Company's major European customer, Airbus, allow the Company to respond quickly to customer 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. MISCELLANEOUS No material portion of the Company's business is considered to be seasonal. 9 ITEM 2. PROPERTIES All owned and leased properties of the Company are generally well maintained, in good operating condition, and are generally 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. 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 its subsidiaries are owned free of material encumbrances, except as noted below:
OWNED LEASED ----------------------- ----------------------- APPROXIMATE APPROXIMATE SQUARE FEET SQUARE FEET TYPE OF OF FACILITY APPROXIMATE OF FACILITY APPROXIMATE FACILITY(1) (000) ACREAGE (000) ACREAGE LOCATION ----------- ----------- ----------- ----------- ----------- ALABAMA Fairhope(2)........... A,B 123 70.6 -- -- Foley(2).............. A,B 343 163.7 -- -- ARKANSAS Arkadelphia(3)........ A,B 224 65.2 -- -- Heber Springs(2)...... A,B 153 70.5 -- -- Sheridan(2)........... A,B 149 78.0 -- -- CALIFORNIA Chula Vista........... A,B,C,D 2,770 97.5 165 65.5 Moreno Valley......... A,B,C 247 37.5 -- -- Riverside............. A,B,C,D 1,162 75.3 140 15.1 FRANCE Toulouse/St. Martin... A,B,C 132 7.0 18 3.2 Toulouse/Gramont(2)... A,B 170 23.0 -- -- GERMANY Hamburg............... A,B 28 5.3 -- -- MARYLAND Hagerstown............ A,B 423 56.8 -- -- TEXAS San Marcos............ A,B 172 55.0 -- -- ----- ----- --- ---- Approximate Totals.... 6,096 805.4 323 83.8
- - -------- (1) The letters indicated for each location describe the principal activities conducted at that location: A-Office B-Manufacturing C-Warehouse D-Research and Testing (2) Subject to a capital lease. (3) The completion of construction of this facility has been deferred. ITEM 3. LEGAL PROCEEDINGS A. Accounts receivable and inventories include estimated recoveries on constructive change claims that the Company has asserted with respect to costs it incurred as a result of government imposed redefined acceptance criteria on several government subcontracts. In connection with the 10 Grumman F-14 subcontract, the Company filed Appeal No. 47139 (filed February 7, 1994) before the Armed Service Board of Contract Appeals ("ASBCA"). In connection with the Boeing E3/E6 subcontract, the Company filed Appeal No. 47430 (filed April 11, 1994) before the ASBCA. In the above Appeals, the Company's customers are sponsors of the claims, the U.S. Navy is the defendant, and the Company is claiming monetary damages. Management believes that the amounts reflected in the financial statements are a reasonable estimates of the amounts for which these matters will be resolved. The resolution of these matters may take several years. See "Notes to the Consolidated Financial Statements, Note 8", contained in the Company's 1994 Annual Report to Shareholders. B. 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, 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 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% to 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/counter claimants. The special master's recommendation is subject to a final decision and appeal. The Company is the second largest generator of wastes disposed at the site by volume, although it and certain other generators have argued the final allocation among generators of their shares of cleanup costs should not be determined solely by volume. The largest generator of wastes disposed at the Stringfellow site, by volume, 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 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 intends to continue to defend vigorously these matters and believes, based on currently available information, that the ultimate resolutions of these matters 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 Stringfellow site. These claims are the subject of separate litigation, United Pacific Insurance Co., et al. vs. Rohr Industries, Inc., et al., No. C634195 in the Los Angeles Superior Court, 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. C. In 1990, the Division of Enforcement of the Securities and Exchange Commission (the "Enforcement Division") began conducting an informal inquiry regarding various Company programs, 11 program and contract estimates at completion, and related accounting practices. On August 17, 1993, the Company received 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 capitalizing of pre- certification costs and general administrative costs. The staff of the Commission has indicated in its correspondence with the Company that this 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 is cooperating fully with the Enforcement Division's requests and cannot predict the ultimate result of the inquiry or its impact, if any, on the Company. D. 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. 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 also 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. E. 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 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. F. On July 22, 1994, the Department of Toxic Substances Control of the State of California Environmental Protection Agency ("DTSC") filed an action against the Company and other individuals and companies in the U. S. District Court for the Eastern District of California, Case No. CV-F-94-5683-GEB DLB, seeking, among other things, recovery of response costs approximating $1.3 million plus interest and attorney fees. The demand for payment, which is joint and several, is 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"). 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 $1.3 million demanded by the DTSC has been allocated to the Cooperating PRPs. Some PRPs estimate the 12 potential cost of cleanup to be approximately $7 million. The Company and other PRPs could face joint and several liability for the entire amount of cleanup costs, regardless of Cooperating PRP or non-cooperating PRP status. The Company intends to vigorously argue that such oversight costs should be recovered from the non-cooperating PRPs. 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. G. 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 responsible parties 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. DTSC further advised the Company that unless a settlement could be reached with the Company, it intended to name the Company as a defendant in a cost recovery action it proposed to file in June 1993. The Company has no knowledge of the filing of any such suit. 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. H. 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. 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 $1.8 million. 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. I. By letter dated November 30, 1993, the Environmental Protection Agency of the State of Ohio advised the Company that it is investigating potential sources of contamination in the vicinity of property which was previously owned by a wholly-owned subsidiary of the Company in the Village of Millersburg, Ohio. This property was sold by the Company in December 1977 under a purchase and sale agreement that transferred any such liability for contamination to the purchaser. The Company intends to cooperate fully with the Ohio Environmental Protection Agency. Based on currently available information, the Company believes that the resolution of the matter will not have a material adverse effect on the financial position or results of operation of the Company. 13 J. By letter dated July 14, 1994, the Company was notified by the State of Washington's Department of Ecology that the Department believes that the Company to be a "potentially liable person" ("PLP") under the Model Toxics Control Act of the Revised Code of Washington. The Company is alleged to have arranged for the disposal or treatment of a hazardous substance or arranged with a transporter for disposal or treatment of a hazardous substance at a facility in Washington known as the Yakima Railroad Area. The Department has made a written determination that the Company is a PLP. 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. K. The Company previously reported that it had received an Enforcement Order from the Department of Toxic Substances Control of the State of California ("DTSC"), docket HWCA 91/92-054, seeking a penalty in the amount of $151,791 for the Company's alleged failure to obtain a permit for the treatment of hazardous waste and storage of hazardous wastes plus related housekeeping violations. The Company and DTSC have executed a Consent Agreement and Order effective July 29, 1994, which provides, among other things, for the Company to pay $12,500. L. 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. M. In addition to the litigation discussed above, from time to time the Company is a defendant in lawsuits involving (i) claims based on the Company's alleged negligence or strict liability as a manufacturer in the design or manufacture of various products; (ii) claims based upon environmental protection laws; and (iii) claims based on the alleged wrongful termination of its employees due to, among other things, discrimination based on race, age, sex, national origin, handicap status, sexual preference, etc. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There is no information required to be submitted by the Company under this Item. ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT As of September 16, 1994, the executive officers of the Company, in addition to R. H. Rau, President and Chief Executive Officer, referred to at Item 10, Part III, were as follows: LAURENCE A. CHAPMAN, Senior Vice President and Chief Financial Officer, age 45, joined the Company in May 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, Mr. Chapman held positions in Corporate Finance and Corporate Planning with Westinghouse. 14 JOHN R. JOHNSON, Senior Vice President, Programs, Technology, and Quality Assurance, age 57, has served in his present position since January 1994. Prior to that and since September 1979, he has served in other senior management positions, including Senior Vice President, Programs and Support from March 1993 to January 1994; Vice President, Government Business from February 1990 to February 1993; Vice President, Planning from May 1989 to February 1990; and Vice President, Manufacturing, Chula Vista, from April 1986 to May 1989. He joined the Company in September 1979. RICHARD W. MADSEN, Vice President, General Counsel and Secretary, age 55, has served in his present position 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. ALVIN L. MAJORS, Vice President and Controller (Chief Accounting Officer), age 54, has served in his present position 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. RONALD M. MILLER, Vice President and Treasurer, age 50, has served in his present position 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. DAVID R. WATSON, Senior Vice President--Customer Support and Business Development, age 43, has served in his present position since March 1994, assuming the title of Senior Vice President in June 1994. Prior to that and since May 1991, he served as Vice President, Commercial Programs. In May 1989, he assumed the position of Vice President and General Manager of the Company's Riverside facility. He has been an employee since February 1988 when he joined the Company as Vice President, Quality Assurance. GRAYDON A. WETZLER, Senior Vice President, Operations, age 52, has served in his present position since January 1994. Prior to that and since July 1993, served as Vice President, Technical and Quality Assurance. From November 1990 to July 1993, he served as Vice President Quality/Product Assurance. From April 1987 to November 1990, he served as Vice President-- Management Information Systems. He has served in other senior management positions. He has been an employee of the Company since 1979. The terms of office of Messrs. Madsen and Miller expire on December 3, 1994. The initial term of Mr. Rau's Employment Agreement terminates on July 31, 1996. The other executive officers named above serve at the pleasure of the Chairman of the Board. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS Although a cash dividend has not been paid since 1975, a 2-for 1 stock dividend was paid in December 1985. Currently, under the terms of certain covenants in several of the Company's principal financing agreements, the Company may not pay cash dividends until after April 25, 1997. Thereafter, the Company's ability to pay cash dividends is restricted substantially. Other information required by this Item is set forth in the section headed "Rohr Profile" in the Registrant's Annual Report to Shareholders for the fiscal year ended July 31, 1994, and such information is incorporated herein by reference. 15 ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is set forth in the section headed "Selected Financial Data" in the Company's Annual Report to Shareholders for the fiscal year ended July 31, 1994, and such information is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is set forth in the section headed "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report to Shareholders for the fiscal year ended July 31, 1994, and such information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is set forth in the section headed "Consolidated Balance Sheets," "Consolidated Statements of Operations," "Consolidated Statements of Shareholders' Equity," "Consolidated Statements of Cash Flows," and "Notes to the Consolidated Financial Statements" in the Company's Annual Report to Shareholders for the fiscal year ended July 31, 1994, and such information is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There is no information required to be submitted by the Company under this Item. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10 percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and the New York Stock Exchange. Officers, directors and greater than 10-percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no such forms were required for those persons, the Company believes that, during fiscal year 1994, all filing requirements applicable to its officers, directors, and greater than 10-percent beneficial owners were complied with. The other information required under this Item is set forth in the section headed "Election of Directors" in the Company's Proxy Statement for the 1994 Annual Meeting of Shareholders for fiscal year ended July 31, 1994, and such information is incorporated herein by reference. See also "Additional Item" at Part I of this report. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is set forth in the section headed "Executive Compensation and Other Information" and in the section headed "Directors' Beneficial Ownership and Compensation" in the Company's Proxy Statement for the 1994 Annual Meeting of Shareholders for fiscal year ended July 31, 1994, and such information is incorporated herein by reference. 16 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is set forth in the table headed "Beneficial Ownership of Shares" in the Company's Proxy Statement for the 1994 Annual Meeting of Shareholders for fiscal year ended July 31, 1994, and such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is no information required to be submitted by the Company under this Item. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following consolidated financial statements of the Company and consolidated subsidiaries, included in the Company's 1994 Annual Report to Shareholders, are incorporated by reference in Item 8: (a) 1. Financial Statements Consolidated Balance Sheets at July 31, 1994, and 1993 Consolidated Statements of Operations for Years Ended July 31, 1994, 1993, and 1992 Consolidated Statements of Shareholders' Equity for Years Ended July 31, 1994, 1993, and 1992 Consolidated Statements of Cash Flows for Years Ended July 31, 1994, 1993, and 1992 Notes to the Consolidated Financial Statements (a) 2. Financial Statement Schedules The following consolidated financial statement schedules of the Company and subsidiaries are included in Part IV of this report. Schedule VIII--Valuation and Qualifying Accounts Schedule IX --Short-Term Borrowings Schedule X --Supplementary Income Statement Information All other schedules are omitted because they are not applicable, not required under the instructions or the information is included in the financial statements or notes thereto. (a) 3. Index to exhibits 3.1 Restated Certificate of Incorporation of Rohr Industries, Inc., dated December 7, 1985, incorporated herein by reference to Exhibit 3.1 filed with Form 10-K for fiscal year ended July 31, 1986. 3.2 Certificate of Designations of Series C Junior Participating Cumulative Preferred Stock $1.00 Par Value of Rohr Industries, Inc., dated August 15, 1986, incorporated herein by reference to Exhibit 3.2 filed with Form 10-K for fiscal year ended July 31, 1986.
17 3.3 Certificate of Amendment to Restated Certificate of Incorporation, dated December 9, 1986, incorporated herein by reference to Exhibit 3.3 filed with Form 10-K for fiscal year ended July 31, 1987. 3.4 Certificate of Amendment to Restated Certificate of Incorporation, dated December 10, 1991, incorporated herein by reference to Exhibit II filed with Form 8-K dated as of December 7, 1991. 3.5 Bylaws, as amended January 7, 1993, incorporated herein by reference to Exhibit 3.8 filed with Form 10-Q for period ended January 31, 1993. 4.1 Indenture, dated as of March 1, 1987, between Rohr Industries, Inc., and Bankers Trust Company, trustee, relating to 9 1/4% subordinated debentures, incorporated herein by reference to Exhibit 4.1 filed with Form 10-Q for period ended May 2, 1993. 4.2 Indenture, dated as of October 15, 1987, between Rohr Industries, Inc., and Bankers Trust Company, trustee, relating to 7% convertible subordinated debentures, incorporated herein by reference to Exhibit 4.2 filed with Form 10-Q for period ended May 2, 1993. 4.3 Indenture, dated as of May 15, 1994, between Rohr, Inc., and IBJ Schroder Bank and Trust Company, trustee, relating to 11 5/8% senior notes, incorporated herein by reference to Exhibit 4.5 filed with Form 10-Q for period ended May 1, 1994. 4.4 Indenture, dated as of May 15, 1994, between Rohr, Inc., and The Bank of New York, trustee, relating to 7 3/4% convertible subordinated notes, incorporated herein by reference to Exhibit 4.6 filed with Form 10-Q for period ended May 1, 1994. *4.5 Rohr, Inc. Amended and Restated Note Agreement dated as of May 10, 1994, for 9.35% Senior Notes due January 29, 2000. *4.6 Rohr, Inc. Amended and Restated Note Agreement dated as of May 10, 1994, for 9.33% Senior Notes due December 15, 2002. 4.7 Amended and Restated Rights Agreement, dated as of April 6, 1990, incorporated herein by reference to Item 7 of Form 8-K dated as of April 6, 1990. 10.1 Rohr Industries, Inc., Directors Retirement Plan, incorporated herein by reference to Exhibit 10.4 filed with Form 10-K for fiscal year ended July 31, 1985. 10.1.1 First Amendment to Rohr Industries, Inc., Directors Retirement Plan, incorporated herein by reference to Exhibit 10.4.1 filed with Form 10-K for fiscal year ended July 31, 1985. 10.1.2 Second Amendment to Rohr Industries, Inc., Directors Retirement Plan, incorporated herein by reference to Exhibit 10.4.2 filed with Form 10K for fiscal year ended July 31, 1985. 10.1.3 Third Amendment to Rohr Industries, Inc., Directors Retirement Plan, incorporated herein by reference to Exhibit 10.3.3 filed with Form 10-K for fiscal year ended July 31, 1990.
18 10.1.4 Fourth Amendment to Rohr Industries, Inc., Directors Retirement Plan, incorporated herein by reference to Exhibit 10.3.4 filed with Form 10-K for fiscal year ended July 31, 1990. 10.1.5 Fifth Amendment to Rohr Industries, Inc., Directors Retirement Plan, incorporated herein by reference to Exhibit 10.3 filed with Form 10-K for fiscal year ended July 31, 1992. 10.1.6 Sixth Amendment to Rohr Industries, Inc., Directors Retirement Plan, incorporated herein by reference to Exhibit 10.1.6, filed with Form 10-Q for period ended May 2, 1993. 10.1.7 Seventh Amendment to Rohr Industries, Inc., Directors Retirement Plan, incorporated herein by reference to Exhibit 10.1.7, filed with Form 10-Q for period ended May 2, 1993. 10.2 Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4 filed with Form 10-K for fiscal year ended July 31, 1983. 10.2.1 First Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.1 filed with Form 10-K for fiscal year ended July 31, 1984. 10.2.2 Second Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.2 filed with Form 10-K for fiscal year ended July 31, 1984. 10.2.3 Third Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.5.3 filed with Form 10-K for fiscal year ended July 31, 1985. 10.2.4 Fourth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.5.4 filed with Form 10-K for fiscal year ended July 31, 1985. 10.2.5 Fifth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.5.6 filed with Form 10-K for fiscal year ended July 31, 1986. 10.2.6 Sixth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.5.7 filed with Form 10-K for fiscal year ended July 31, 1986. 10.2.7 Seventh Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.5.8 filed with Form 10-K for fiscal year ended July 31, 1986. 10.2.8 Eighth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.5.9 filed with Form 10-K for fiscal year ended July 31, 1987. 10.2.9 Ninth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.5.10 filed with Form 10-K for fiscal year ended July 31, 1987.
19 10.2.10 Tenth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.11 filed with Form 10-K for fiscal year ended July 31, 1988. 10.2.11 Eleventh Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.12 filed with Form 10-K for fiscal year ended July 31, 1988. 10.2.12 Twelfth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.13 filed with Form 10-K for fiscal year ended July 31, 1988. 10.2.13 Thirteenth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.14 filed with Form 10-K for fiscal year ended July 31, 1988. 10.2.14 Fourteenth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.15 filed with Form 10-K for fiscal year ended July 31, 1989. 10.2.15 Fifteenth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.16 filed with Form 10-K for fiscal year ended July 31, 1990. 10.2.16 Sixteenth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.17 filed with Form 10-K for fiscal year ended July 31, 1990. 10.2.17 Seventeenth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.18 filed with Form 10-K for fiscal year ended July 31, 1990. 10.2.18 Eighteenth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.19 filed with Form 10-K for fiscal year ended July 31, 1991. 10.2.19 Nineteenth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.20 filed with Form 10-K for fiscal year ended July 31, 1991. 10.2.20 Twentieth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.4.21 filed with Form 10-K for fiscal year ended July 31, 1992. 10.2.21 Twenty-first Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.2.21, filed with Form 10-Q for period ended May 2, 1993. 10.2.22 Twenty-second Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), incorporated herein by reference to Exhibit 10.2.22, filed with Form 10-Q for period ended May 2, 1993. *10.2.23 Twenty-third Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), dated September 23, 1993. *10.2.24 Twenty-fourth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), dated December 3, 1993. *10.2.25 Twenty-fifth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), dated May 5, 1994.
20 *10.2.26 Twenty-sixth Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), dated June 3, 1994. *10.2.27 Twenty-seventh Amendment to Rohr Industries, Inc., Supplemental Retirement Plan (Restated 1983), dated August 19, 1994. 10.3 Rohr, Inc. 1991 Stock Compensation for Non-Employee Directors, incorporated by reference to Exhibit 10.5 filed with Form 10-K for fiscal year ended July 31, 1992. 10.4 Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.8 filed with Form 10-K for fiscal year ended July 31, 1982. 10.4.1 First Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.1 filed with Form 10-K for fiscal year ended July 31, 1983. 10.4.2 Second Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.2 filed with Form 10-K for fiscal year ended July 31, 1984. 10.4.3 Third Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.3 filed with Form 10-K for fiscal year ended July 31, 1984. 10.4.4 Fourth Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.4 filed with Form 10-K for fiscal year ended July 31, 1984. 10.4.5 Fifth Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.7.5 filed with Form 10-K for fiscal year ended July 31, 1986. 10.4.6 Sixth Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.6 filed with Form 10-K for fiscal year ended July 31, 1989. 10.4.7 Seventh Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.7 filed with Form 10-K for fiscal year ended July 31, 1989. 10.4.8 Eighth Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.8 filed with Form 10-K for fiscal year ended July 31, 1990. 10.4.9 Ninth Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.9 filed with Form 10-K for fiscal year ended July 31, 1990. 10.4.10 Tenth Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.10 filed with Form 10-K for fiscal year ended July 31, 1990. 10.4.11 Eleventh Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.11 filed with Form 10-K for fiscal year ended July 31, 1990.
21 10.4.12 Twelfth Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.12 filed with Form 10-K for fiscal year ended July 31, 1991. 10.4.13 Thirteenth Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.13 filed with Form 10-K for fiscal year ended July 31, 1991. 10.4.14 Fourteenth Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.6.14 filed with Form 10-K for fiscal year ended July 31, 1992. 10.4.15 Fifteenth Amendment to Rohr Industries, Inc., Management Incentive Plan (Restated 1982), incorporated herein by reference to Exhibit 10.4.15, filed with Form 10-Q for period ended May 2, 1993. 10.5 Rohr Industries, Inc., 1988 Non-Employee Director Stock Option Plan, incorporated herein by reference to Exhibit 10.17 filed with Form 10-K for fiscal year ended July 31, 1989. 10.6 Performance Unit Plan as amended through January 7, 1993, incorporated herein by reference to Exhibit 10.13, filed with Form 10-Q for period ended May 2, 1993. 10.7 Employment Agreement with Robert H. Rau, incorporated herein by reference to Exhibit 10.12, filed with Form 10- Q for period ended May 2, 1993. 10.8 Consulting Agreement with Robert H. Goldsmith, incorporated herein by reference to Exhibit 10.8 filed with Form 10-K for fiscal year ended July 31, 1993. 10.9 Severance Agreement and Release with Alek A. Mikolajczak, incorporated herein by reference to Exhibit 10.9 filed with Form 10-K for fiscal year ended July 31, 1993. 10.10 Service Agreement with Don Purdy, incorporated herein by reference to Exhibit 10.10 filed with Form 10-K for fiscal year ended July 31, 1993. 10.11 None. *10.12 Employment Agreement with L. A. Chapman. 10.13 Credit Agreement, dated as April 26, 1989, among Rohr Industries, Inc., as Borrower, and Citibank, N. A., Bankers Trust Company, The First National Bank of Chicago and Wells Fargo Bank, N. A., and Citibank, N.A., as Agent, incorporated herein by reference to Exhibit 10.6.13 filed with Form 10-Q for quarter ended April 30, 1989. 10.13.1 First Amendment to Credit Agreement, dated as of July 21, 1989, incorporated herein by reference to Exhibit 10.16.1 filed with Form 10-K for fiscal year ended July 31, 1989. 10.13.2 Second Amendment to Credit Agreement, dated January 25, 1990, incorporated herein by reference to Exhibit 10.16.2 filed with Form 10-K for fiscal year ended July 31, 1990. 10.13.3 Third Amendment to Credit Agreement, dated as of April 30, 1990, incorporated herein by reference to Exhibit 10.16.3 filed with Form 10-K for fiscal year ended July 31, 1990.
22 10.13.4 Letter Amendment (fourth amendment) to Credit Agreement, dated October 31, 1992, incorporated herein by reference to Exhibit 10.6.4, filed with Form 10-Q for period ended May 2, 1993. 10.13.5 Fifth Amendment to Bank Credit Agreement dated July 9, 1993, incorporated herein by reference to Exhibit 10.1, filed with Registration Statement 33-65432. 10.13.6 Sixth Amendment to Bank Credit Agreement, dated as of September 24, 1993, incorporated herein by reference to Exhibit 10.11.6 filed with Form 10-Q for period ended May 1, 1994. 10.13.7 Seventh Amendment to Bank Credit Agreement, dated as of May 10, 1994, incorporated herein by reference to Exhibit 10.11.7 filed with Form 10-Q for period ended May 1, 1994. 10.14 Lease Agreements, dated as of September 14, 1992, by and between Rohr, Inc., as lessor, and State Street Bank and Trust Company of California, National Association and W. Jeffrey Kramer, Trustees, as lessee, incorporated herein by reference to Exhibit 10.22 filed with Form 10-K for fiscal year ended July 31, 1992. 10.15 Sublease Agreements, dated as of September 14, 1992, by and between State Street Bank and Trust Company of California, National Association and W. Jeffrey Kramer, Trustees, as sublessor, and Rohr, Inc., as sublessee, incorporated herein by reference to Exhibit 10.23 filed with Form 10-K for fiscal year ended July 31, 1992. 10.15.1 Waiver and Modification Agreement dated as of July 9, 1993, incorporated herein by reference to Exhibit 10.2, filed with Registration Statement 33-65432. 10.15.2 Security Agreement dated as of July 9, 1993, incorporated herein by reference to Exhibit 10.3, filed with Registration Statement 33-65432. 10.15.3 Amendment Agreement dated as of September 24, 1993 to Sublease Agreement, dated as of September 14, 1992, incorporated herein by reference to Exhibit 10.13.3 filed with Form 10-Q for period ended May 1, 1994. 10.15.4 Amendment Agreement dated as of May 10, 1994 to Sublease Agreement, dated September 14, 1992, incorporated herein by reference to Exhibit 10.13.4 filed with Form 10-Q for period ended May 1, 1994. 10.16 Promissory Note, dated October 10, 1990, executed by Rohr Industries, Inc., in favor of Security Pacific National Bank, incorporated herein by reference to Exhibit 10.9, filed with Form 10-Q for period ended May 2, 1993. 10.17 Pooling and Servicing Agreement, dated as of December 23, 1992, among Rohr, Inc., RI Receivables, Inc., and Bankers Trust Company, as Trustee, incorporated herein by reference to Exhibit 10.10, filed with Form 10-Q for period ended May 2, 1993. *10.17.1 First Amendment to Pooling and Servicing Agreement, dated as of October 7, 1993. *10.17.2 Second Amendment to Pooling and Servicing Agreement, dated as of April 25, 1994. 10.18 Receivables Purchase Agreement, dated as of December 23, 1992, among Rohr, Inc., and RI Receivables, Inc., incorporated herein by reference to Exhibit 10.11, filed with Form 10-Q for period ended May 2, 1993.
23 *11.1 Calculation of Primary Earnings per Share. *11.2 Calculation of Fully Diluted Earnings per Share. *13 Annual Report to Shareholders for fiscal year ended July 31, 1994. (The Annual Report, except for these portions thereof which are expressly incorporated by reference in the Form 10-K, is being furnished for the information of the Commission and is not to be deemed "filed" as part of the Form 10-K.) *23. Consent of Deloitte & Touche. *27. Financial Data Schedule.
(b) Reports on Form 8-K for Fourth Quarter of Fiscal 1994 A report on Form 8-K, dated May 2, 1994, was filed by the Company under Item 5, "Other Events," discussing the settlement of all its contractual disputes with the U. S. Air Force and the settlement of the civil claims aspects of an investigation by the Los Angeles Office of the U. S. Attorney. (c) Exhibits required by Item 601 of Regulation S-K See Subparagraph (a) above. (d) Financial Statements required by Regulation S-X See Subparagraph (a) and (b) above. - - -------- * Exhibits filed with this report. 24 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Rohr, Inc.: We have audited the consolidated financial statements of Rohr, Inc. as of July 31, 1994 and 1993, and for each of the three years in the period ended July 31, 1994, and have issued our report thereon dated September 12, 1994; such consolidated financial statements and report are included in your 1994 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of Rohr, Inc., listed in Item 14(a)(2). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. Deloitte & Touche L L P San Diego, California September 12, 1994 25 ROHR, INC., AND SUBSIDIARIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JULY 31, 1994, 1993, AND 1992 (DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND ACCOUNTS END OF PERIOD EXPENSES WRITTEN-OFF PERIOD ------------ ---------- ----------- ---------- Reserve for bad debts: 1994........................... $11,122 $10,100 $ -- $21,222 1993........................... 11,122 -- -- 11,122 1992........................... 931 11,000 (809) 11,122
26 ROHR, INC., AND SUBSIDIARIES SCHEDULE IX--SHORT-TERM BORROWINGS (DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F -------- ---------- -------------- ----------- ----------- ------------- WEIGHTED MAXIMUM AVERAGE WEIGHTED AVERAGE AMOUNT AMOUNT AVERAGE BALANCE AT INTEREST RATE OUTSTANDING OUTSTANDING INTEREST RATE CATEGORY OF AGGREGATE END OF OF OUTSTANDING DURING THE DURING THE DURING THE SHORT-TERM BORROWINGS(1) PERIOD BALANCE PERIOD PERIOD(2) PERIOD(3) - - ------------------------ ---------- -------------- ----------- ----------- ------------- Payable to bank for bor- rowing: at July 31, 1994...... $ -- -- % $ -- $ -- -- % at July 31, 1993...... -- -- 65,000 20,074 4.10 at July 31, 1992...... 20,000 3.75 100,000 73,254 5.27
- - -------- (1) The borrowings are from uncommitted short-term lines of credit. Amounts are borrowed periodically with interest rates and maturity dates fixed at the time of borrowing. (2) Computed as the balance outstanding weighted by the days outstanding divided by 365. (3) Computed as total interest charges divided by the weighted average debt outstanding for the period. 27 ROHR, INC., AND SUBSIDIARIES SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED JULY 31, 1994, 1993, AND 1992 (DOLLARS IN THOUSANDS)
1994 1993 1992 ------- ------- ------- Maintenance and repairs............................. $ 8,329 $12,135 $16,503 Rent................................................ 13,077 15,923 15,271
Depreciation and amortization of intangible assets, taxes other than payroll and income taxes, royalties, and advertising cost were less than one percent of sales and are not required to be shown. 28 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Rohr, Inc. (Registrant) By: /s/ R. H. Rau ---------------------------------- R. H. Rau President and Chief Executive Officer By: /s/ L. A. Chapman ---------------------------------- L. A. Chapman Senior Vice President and Chief Financial Officer By: /s/ A. L. Majors ---------------------------------- A. L. Majors Vice President and Controller (Chief Accounting Officer) Date: September 22, 1994 29 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ W. Barnes Director September 22, 1994 ____________________________________ W. BARNES /s/ W. W. Booth Director September 22, 1994 ____________________________________ W. W. BOOTH /s/ E. E. Covert Director September 22, 1994 ____________________________________ E. E. COVERT /s/ W. M. Hoffman Director September 22, 1994 ____________________________________ W. M. HOFFMAN /s/ J. J. Kerley Director September 22, 1994 ____________________________________ J. J. KERLEY /s/ D. Larry Moore Director September 22, 1994 ____________________________________ D. LARRY MOORE /s/ R. M. Price Director September 22, 1994 ____________________________________ R. M. PRICE /s/ R. H. Rau Director September 22, 1994 ____________________________________ R. H. RAU /s/ W. P. Sommers Director September 22, 1994 ____________________________________ W. P. SOMMERS /s/ J. D. Steele Director September 22, 1994 ____________________________________ J. D. STEELE
30 EX-4.5 2 9.35% NOTE AGMT EXHIBIT 4.5 FORM OF AMENDED AND RESTATED NOTE AGREEMENT ROHR, INC. -------------- AMENDED AND RESTATED NOTE AGREEMENT -------------- DATED AS OF MAY 10, 1994 $100,000,000 9.35% SENIOR NOTES DUE JANUARY 29, 2000 A-1 TABLE OF CONTENTS
PAGE 1. AUTHORIZATION OF ISSUE OF NOTES..................................... A-5 2. PURCHASE AND SALE OF NOTES.......................................... A-5 3. CONDITIONS OF CLOSING............................................... A-6 3A. Opinion of Purchaser's Special Counsel......................... A-6 3B. Opinions of Company's Counsel.................................. A-6 3C. Representations and Warranties; No Default..................... A-6 3D. Sale of Notes to Other Purchasers.............................. A-6 3E. Purchase Permitted By Applicable laws.......................... A-6 3F. Private Placement Number....................................... A-6 3G. Closing Expenses............................................... A-6 3H. Proceedings.................................................... A-6 4. PREPAYMENTS......................................................... A-7 4A. Required Prepayments........................................... A-7 4B. Optional Prepayment With Yield-Maintenance Premium............. A-7 4C. Notice of Optional Prepayment.................................. A-7 4D. Partial Prepayments Pro Rata................................... A-7 4E. Right to Put................................................... A-7 4F. Retirement of Notes............................................ A-8 4G. Tender of Notes in Payment of Warrant Exercise Price........... A-8 5. AFFIRMATIVE COVENANTS............................................... A-8 5A. Payment of Taxes and Claims.................................... A-8 5B. Maintenance of Properties and Corporate Existence.............. A-9 5C. Payment of Notes and Maintenance of Office..................... A-10 5D. Financial Reporting and Notices................................ A-10 5E. Inspection of Property......................................... A-11 5F. Covenant to Secure Note Equally................................ A-12 5G. ERISA Compliance............................................... A-12 5H. Involuntary Prepayment......................................... A-12 6. NEGATIVE COVENANTS.................................................. A-14 6A. Limitations on Liens........................................... A-14 6B. Limitations on Leases.......................................... A-16 6C. Limitations on Indebtedness.................................... A-16 6D. Limitations on Mergers and Sales of Assets..................... A-18 6E. Adjusted Consolidated Tangible Net Worth Maintenance........... A-19 6F. Limitations on Distributions................................... A-19 6G. Limitations on Capital Expenditures............................ A-20 6H. Private Offering............................................... A-20 6I. Transactions with Affiliates................................... A-20 6J. Line of Business............................................... A-21 6K. Fixed Charge Coverage.......................................... A-21
A-2 TABLE OF CONTENTS (Cont.)
PAGE 6L. Debt Ratio..................................................... A-21 6N. Maintenance of Senior Status................................... A-23 6P. Sales of Assets................................................ A-24 6Q. Sale of Receivables............................................ A-25 6R. Limitation on Certain Obligations.............................. A-25 7. EVENTS OF DEFAULT................................................... A-25 7A. Acceleration................................................... A-25 7B. Acceleration on Payment Default................................ A-28 7C. Other Remedies................................................. A-29 8. REPRESENTATIONS, COVENANTS AND WARRANTIES........................... A-29 8A. Subsidiaries................................................... A-29 8B. Corporate Organization and Authority........................... A-30 8C. Financial Statements........................................... A-30 8D. Actions Pending................................................ A-31 8E. Outstanding Debt............................................... A-31 8F. Title to Properties............................................ A-31 8G. Patents, Trademarks, Licenses, etc............................. A-31 8H. Taxes.......................................................... A-31 8I. Conflicting Agreements and Other Matters....................... A-32 8J. Offering of Notes.............................................. A-32 8K. Regulation G, etc.............................................. A-33 8L. Governmental Consent........................................... A-33 8M. Disclosure..................................................... A-33 8N. Compliance with Law............................................ A-33 8O. Certain Laws................................................... A-34 9. REPRESENTATIONS OF THE PURCHASER.................................... A-34 10. DEFINITIONS......................................................... A-34 10A. Yield-Maintenance Terms........................................ A-35 10B. Other Terms.................................................... A-36 11. MISCELLANEOUS....................................................... A-64 11A. Note Payments.................................................. A-64 11B. Expenses....................................................... A-64 11C. Consent to Amendments.......................................... A-65 11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes. A-65 11E. Persons Deemed Owners; Participations.......................... A-66 11F. Accounting Terms............................................... A-66 11G. Directly or Indirectly......................................... A-66 11H. Survival of Representations and Warranties; Entire Agreement... A-67 11I. Successors and Assigns......................................... A-67
A-3 TABLE OF CONTENTS (Cont.)
PAGE 11J. Disclosure to Other Persons.................................... A-67 11K. Notices........................................................ A-68 11L. Descriptive Headings........................................... A-68 11M. Satisfaction Requirement....................................... A-68 11N. Governing Law.................................................. A-69 11O. Payments Due on Non-Business Days.............................. A-69 11P. Counterparts................................................... A-69 Annex 1 -- Purchaser's Schedule Annex 2 -- Subsidiary Information Annex 3 -- Restrictions on Debt Exhibit A -- Form of Note Exhibit B -- Form of Opinion of Purchaser's Special Counsel Exhibit C1 -- Form of Opinion of Company's General Counsel Exhibit C2 -- Form of Opinion of Company's Special Counsel Exhibit D -- Form of Officer's Certificate Exhibit E -- Form of Secretary's Certificate Exhibit F -- Form of Notice of Sale
A-4 ROHR, INC. FOOT OF H STREET CHULA VISTA, CA 92012 As of May 10, 1994 [Name and Address of Purchaser] Gentlemen: The undersigned, Rohr, Inc., (together with its predecessor, Rohr Industries, Inc. and its successors, the "Company"), a Delaware corporation, hereby agrees with you as follows: 1. AUTHORIZATION OF ISSUE OF NOTES. Rohr Industries, Inc., predecessor to the Company, has authorized the issuance of its senior promissory notes (the "Notes") in the aggregate principal amount of One Hundred Million Dollars ($100,000,000) dated the date of issue thereof, to mature on January 29, 2000, bearing interest on the unpaid balance thereof from the date thereof until the principal thereof shall have become due and payable at the rate of nine and thirty-five one-hundredths percent (9.35%) per annum and on overdue payments at the rate specified therein, which senior promissory notes have been amended pursuant to the First Amendment and, as amended, are substantially in the form of Exhibit A attached hereto. The term "Notes" as used herein shall include each such senior promissory note delivered pursuant to any provision of this Agreement and each such senior promissory note delivered in substitution or exchange for any other Note pursuant to any such provision. 2. PURCHASE AND SALE OF NOTES. The Company sold to you and, subject to the terms and conditions herein set forth, you purchased from the Company the aggregate principal amount of Notes set forth opposite your name in the Purchaser Schedule attached hereto at one hundred percent (100%) of such aggregate principal amount. The Company delivered to you, at the offices of Hebb & Gitlin, a Professional Corporation, at One State Street, Hartford, Connecticut, one or more Notes registered in your name, evidencing the aggregate principal amount of Notes purchased by you and in the denomination or denominations specified with respect to you in the Purchaser Schedule, against payment of the purchase price thereof by transfer of immediately available funds as directed by the Company in writing on the date of closing, February 2, 1990 (the "Closing" or the "Closing Date"). Concurrently with the execution and delivery of this Agreement, the Company is entered into other Note Agreements (the "Other Note Agreements") substantially identical with this Agreement (except as to the identity of the purchaser and the principal amount of Notes to be purchased) with the other purchasers (the "Other Purchasers") named in the Purchaser Schedule. The sale to you and the sales to the Other Purchasers were separate and several sales. A-5 3. CONDITIONS OF CLOSING. Your obligation to purchase and pay for the Notes to be purchased by you hereunder was subject to the satisfaction, on or before the Closing Date, of the following conditions: 3A. OPINION OF PURCHASER'S SPECIAL COUNSEL. You shall have received from Hebb & Gitlin, a Professional Corporation, who are acting as special counsel for you in connection with this transaction, a favorable opinion satisfactory to you and substantially in the form of Exhibit B hereto. 3B. OPINIONS OF COMPANY'S COUNSEL. You shall have received from Richard Madsen, Esq., general counsel for the Company, and Gibson, Dunn & Crutcher, special counsel for the Company, favorable opinions satisfactory to you and substantially in the form of Exhibit C1 and Exhibit C2, respectively, hereto. 3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and warranties contained in paragraph ^8 hereof shall be true on and as of the Closing Date, except to the extent of changes caused by the transactions herein contemplated; there shall exist on the Closing Date no Event of Default or Default; and the Company shall have delivered to you an Officer's Certificate, dated the Closing Date, in the form of Exhibit D hereto. 3D. SALE OF NOTES TO OTHER PURCHASERS. The Company shall have sold to the Other Purchasers the Notes to be purchased by them at the Closing and shall have received payment in full therefor. 3E. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment for the Notes to be purchased by you on the Closing Date on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject you to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and you shall have received such certificates or other evidence as you may request to establish compliance with this condition. 3F. PRIVATE PLACEMENT NUMBER. The Company shall have provided reasonable evidence that it has complied with the requirements necessary to obtain a private placement number for the Notes from the CUSIP Division of Standard & Poor's Corporation. 3G. CLOSING EXPENSES. The Company shall have paid at the Closing the statement for fees and disbursements of the special counsel of the Purchasers presented at the Closing. 3H. PROCEEDINGS. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in substance and form to you, and you shall have received all such counterpart originals or certified or other copies of such documents as you may reasonably request. The Company shall have delivered to you a certificate of the secretary or assistant secretary of the Company in the form of Exhibit E hereto. A-6 4. PREPAYMENTS. 4A. REQUIRED PREPAYMENTS. Until the Notes shall be paid in full, the Company shall apply to the prepayment of the Notes, without premium, the sum of Twelve Million Five Hundred Thousand Dollars ($12,500,000) on January 29 in each of the years beginning on January 29, 1993, and ending on January 29, 1999, inclusive, and such principal amounts of the Notes, together with interest thereon to the prepayment dates, shall become due on such prepayment dates. The remaining Twelve Million Five Hundred Thousand Dollars ($12,500,000) in principal amount of the Notes, together with interest accrued thereon, shall become due on the maturity date of the Notes. 4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE PREMIUM. The Notes shall be subject to prepayment, in whole at any time or from time to time in part (in multiples of $5,000,000), at the option of the Company, at one hundred percent (100%) of the principal amount so prepaid plus interest thereon to the prepayment date and the Yield-Maintenance Premium, if any, with respect to the principal amount so prepaid. Any prepayment made by the Company pursuant to this paragraph ^4B shall be applied first to the principal of the Notes due on the maturity date thereof and second to the prepayments required by this paragraph ^4 in the inverse order of their scheduled due dates. 4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder of each Note irrevocable written notice of any prepayment to be made pursuant to paragraph ^4 hereof not less than ten (10) Business Days prior to the prepayment date, specifying such prepayment date and the principal amount of the Notes, and of the Notes held by such holder, to be prepaid on such date and stating that such prepayment is to be made pursuant to paragraph ^4 hereof. Notice of prepayment having been given as aforesaid, the principal amount of the Notes specified in such notice, together with interest thereon to the prepayment date and together with the premium, if any, herein provided, shall become due and payable on such prepayment date. 4D. PARTIAL PREPAYMENTS PRO RATA. Upon any prepayment of the Notes, the principal amount so prepaid shall be allocated to all Notes at the time outstanding in proportion to the respective outstanding principal amount thereof (including, for the purpose of this paragraph only, all Notes prepaid or otherwise retired or purchased or otherwise acquired by the Company or any Subsidiary or Affiliate). 4E. RIGHT TO PUT. (I) GRANTING OF PUT. The Company hereby gives and grants to each holder of Notes the option, right and privilege (such option, right and privilege herein collectively referred to as the "Right to Put") to require the Company, upon or after the occurrence of any Designated Event, to purchase from such holder on the terms and conditions hereinafter set forth, and the Company agrees so to purchase from such holder, for an amount equal to the Agreed Put Consideration, all, but not less than all, of the Notes held by such holder. (II) EXERCISE OF PUT. Within ten (10) Business Days after the occurrence of any Designated Event, the Company shall give each holder of Notes written notice thereof describing such Designated Event, and the facts and circumstances surrounding the occurrence thereof, in reasonable detail. At any time prior to ninety (90) days after any holder of Notes shall receive A-7 such notice, such holder may exercise its Right to Put by delivering to the Company a notice of sale (a "Notice of Sale") substantially in the form of Exhibit F hereto. If a holder of Notes shall deliver a Notice of Sale, the Company shall purchase the Notes then held by such holder on the date specified in such notice (which shall be not less than fifteen (15) days after delivery of such Notice of Sale), and such holder shall sell such Notes to the Company without recourse, representation or warranty (other than as to such holder's full right, title and interest to such Notes free of any adverse claim therein), at a price, payable in immediately available funds by wire transfer to the account specified pursuant to paragraph ^11 hereof or to such other account as may be specified in such notice, equal to the Agreed Put Consideration. Each holder of Notes shall have the rights specified in this paragraph ^4 with respect to each Designated Event which shall occur, regardless of any act or omission to act with respect to any previous Designated Event. 4F. RETIREMENT OF NOTES. The Company shall not, and shall not permit any of the Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their stated final maturity (other than by prepayment pursuant to paragraph 4A or paragraph 4B or upon acceleration of such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire, directly or indirectly (other than pursuant to paragraph 4E, paragraph 4G or paragraph 5H hereof), Notes held by any holder unless the Company or such Subsidiary or Affiliate shall have offered to prepay or otherwise retire or purchase or otherwise acquire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each other holder of Notes at the time outstanding upon the same terms and conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of the Subsidiaries or Affiliates shall not be deemed to be outstanding for any purpose under this Agreement except as provided in paragraph 4D hereof. 4G. TENDER OF NOTES IN PAYMENT OF WARRANT EXERCISE PRICE. The Warrant Agreement will provide that the purchase price for the Warrants issuable thereunder may be paid, in whole or in part, by a tender of Notes. The Company shall be deemed to have reacquired a principal amount of Notes equal to the aggregate principal amount of Notes tendered in payment of the Warrant exercise price, and such Notes so deemed to have been reacquired shall not be considered outstanding for any purposes of this Agreement. In the event that less than the entire outstanding principal amount of a Note is tendered in payment of the Warrant exercise price, the Company shall issue and deliver to the holder thereof a new Note equal in principal amount to the outstanding principal amount of the Note so tendered less the portion thereof applied to the Warrant exercise price. 5. AFFIRMATIVE COVENANTS. The Company covenants that on and after the Closing Date, and so long as any Notes are outstanding, it shall comply with the following: 5A. PAYMENT OF TAXES AND CLAIMS. The Company will, and will cause each Subsidiary to, pay before they become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or its Property, and A-8 (ii) all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons that, if unpaid, will more likely than not result in the creation of a Lien upon its Property, provided that items of the foregoing description need not be paid while being contested in good faith and in an appropriate manner. 5B. MAINTENANCE OF PROPERTIES AND CORPORATE EXISTENCE. The Company will, and will cause each Subsidiary to, (I) PROPERTY -- maintain its Property in good condition and make all necessary renewals, replacements, additions, betterments and improvements thereto; (II) INSURANCE -- (a) maintain, with financially sound and reputable insurers, insurance (or maintain self-insurance, including without limitation, insurance with subsidiaries, if that shall be reasonable in the circumstances) with respect to its Property and business against such casualties and contingencies, of such types (including, without limitation, loss or damage, public liability, business interruption, larceny, embezzlement or other criminal misappropriation) and in such amounts as is reasonably appropriate for the risks associated with the business of the Company and the Subsidiaries; and (b) at your request, deliver to you for examination, as soon as practicable, policies or certificates of insurance or self-insurance or certificates of insurance brokers evidencing compliance with the provisions of this clause (ii); (III) FINANCIAL RECORDS -- keep true books of records and accounts in which full and correct entries shall be made of all its business transactions so that the financial statements required by paragraph 5D hereof may be prepared in accordance with generally accepted accounting principles; (IV) CORPORATE EXISTENCE AND RIGHTS -- maintain, preserve and renew the Company's existence as a corporation organized under the laws of a state of the United States of America; and (V) COMPLIANCE WITH LAW -- not be in violation of any law, ordinance or governmental rule or regulation to which it is subject (including, without limitation, laws, ordinances, rules or regulations relating to environmental matters) and not fail to obtain any license, permit, franchise or other governmental authorization necessary to the ownership of its Properties or to the conduct of its business, which violation or failure to obtain will, more likely than not, materially adversely affect the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. A-9 5C. PAYMENT OF NOTES AND MAINTENANCE OF OFFICE. The Company will punctually pay, or cause to be paid, the principal and interest (and premium, if any) to become due in respect of the Notes according to the terms thereof and shall maintain an office at the address of the Company set forth in paragraph ^11 hereof where notices, presentations and demands in respect of this Agreement or the Notes may be made upon it. Such office shall be maintained at such address until such time as the Company shall notify the holders of the Notes of any change of location of such office. 5D. FINANCIAL REPORTING AND NOTICES. (I) FINANCIAL REPORTING. The Company will deliver to each holder of Notes in duplicate: (a) as soon as practicable and in any event within sixty (60) days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of income and cash flows of the Company and the Subsidiaries for such period and for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company and the Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, accompanied by additional financial statements containing the same information prepared in accordance with generally accepted accounting principles as then in effect if the accounting principles applied by the Company in the preparation of the financial statements first described in this clause (a) differ in any material respect from generally accepted accounting principles as then in effect, in both cases in reasonable detail and certified by an authorized financial officer of the Company, subject to changes resulting from year-end adjustments; provided, however, that so long as the accounting principles applied by the Company in the preparation of the financial statements first described in this clause (a) do not differ in any material respect from generally accepted accounting principles as then in effect, delivery pursuant to clause (c) below of copies of the Quarterly Report on Form 10-Q of the Company for such quarterly period filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (a) (provided that such Form 10-Q is accompanied by any other financial information incorporated by reference in such Form 10-Q, and provided further, that the Company provide to each holder who so requests in writing any document incorporated by reference in such Form 10-Q); (b) as soon as practicable and in any event within ninety (90) days after the end of each fiscal year, consolidating and consolidated statements of income and cash flows of the Company and the Subsidiaries for such year, and consolidating and consolidated balance sheets of the Company and the Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding figures from the preceding annual audit, accompanied by additional financial statements containing the same information prepared in accordance with generally accepted accounting principles as then in effect if the accounting principles applied by the Company in the preparation of the financial statement first described in this clause (b) differ in any material respect from generally accepted accounting principles as then in effect, in both cases all in reasonable detail and satisfactory in scope to the Required Holders and, as to the consolidated statements A-10 prepared under generally accepted accounting principles as then in effect, certified to the Company by independent public accountants of recognized standing selected by the Company whose certificate shall be in scope and substance satisfactory to the Required Holders in their reasonable judgment, and, as to the consolidating statements and financial statements not certified by such independent public accountants, certified by an authorized financial officer of the Company; provided, however, that so long as the accounting principles applied by the Company in the preparation of the financial statements first described in this clause (b) do not differ in any material respect from generally accepted accounting principles as then in effect, delivery pursuant to clause (c) below of copies of the Annual Report on Form 10-K of the Company for such fiscal year filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (b) (provided that such Form 10-K is accompanied by any other financial information incorporated by reference in such Form 10-K, and provided further, that the Company provide to each holder who so requests in writing any document incorporated by reference in such Form 10-K); (c) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports that it sends to its public stockholders and copies of all registration statements (without exhibits) and all reports that it files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); and (d) copies of all agreements governing and instruments evidencing Debt (other than Debt of a type described in subsection (vi) of the definition of Debt) of the Company or any Consolidated Subsidiary containing any Financial Covenant, and all agreements amending, modifying or supplementing any such agreement or instrument affecting, adding or deleting any Financial Covenant, in each case, entered into on or after the First Amendment Date; (e) all certificates and notices delivered or required to be delivered to the holders of any other Debt of the Company or any Consolidated Subsidiary on or after the First Amendment Date, in each case, in connection with the compliance by the Company or any Consolidated Subsidiary with any Financial Covenant; and (f) with reasonable promptness, such other financial data as such holder of Notes may reasonably request. (II) DEFAULT NOTICES. The Company also covenants that immediately upon any Senior Officer of the Company obtaining knowledge of an Event of Default or Default, it will deliver to each holder of Notes an Officer's Certificate specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. 5E. INSPECTION OF PROPERTY. The Company will permit any Person designated in writing by any holder of Notes, at such holder's expense, to visit and inspect any of the Properties of the Company and the Subsidiaries, to examine the corporate books and financial records of the Company and the Subsidiaries and make copies thereof or extracts therefrom, all at such reasonable times and as often as such holder may reasonably request. In addition, so long as (i) a Default or an Event of Default shall have occurred and be continuing, (ii) in the A-11 reasonable judgment of any holder of Notes, a material adverse change shall have occurred with respect to the business or financial condition of the Company and the Subsidiaries taken as a whole, or (iii) any holder shall have a reasonable basis for questioning the validity of any line item in any financial statement of the Company or the validity of such financial statement as a whole, the Company will permit any Person designated in writing by any holder to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and its independent public accountants, all at such reasonable times and as often as such holder may reasonably request. 5F. COVENANT TO SECURE NOTE EQUALLY. The Company covenants that, if it or any Subsidiary shall create or assume any Lien upon any of its Property, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 6A hereof or any similar provision incorporated herein by reference (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to paragraph 11C hereof), it will make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured so long as any such other Debt shall be so secured. 5G. ERISA COMPLIANCE. Neither the Company nor any Subsidiary will cause any Plan maintained or participated in by it to engage in any "prohibited transaction," as such term is defined in Section 4975 of the IRC. 5H. INVOLUNTARY PREPAYMENT. (i) Upon the occurrence of any Prepayment Event, the Company shall make an offer to the holders of Notes to repurchase the Notes as set forth in this paragraph 5H. Immediately upon the occurrence of the Prepayment Event but in any event within five (5) Business Days thereafter, the Company shall give each holder of the Notes substantially simultaneous written notice thereof describing such Prepayment Event in reasonable detail including, without limitation, a description of the issue of Debt giving rise to such Prepayment Event, the facts and circumstances surrounding the occurrence thereof, the manner of the prepayment, redemption or defeasance of such other Debt in connection therewith and the manner specified in this paragraph 5H of accepting or rejecting such offer by the holder. Such notice shall also contain the Company's offer (the "Prepayment Offer") to purchase from each such holder of Notes a principal amount of the Notes held by such holder equal to its Noteholder Share of the Ratable Prepayment Amount at a purchase price equal to the Agreed Put Consideration. (ii) A holder of Notes may accept the Prepayment Offer, in whole or in part, through a written acceptance (the "Noteholder Acceptance") delivered to the Company within forty-five (45) days of such holder's receipt of the Prepayment Offer (the "Offer Period"). Promptly after (and, in any event, within two (2) Business Days of) its receipt of any Noteholder Acceptance, the Company shall give substantially simultaneous written notice thereof to all other holders of Notes. (iii) If such holder shall accept the offer, the Company shall purchase that portion (the "Prepayment Portion"), expressed as a percentage, of the principal amount of Notes held by such holder specified in its Noteholder Acceptance, provided that the A-12 principal amount of Notes the Company is required to purchase shall not exceed such holder's Noteholder Share of the Ratable Prepayment Amount. Such purchase shall be made on the fifteenth (15th) day after the expiration of the Offer Period or, if later, the first day on which any holder of any other issue of Debt would receive a prepayment in respect of such Prepayment Event but in no event later than sixty (60) days after the expiration of the Offer Period. On the date of purchase, such holder shall sell the Prepayment Portion of such Notes to the Company without recourse, representation or warranty (other than as to such holder's full right, title and interest to the Prepayment Portion of such Notes free of any adverse claim created by such holder therein), at a price, payable in immediately available funds by wire transfer to the account specified pursuant to paragraph ^11 hereof or to such other account as may be specified in such notice, equal to the Agreed Put Consideration. (iv) Upon any partial prepayment of a Note pursuant to this paragraph 5H, such Note may, at the option of the holder thereof, be: (a) surrendered to the Company, in which case the Company shall promptly execute and issue to the holder thereof a new Note in a principal amount equal to the principal amount remaining unpaid on the surrendered Note after giving effect to such prepayment; or (b) made available to the Company for notation thereon of the portion of the principal so prepaid. In case the entire principal amount of any Note is prepaid, such Note shall be surrendered to the Company for cancellation and shall not be reissued, and no Note shall be issued in lieu of the prepaid principal amount of any Note. (v) If the occurrence of any Prepayment Event causes the Company or any Subsidiary to defease, repay, repurchase or have a reduction in the available commitment under any issue of Debt prior to the time that any Notes would be repurchased hereunder, then simultaneously with such defeasance, repayment, repurchase or reduction in respect of such other Debt, the Company shall pay to each holder an amount equal to its Noteholder Share of the Ratable Prepayment Amount at a purchase price equal to the Agreed Put Consideration, which payment shall satisfy all obligations of the Company to the holders in respect of clauses (i) through (iii), inclusive, of this paragraph 5H. At the time of the making of such payment, the Company shall notify the holder of such payment in writing, which notice shall state that such payment is being made pursuant to this paragraph 5H(v), shall contain a description of the issue of Debt giving rise to such Prepayment Event, the facts and circumstances surrounding the occurrence thereof and the manner of the prepayment, redemption or defeasance of such other Debt in connection therewith (unless such information shall have been contained in a previously delivered notice pursuant to paragraph 5H(i) with respect to such Prepayment Event) and describe the procedure detailed in this paragraph 5H(v) pursuant to which a holder may elect to rescind such payment. In the event that a holder of Notes receiving a payment pursuant to this paragraph 5H(v) elects to rescind the prepayment arising from such Prepayment Event A-13 with respect to all Notes or any portion of the Notes held by such holder, such holder shall deliver to the Company, within forty-five (45) days of such holder's receipt of the notice specified in this paragraph 5H(v), written notice of such recision, and shall contemporaneously pay to the Company in immediately available funds an amount equal to the amount so paid such holder pursuant to this paragraph 5H(v) or, in the case of a recision with respect to only a portion of the prepayment made to such holder, an amount equal to that portion of such prepayment which such holder wishes to rescind. (vi) Each holder of Notes shall have the rights specified in this paragraph 5H with respect to each Prepayment Event which shall occur, regardless of any act or omission to act with respect to any previous Prepayment Event. In the event that the Prepayment Event is also a Designated Event subject to paragraph 4 of this Agreement, the Company shall comply with the provisions of clause (v) of this paragraph 5H with respect to the matters contained therein; in all other respect such Designated Event will be treated as a Designated Event and not as a Prepayment Event, and the Company will be required to comply with paragraph 4E in connection therewith. In the event that the Prepayment Event would also be an event which results in an Event of Default, this paragraph 5H shall not be deemed to in any respects limit the rights and remedies of the holders under paragraph 7. (vii) Prepayments made pursuant to this paragraph 5H shall be applied ratably to the obligations of the Company to make required prepayments in respect of the Notes pursuant to paragraph 4A hereof and to pay the remaining principal amount thereof at maturity. 6. NEGATIVE COVENANTS. The Company covenants that on and after the Closing Date, and so long as any Notes are outstanding, it shall comply with the following: 6A. LIMITATIONS ON LIENS. (I) NEGATIVE PLEDGE. The Company will not, and will not permit any Subsidiary to, create, assume, or suffer to exist any Lien upon any of the Property of the Company or any Subsidiary, whether now owned or hereafter acquired, except: (a) Liens securing Debt and other obligations in an aggregate principal amount at any time not exceeding ten percent (10%) of Consolidated Tangible Net Worth at such time, provided, however, that neither the Company nor any Subsidiary shall create, assume or otherwise incur any Lien upon any of its respective Properties unless the Company is in compliance with paragraph 6R of this Agreement; (b) Liens arising out of transactions contemplated by the terms of the Trade Receivables Agreement; (c) Purchase Money Mortgages if, after giving effect thereto and to any concurrent transactions: A-14 (I) each such Purchase Money Mortgage secures an amount not exceeding one hundred percent (100%) of the cost of the particular Property to which it relates (or, in the case of a Lien existing on any Property of any corporation at the time it becomes a Subsidiary, the Fair Market Value of such Property at such time); (II) such Purchase Money Mortgage encumbers only Property (A) purchased after the Closing Date and (B) acquired with the proceeds of the Debt secured thereby; and (III) such Property was acquired in the ordinary course of business of the corporation acquiring such Property, provided, however, that neither the Company nor any Subsidiary shall create, assume or otherwise incur any Purchase Money Mortgage unless the Company is in compliance with paragraph 6R of this Agreement; (d) Liens incurred in connection with Lease Transactions to the extent that such Liens encumber Property covered by such Lease Transactions; provided, however, that neither the Company nor any Subsidiary shall create, assume or otherwise incur any such Liens unless the Company is in compliance with paragraph 6R of this Agreement, and provided further that, immediately after giving effect to the investment of the Company or the Subsidiary in such Lease Transaction, the aggregate amount of the investments then outstanding of the Company and the Subsidiaries in all Lease Transactions does not exceed Fifty Million Dollars ($50,000,000), it being agreed that for the purpose of such calculation the amount of each investment shall be determined on a Net After-Tax Cash Basis; (e) Liens upon San Marcos Bonds, and the proceeds thereof, which have been repurchased upon tender by the holders thereof in accordance with the terms of the indenture governing such San Marcos Bonds, until, but only until, the trustee with respect to such San Marcos Bonds has received the purchase price therefor upon the remarketing thereof and the issuer of the letter of credit that was drawn in connection with such tender has been reimbursed for such amounts drawn; provided, however, that the Company shall actively seek to remarket such bonds pursuant to the provisions of the IDB Financing of the Company's San Marcos, Texas facility or, to the extent necessary in connection with any termination of any outstanding letter of credit relating to such facility, to modify the structure of such IDB Financing to the extent necessary to permit a long-term reissuance of the repurchased San Marcos Bonds; and (f) unless, at the time of incurrence thereof, a Default or an Event of Default shall occur or be continuing, Liens incurred in connection with the deposit of cash collateral to secure reimbursement obligations of the Company relating to the San Marcos Bonds, but only in connection with the extension of an outstanding letter of credit relating to such facility and only in an amount of cash collateral not exceeding the maximum amount which may be drawn under such A-15 letter of credit; provided, however, that the Company shall actively seek to obtain a replacement letter of credit that does not require cash collateralization (and thus relieves the Company of any requirement to deposit cash collateral or to secure such reimbursement obligations); it being understood that each such Lien may be allocated by the Company to any one of the preceding categories in which it may, by the terms of such category, be included. (II) FINANCING STATEMENTS. The Company will not, and will not permit any Subsidiary to, sign or file a financing statement under the Uniform Commercial Code of any jurisdiction that names the Company or such Subsidiary as debtor, or sign any security agreement authorizing any secured party thereunder to file any such financing statement, except, in any such case, a financing statement filed or to be filed to perfect or protect a Lien that the Company or such Subsidiary is entitled to create, assume or incur, or permit to exist, under the foregoing provisions of this paragraph ^6 or to evidence for informational purposes a lessor's interest in Property leased to the Company or any such Subsidiary. 6B. LIMITATIONS ON LEASES. (I) LIMITATIONS ON LEASES. The Company will not, and will not permit any Subsidiary to, at any time be or become liable at any time as lessee under any lease (other than a lease giving rise to a Capitalized Lease Obligation) having an original (or then unexpired) term of one year or more if: (a) the aggregate Net Rentals payable in any period of twelve (12) consecutive calendar months following such time under such lease and all other such leases under which the Company or a Subsidiary is lessee, minus (b) all amounts of a similar nature due from sub-lessees under such leases that are reasonably expected to be collected during the same period, would exceed ten percent (10%) of Consolidated Tangible Net Worth at such time. (II) SUBSIDIARY. Any corporation that becomes a Subsidiary after the Closing Date shall be deemed to have become liable as lessee, at the time it becomes a Subsidiary, under all leases (under which it is liable as lessee) of such corporation existing immediately after it becomes a Subsidiary. 6C. LIMITATIONS ON INDEBTEDNESS. The Company will not, and will not permit any Subsidiary to, create, issue, assume or guarantee any Debt (other than Intercompany Debt) except that: (i) on or prior to April 26, 1997: (a) the Company may incur Debt under the Credit Agreement or an Acceptable Replacement Credit Facility; A-16 (b) the Company may incur the 1994 Senior Debt and the 1994 Subordinated Debt; (c) the Company and the Subsidiaries may incur unsecured 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; (d) the Subsidiaries may incur Debt under revolving credit facilities so long as the aggregate amount of all such Debt outstanding at any time shall not exceed $5,000,000; (e) the Company and the Subsidiaries may incur Debt described in clause (vi) of the definition of "Debt" contained in paragraph 10B; (f) Debt incurred in connection with the resale or remarketing of San Marcos Bonds, but only to the extent that: (I) San Marcos Bonds in an aggregate principal amount of Sixteen Million Five Hundred Thousand Dollars ($16,500,000) were issued and outstanding and held and owned by Persons other than the Company, any Subsidiary or any Affiliate on May 10, 1994; and (II) the San Marcos Bonds to be resold or remarketed were repurchased by the Company upon tender by the holders thereof after May 10, 1994 in accordance with the terms of the indenture governing the San Marcos Bonds; and (g) replacement unsecured San Marcos Bonds, in an aggregate principal amount not exceeding Sixteen Million Five Hundred Thousand Dollars ($16,500,000), if, and only if, Sixteen Million Five Hundred Thousand Dollars ($16,500,000) in aggregate amount of San Marcos Bonds were redeemed in full as a result of the failure of the bank which has issued any letter of credit relating to the San Marcos Bonds to extend or renew such outstanding letter of credit (for the avoidance of doubt, the aggregate principal amount of San Marcos Bonds and replacement San Marcos Bonds, whether outstanding on the date hereof or thereafter issued pursuant to clause (f) or clause (g) of this paragraph 6C(i), shall not exceed Sixteen Million Five Hundred Thousand Dollars ($16,500,000) at any time); in each case, so long as after the incurrence thereof, and after giving effect thereto, no Default or Event of Default (including any Default or Event of Default arising out of any breach of paragraph 6L hereof) shall have occurred or be continuing; and A-17 (ii) on or after April 27, 1997, and at any time during any period set forth in the tables below, the Company or any Subsidiary may incur Debt if, immediately after giving effect to such incurrence of Debt: (a) Consolidated Senior Debt would not exceed the percentage applicable to such period of the sum of Consolidated Total Debt plus Consolidated Tangible Net Worth, all as set forth in the table immediately below: If such time occurs during the period: Percentage: ------------------------------------- ---------- From April 27, 1997 through and including July 31, 1998 38.00% At all times on or after August 1, 1998 35.00%; -------------- and (b) Combined Subsidiary Debt would not exceed five percent (5%) of Consolidated Tangible Net Worth; and so long as after the incurrence thereof, and after giving effect thereto, no Default or Event of Default (including any Default or Event of Default arising out of any breach of paragraph 6L or paragraph 6R hereof) shall have occurred or be continuing. 6D. LIMITATIONS ON MERGERS AND SALES OF ASSETS. The Company will not, and will not permit any Subsidiary to (whether in a single transaction or a series of transactions), consolidate with, merge into or transfer substantially all of its Property (whether now owned or hereafter acquired) to any other Person, or permit any other Person to consolidate with, merge into, or transfer substantially all of its Property to, the Company, except that any Subsidiary may merge or consolidate with or into, or transfer substantially all of its Property to, or acquire substantially all of the Property of, any other Person and the Company may merge or consolidate with or into, or acquire substantially all of the Property of, any other Person, if: (i) in the case of any merger or consolidation involving the Company, the corporation that results from such merger or consolidation is organized under the laws of the United States of America or any jurisdiction thereof and such corporation expressly assumes in writing the due and punctual payment of the principal of, and Yield-Maintenance Premium, if any, and interest on, all of the Notes, according to their tenor, and the due and punctual performance and observance of all the covenants in the Notes and this Agreement to be performed or observed by the Company, all in an agreement or instrument satisfactory in form and substance to the Required Holders; (ii) immediately after the consummation of the transaction, and after giving effect thereto, the Company, the corporation that results from any such merger or consolidation with the Company or the Person that acquires such Property from the Company, and in each case, its Subsidiaries shall be engaged principally in the businesses of either or both of manufacturing and distributing aerospace products or technically related products and of providing services related to such products; A-18 (iii) immediately after the consummation of the transaction, and after giving effect thereto, no Event of Default or Default would exist; and (iv) immediately after the consummation of the transaction, and after giving effect thereto, the Company could incur at least One Dollar ($1.00) of additional Debt pursuant to paragraph 6.C hereof. 6E. ADJUSTED CONSOLIDATED TANGIBLE NET WORTH MAINTENANCE. The Company will maintain at all times Adjusted Consolidated Tangible Net Worth of not less than the sum of: (i) $125,000,000; plus (ii) the sum of the Fiscal Quarter Net Worth Increase Amounts for each fiscal quarter of the Company ended after July 31, 1994; plus (iii) the aggregate amount of all capital contributions (which amount shall include, without limitation, all amounts attributable to the conversion of debt of the Company to equity of the Company, valued at the amount added to stockholders' equity in accordance with GAAP) received by the Company or any Consolidated Subsidiary (in each case, other than contributions originally made by the Company or any Consolidated Subsidiary) in cash, in Property other than cash or by conversion of Debt of the Company at any time after the Third Amendment Date. 6F. LIMITATIONS ON DISTRIBUTIONS. (I) LIMIT ON DISTRIBUTIONS. The Company will not, and will not permit any Subsidiary to, at any time declare or make or incur any liability to declare or make any Distribution; provided, however, that: (a) the Company may, repurchase, purchase, redeem or otherwise acquire shares of its common stock or warrants, rights or options to acquire such stock issued pursuant to Restricted Stock Plans, Stock Option Plans, Stock Incentive Plans, the Rights Agreement, the ESOP, or Non-Employee Directors Stock-Option Plans; (b) the Company may declare or make any Distribution if, immediately after giving effect to such Distribution, (I) the Debt Ratio would not exceed 2.50:1.00; (II) the Company could incur $1.00 of additional Debt pursuant to paragraph 6.C hereof; (III) if the time of declaration or making, as the case may be, of such Distribution is on or prior to April 26, 1997, Consolidated Senior Debt at such time would not exceed thirty- eight percent (38%) of the sum of A-19 Consolidated Total Debt plus Consolidated Tangible Net Worth at such time; and (IV) after giving effect to such transactions, no Event of Default or Default would then exist; and (c) the Company may declare or make any Permitted Preferred Dividend if, prior to and immediately after giving effect to such Permitted Preferred Dividend, no Default or Event of Default shall exist. (II) TIME OF PAYMENT. The Company will not authorize a Distribution on its capital stock which is not payable within sixty (60) days of authorization. 6G. LIMITATIONS ON CAPITAL EXPENDITURES. The Company will not, and will not permit any Subsidiary to, make, on or before April 26, 1997, any expenditures for fixed or capital assets which would cause the aggregate of all such expenditures made by the Company and the Subsidiaries in any period of four full consecutive fiscal quarters to exceed the sum of the amounts set forth below opposite such four fiscal quarters:
Fiscal Quarters Amount --------------- ------ Each Fiscal Quarter 1994 $4,500,000 Each Fiscal Quarter 1995 $6,000,000 Each Fiscal Quarter 1996 $7,500,000 Each Fiscal Quarter 1997 $7,500,000.
6H. PRIVATE OFFERING. The Company will not, and will not permit anyone acting on its behalf to, offer the Notes or any part thereof or any similar Securities for issue or sale to, or solicit any offer to acquire any of the same from, anyone so as to bring the issuance and sale of the Notes within the provisions of Section 5 of the Securities Act. 6I. TRANSACTIONS WITH AFFILIATES. (I) EXCHANGE LISTING. During any period that the Company does not have common stock listed on the New York Stock Exchange or the American Stock Exchange, the Company will not, and will not permit any Subsidiary to, sell or transfer any Property to, or purchase or acquire any Property of, or otherwise engage in any other transaction with, any Affiliate, except at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arms' length basis from unrelated third parties. (II) CONTROL PERSONS. During any period that the Company has common stock listed on the New York Stock Exchange or the American Stock Exchange, the Company will not, and will not permit any Subsidiary to, sell or transfer any Property to, or purchase or acquire any Property of, or otherwise engage in any other transaction with, any Control Person, except at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arms' length basis from unrelated third parties. A-20 6J. LINE OF BUSINESS. The Company shall not, nor shall it permit any Subsidiary to, make any change in the nature of its business if such change would constitute a material change in the nature of the business of the Company and the Subsidiaries taken as a whole as conducted on the Closing Date, or commence or permit any Subsidiary to commence any major project for the development of a new line of products or services other than aerospace products or technically related products or services related to such products; provided that the Company or any Subsidiary may commence any project for the development of such new line of products or services if, and only if, the aggregate costs and expenses related to all such projects (including, without limitation, budgeted costs (determined from time to time) for such new project minus any reasonably budgeted reimbursements for such costs due from parties other than the Company or the Subsidiaries) shall not exceed ten percent (10%) of Consolidated Tangible Net Worth at the time each such project is commenced. 6K. FIXED CHARGE COVERAGE. The Company will maintain for each day 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 to Consolidated Fixed Charges for such period, of not less than the ratio set forth in the chart below opposite the period set forth below in which such day occurs:
Period Ratio ------ ----- Fiscal Year 1994 1.40 to 1.00 Fiscal Year 1995 1.55 to 1.00 Fiscal Year 1996 1.90 to 1.00 Fiscal Year 1997 and thereafter 2.00 to 1.00;
6L. DEBT RATIO. The Company shall not permit the Debt Ratio for any day to be greater than the ratio set forth opposite the period set forth in the chart below in which such day occurs:
Fiscal Year Ratio ----------- ----- 1994 5.60 to 1.00 1995 5.00 to 1.00 1996 4.10 to 1.00 1997 3.20 to 1.00 1998 2.80 to 1.00 1999 and thereafter 2.50 to 1.00.
6M. INCORPORATION OF NEGATIVE COVENANTS. (i) During all such times as both the Credit Agreement shall remain in force, and either any Debt shall be outstanding thereunder or the lenders party thereto shall have any obligation to lend or make advances thereunder: (a) the provisions of paragraph 6A (except for clauses (i)(e) and (i)(f) thereof, to the extent provided in paragraph 6M(i)(c) below) and paragraph 6B of this Agreement shall be of no force and effect; A-21 (b) the provisions of Sections 5.02(b), 5.02(c), 5.02(d), 5.02(e), 5.02(g), 5.02(h) and 5.02(i) of the Credit Agreement, as in effect on the Third Amendment Date (after giving effect to the Seventh Amendment to the Credit Agreement), but without amendment, supplement or modification (except as set forth in paragraph 6M(ii) hereof), and together with all relevant definitions pertaining thereto, shall be incorporated herein by reference, mutatis mutandis; (c) the Company shall not, nor shall it permit any Subsidiary to, create, assume or suffer to exist any Lien securing any Debt existing on the date hereof or incurred thereafter in connection with any IDB Financing, except for such Liens as are expressly permitted by the provisions of clause (e) or clause (f) of paragraph 6A(i) hereof; provided, however, that at all times during which either the Credit Agreement shall be of no force or effect, or there shall be no Debt outstanding thereunder and no obligation on the part of the lenders thereto to lend or make any advance thereunder, the provisions of paragraph 6A and paragraph 6B of this Agreement shall be in full force and effect. (ii) If at any time: (a) after the Third Amendment Date, the Credit Agreement is amended, supplemented or modified to provide Financial Covenants in addition to, or which are more restrictive of the Company or the Consolidated Subsidiaries than, the provisions of the Credit Agreement, as in effect on the Third Amendment Date (after giving effect to the Seventh Amendment to the Credit Agreement dated as of such date); (b) after the First Amendment Date, the Company enters into any other agreement governing, or executes any other instrument evidencing, any Debt (or any commitment to lend), other than Debt or commitments solely among the Company and/or one or more Consolidated Subsidiaries; or (c) after the First Amendment Date, the Company enters into any amendment, supplement or modification of any agreement governing, or any instrument evidencing, any Debt (or any commitment to lend), other than Debt or commitments solely among the Company and/or one or more Consolidated Subsidiaries; then, and in each such case, each Financial Covenant set forth in such amendment, supplement, modification or other agreement or instrument shall be incorporated by reference herein for the remaining term of such agreement or instrument, but only to the extent that such covenant is more restrictive of the Company or the Consolidated Subsidiaries than the corresponding provision of this Agreement. (iii) In the event that any Financial Covenant contained in any other agreement governing, or instrument evidencing, any Debt (or commitment to lend), which Financial Covenant has been or is incorporated into this Agreement pursuant to the provisions of paragraph 6M(ii) hereof, is amended, supplemented or modified to make such Financial A-22 Covenant less restrictive of the Company or the Consolidated Subsidiaries than the incorporated Financial Covenant, the more restrictive incorporated Financial Covenant shall continue to be incorporated herein for the remaining term of such agreement or instrument notwithstanding such amendment, supplement or modification. Notwithstanding the foregoing sentence, if the provisions of such incorporated Financial Covenant were expressed when incorporated to be more restrictive on a temporary basis, or more restrictive only for a prescribed period, such more restrictive provision shall be incorporated herein only on such temporary basis or only for such prescribed period, as the case may be. (iv) No Financial Covenant incorporated herein by virtue of paragraph 6M(ii) or paragraph 6M(iii) hereof shall supersede, replace, amend, supplement or modify any other provision of this Agreement, including any covenant contained herein which addresses a subject matter similar to that of such incorporated Financial Covenant. 6N. MAINTENANCE OF SENIOR STATUS. The Company will not take any action at any time to amend, modify or supplement any subordination provision (or any definition of any defined term as used in any such provision) in the Existing Subordinated Notes, the 1994 Subordinated Notes or any indenture governing the provisions of any thereof, or otherwise take any action which would result in any of the Existing Subordinated Notes or 1994 Subordinated Notes not being junior or subordinated in right of payment to the Notes to the same extent such Existing Subordinated Notes or 1994 Subordinated Notes, as the case may be, are subordinated to the Notes on the Third Amendment Date (after giving effect to the issuance of the 1994 Subordinated Notes). The Company shall not take any action which would result in the Notes not constituting, or not being fully entitled to the benefits of, "Senior Indebtedness" and "Designated Senior Indebtedness" as defined in the indenture governing the 1994 Subordinated Notes. 6O. CERTAIN AMENDMENTS. The Company shall not, nor shall it permit any Consolidated Subsidiary to, consent to any amendment, modification, supplement or waiver of: (i) any of the provisions of any of Sections 3.02, 3.03, 3.04 or 3.05 of the Credit Agreement, as in effect on the Third Amendment Date (after giving effect to the Seventh Amendment to the Credit Agreement), or any other provision referred to therein or any defined term as used therein, other than a waiver by the banks party thereto of any condition set forth therein; or (ii) any other provision of the Credit Agreement or, prior to April 25, 1997, any Acceptable Replacement Credit Facility, to the extent that such amendment, modification, supplement or waiver would have the effect of: (a) reducing the amount or availability of credit thereunder, changing the timing of or reducing the commitments of the lenders thereunder to lend or make credits available pursuant thereto; (b) making more restrictive upon the Company any condition precedent to the funding of the credits available thereunder; A-23 (c) requiring the Company or any Subsidiary to grant any lender thereunder any Lien securing the obligations thereunder; or (d) requiring the Company or any Subsidiary to maintain any deposit accounts in any minimum amount, compensating balances, cash management or clearing house relationship or similar arrangements, with the lenders thereunder; in each case, without the prior written consent of the Required Holders. 6P. SALES OF ASSETS. The Company will not, and will not permit any Consolidated Subsidiary to, at any time after the First Amendment Date, sell, lease, transfer or otherwise dispose of any Property (except for sales of inventory and of obsolete or surplus Property in the ordinary course of business, sales of accounts receivable, the issuance of director's qualifying shares and sales, leases, transfers or other dispositions of Property to the Company or a Consolidated Subsidiary (collectively, "Excepted Property")); provided, however, that the foregoing restrictions shall not apply to the sale, lease, transfer or other disposition of any such Property to any Person if all of the following conditions are met: (i) the book value of all such Property then being sold, leased, transferred or otherwise disposed of, together with the book value of all other Property (other than Excepted Property) sold, leased, transferred or otherwise disposed of by the Company and the Consolidated Subsidiaries since the First Amendment Date shall not, in the aggregate, exceed ten percent (10%) of Consolidated Tangible Assets, determined as of the end of the then most recently ended fiscal quarter of the Company; (ii) in the case of the sale, lease, transfer or other disposition of a Consolidated Subsidiary (whether by disposition of any capital stock of such Consolidated Subsidiary, the Property thereof or otherwise) or a line or segment of business of the Company or a Consolidated Subsidiary, in either case, substantially as an entirety (except with respect to the sale, lease, transfer or other disposition of capital stock of a Consolidated Subsidiary), the sum of: (A) that portion, expressed as a percentage, of Gross Operating Income attributable to or contributed by all Property of a type described in this paragraph 6P(ii) and then being sold, leased, transferred or otherwise disposed of, for the period of eight (8) full consecutive fiscal quarters most recently ended on or prior to the date of such sale, lease, transfer or other disposition; plus (B) with respect to each other sale, lease, transfer or other disposition of Property of a type described in this paragraph 6P(ii) occurring during the period beginning on the later of the First Amendment Date and the beginning of the eight full (8) fiscal quarters of the Company most recently ended prior to the consummation of the transaction referred to in clause (A) above, and ending on the date of the transaction referred to in clause (A) above, that portion, expressed as a percentage, of Gross Operating Income attributable to or contributed by such Property described in this clause (B) for the period of eight (8) full consecutive fiscal quarters most recently ended on or prior to the date of such sale, lease, transfer or other disposition thereof; A-24 shall not exceed ten percent (10%); (iii) in the good faith opinion of the board of directors of the Company (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 Company; and (iv) immediately after the consummation of such sale, lease, transfer or other disposition, and after giving effect thereto, no Default or Event of Default would exist. Sales and other dispositions of accounts receivable shall be subject to paragraph 6Q of this Agreement. Sales of all or any portion of the capital stock of a Consolidated Subsidiary shall, for purposes of determining the book value thereof in clause (i) above, be deemed to be the sale of all or such portion of the book value of the assets of the Consolidated Subsidiary which shall have issued such capital stock. Sales of all or a portion of the capital stock of any Consolidated Subsidiary shall, for purposes of determining its contribution to Gross Operating Income in clause (ii) above, be deemed to have contributed all or such portion of that proportion of Gross Operating Income attributable to the Consolidated Subsidiary which shall have issued such capital stock. As used in this paragraph 6P, the term `lease' shall mean an original lease, as lessor, by the Company or any Consolidated Subsidiary, and the continuance, extension or renewal of any existing lease shall not be treated as a lease pursuant to, or restricted by, this paragraph 6P. 6Q. SALE OF RECEIVABLES. The Company covenants that it will not, and will not permit any Consolidated Subsidiary to, sell with recourse or otherwise sell for less than the face value thereof, any of its notes or accounts receivable, except pursuant to the Trade Receivables Agreement; provided, however, that the Company and any Consolidated Subsidiary may sell for book value the accounts receivable owing from any Person (i) that has commenced a voluntary case under the Bankruptcy Law of the United States or any proceedings under the Bankruptcy Law of any other jurisdiction, or (ii) against whom any such case or proceedings have been commenced and have remained undismissed for a period of at least sixty (60) days. 6R. LIMITATION ON CERTAIN OBLIGATIONS. The Company will not at any time permit the sum of (w) obligations secured by Liens allocated by the Company to the category described in paragraph 6A(i)(a) hereof, (x) obligations secured by Liens allocated by the Company to the category described in paragraph 6A(i)(c) hereof, (y) obligations secured by Liens allocated by the Company to the category described in paragraph 6A(i)(d) hereof which obligations were incurred on or subsequent to the Closing Date, and (z) Combined Subsidiary Debt, in each case at such time, to exceed fifteen percent (15%) of Consolidated Tangible Net Worth at such time. 7. EVENTS OF DEFAULT. 7A. ACCELERATION. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): A-25 (i) the Company defaults in the payment of any principal of or premium on any Note when the same shall become due, either by the terms thereof or otherwise as herein provided; or (ii) the Company defaults in the payment of any interest on any Note for more than ten (10) days after the date due; or (iii) the Company or any Subsidiary defaults in any payment of principal of or interest on any obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for Property whether or not secured by a Purchase Money Mortgage or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or the Company or any Subsidiary fails to perform or observe any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due prior to any originally stated maturity, or to be repurchased by the Company or any Subsidiary, provided that the aggregate amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing or permitting acceleration shall occur and be continuing exceeds Fifteen Million Dollars ($15,000,000), and provided, further, that obligations for the deferred purchase price of goods or services (including, without limitation, Capitalized Lease Obligations and Purchase Money Mortgages) shall be excluded from the operation of this clause (iii) so long as such obligations are being contested in good faith by appropriate proceedings and adequate reserves have been established therefor; or (iv) any representation or warranty made by the Company herein, in the First Amendment, the Second Amendment, the Third Amendment or any other amendment, modification or supplement hereto, or in the Warrant Agreement, or by the Company or any of its officers in any writing furnished in connection with or pursuant to this Agreement (including, without limitation, the certificates furnished by the Company at the closing) shall be false in any material respect on the date as of which made; or (v) the Company or any Subsidiary shall fail to perform or observe any covenant contained in paragraph 6 hereof, paragraph 4E hereof, paragraph 5D(ii) or paragraph 5H hereof; or (vi) the Company fails to perform or observe any other agreement, term or condition contained herein, in the First Amendment, the Second Amendment, the Third Amendment or in the Warrant Agreement or the Warrants, and such failure shall not be remedied within thirty (30) days after the occurrence of such failure first becomes known to any Senior Officer of the Company; or A-26 (vii) the Company or any Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due as such phrase is defined in Section 303(h)(1) of the Bankruptcy Code of 1978; or (viii) any decree or order for relief in respect of the Company or any Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (the "Bankruptcy Law"), of any jurisdiction; or (ix) the Company or any Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or the taking of possession by, a trustee, receiver, custodian, liquidator or similar official, of the Company or any Subsidiary, or of any substantial part of the assets of the Company or any Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary) relating to the Company or any Subsidiary under the Bankruptcy Law of any other jurisdiction; or (x) any such petition or application is filed, or any such proceedings are commenced, against the Company or any Subsidiary and the Company or such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than sixty (60) days; or (xi) any order, judgment or decree is entered in any proceeding against the Company decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than sixty (60) days; or (xii) any order, judgment or decree is entered in any proceedings against the Company or any Subsidiary decreeing a split-up of the Company or such Subsidiary that requires the divestiture of Properties representing at least ten percent (10%), or the divestiture of the stock of a Subsidiary whose assets represent at least ten percent (10%), of the consolidated assets of the Company and the Subsidiaries (determined in accordance with generally accepted accounting principles) or that requires the divestiture of assets, or stock of a Subsidiary, that shall have contributed at least ten percent (10%) to Consolidated Net Income for any of the three (3) fiscal years most recently ended as of the date such order, judgment or decree shall be entered, and such order, judgment or decree remains unstayed and in effect for more than sixty (60) days; or (xiii) a final judgment in an amount in excess of Fifteen Million Dollars ($15,000,000) is rendered against the Company or any Subsidiary and, within sixty (60) days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within sixty (60) days after the expiration of any such stay, such judgment is not discharged; or (xiv) any lender under the Credit Agreement or any Acceptable Replacement Credit Facility fails or refuses, or announces its intention to fail or refuse, to make any A-27 required advance under such Credit Agreement or any Acceptable Replacement Credit Facility, or refuses to lend due to or as a result of any material adverse change in the business, Properties, profits or condition (financial or otherwise) of the Company; or (xv) there shall occur any "Change of Control" as defined in the indenture relating to the 1994 Subordinated Debt; then (a) if such event is an Event of Default specified in clause (viii), clause (ix) or clause (x) of this paragraph ^7 with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, and (b) if such event is any other Event of Default, the Required Holders may at their option, by notice in writing to the Company, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Premium, if any, with respect to each Note, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, provided that the Yield- Maintenance Premium, if any, with respect to each Note shall be due and payable upon such declaration only if (I) such event is an Event of Default specified in any of clause (i) to clause (vi), inclusive, of this paragraph ^7, (II) the Required Holders shall have given to the Company, at least ten (10) Business Days before such declaration, written notice stating its or their intention so to declare the Notes to be immediately due and payable and identifying one or more such Events of Default whose occurrence on or before the date of such notice permits such declaration and (III) one or more of the Events of Default so identified shall be continuing at the time of such declaration. 7B. ACCELERATION ON PAYMENT DEFAULT. (I) ACCELERATION ON PAYMENT DEFAULT. During the existence of an Event of Default described in paragraph ^7(i) hereof or paragraph ^7(ii) hereof, and irrespective of whether the Required Holders shall have declared all the Notes to be due and payable pursuant to paragraph ^7, any holder of Notes may, at his or its option, by notice in writing to the Company, declare the Notes then held by such holder to be, and such Notes shall thereupon become, immediately due and payable together with all interest accrued thereon, without any presentment, demand, protest or other notice of any kind (other than as provided above), all of which are hereby expressly waived, and the Company shall immediately pay to such holder the entire principal of and interest accrued on such Notes and the Yield-Maintenance Premium due at such time with respect to such Notes in accordance with the provisions of paragraph ^7(b) hereof (provided A-28 that the requirement of paragraph ^7(b)(II) that the Required Holders give notice may be satisfied by such holder giving such notice so long as the other requirements of paragraph ^7(b) hereof with respect to such notices have been satisfied). (II) ANNULMENT OF ACCELERATION OF NOTES. If a declaration is made pursuant to clause (i) of this paragraph ^7 by any holder or holders of Notes, then and in every such case, the Required Holders may, by written instrument filed with the Company and such holder or holders, rescind and annul such declaration, and the consequences thereof, provided that at the time such declaration is annulled and rescinded: (a) no judgment or decree shall have been entered for the payment of any moneys due on or pursuant to the Notes or this Agreement; (b) all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except any principal of, or interest or Yield-Maintenance Premium on, the Notes that shall have become due and payable by reason of such declaration under clause (i) of this paragraph ^7) shall have been duly paid; and (c) each and every other Default and Event of Default shall have been waived pursuant to paragraph ^11 hereof or otherwise made good or cured. No such rescission and annulment shall extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 7C. OTHER REMEDIES. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise. 8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents, covenants and warrants: 8A. SUBSIDIARIES. Annex 2 to this Agreement states, (i) the name of each of the Subsidiaries, its jurisdiction of incorporation and the percentage of its Voting Stock owned by the Company and each other Subsidiary, and (ii) the name of each of the Company's joint ventures and the nature thereof. Each of the Company and the Subsidiaries has good and marketable title to all of the shares it purports to own of the stock of each Subsidiary, free and clear in each case of any Lien. All such shares have been duly issued and are fully paid and nonassessable. A-29 8B. CORPORATE ORGANIZATION AND AUTHORITY. The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, (ii) has all requisite legal and corporate power and authority to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted, (iii) has all necessary licenses, certificates and permits to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted, except where the failure to have any such licenses, certificates and permits, together with all other such failures, would not be likely to have a material and adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes, and (iv) has duly qualified or has been duly licensed, and is authorized to do business and is in good standing as a foreign corporation, except where the failure to be so qualified, licensed and authorized in any jurisdiction, together with all such other failures, would not be likely to have a material and adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. The revenues and net income of the Company for the year ended July 31, 1989, and the total assets of the Company as of July 31, 1989, exceed eighty- five percent (85%) of the consolidated revenues, consolidated net income, and consolidated assets of the Company and the Subsidiaries for such period and at such time. 8C. FINANCIAL STATEMENTS. The Company has furnished you with the following financial statements, identified by a principal financial officer of the Company: (i) a consolidated balance sheet of the Company and the Subsidiaries as at July 31 in each of the years 1987 to 1993 inclusive, and consolidated statements of earnings and changes in financial condition or cash flows, as the case may be, of the Company and the Subsidiaries for the year ended July 31 in each of the years 1987 to 1993, inclusive, all certified by Deloitte & Touche; and (ii) a consolidated balance sheet of the Company and the Subsidiaries as at January 30, 1994 and January 31, 1993, and consolidated statements of earnings and cash flows for the three (3) month periods ended on January 30, 1994 and on January 31, 1993 prepared by the Company. Such financial statements (including all related schedules and notes, subject, as to interim statements, to changes resulting from audits and year-end adjustments) have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods involved (except as otherwise noted therein) and fairly present all liabilities, direct and contingent, of the Company and the Subsidiaries required to be shown in accordance with such A-30 principles. The balance sheets fairly present the condition of the Company and the Subsidiaries as at the dates thereof, and the statements of earnings and changes in financial condition or cash flows, as the case may be, fairly present the results of the operations of the Company and the Subsidiaries for the periods indicated. There has been no material adverse change in the business or financial condition of the Company and the Subsidiaries, taken as a whole, since July 31, 1993, except for charges in the third Fiscal Quarter of Fiscal Year 1994 to shareholders' equity in connection with the increases in the underfunded status of the Company's pension plans, and to income in connection with the expensing of unamortized pension benefit past service costs, each as described in the Company's Quarterly Report on Form 10-Q for Fiscal Quarter ended January 30, 1994. 8D. ACTIONS PENDING. There is no action, suit, investigation or proceeding or group of similar actions, suits, investigations or proceedings (including, as such a group, without limitation, all actions, suits, investigations or proceedings arising out of federal or state environmental protection laws), pending, or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries, or any Properties or rights of the Company or any of the Subsidiaries, by or before any court, arbitrator or administrative or governmental body that would be more likely than not to have a material and adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. 8E. OUTSTANDING DEBT. Neither the Company nor any of the Subsidiaries has outstanding any Debt except as permitted by paragraph ^6 hereof. There exists no default under the provisions of any instrument evidencing such Debt or of any agreement relating thereto. 8F. TITLE TO PROPERTIES. Each of the Company and the Subsidiaries has good and indefeasible title to its respective real Properties (other than Properties that it leases) and good title to all of its other respective Properties, including the Properties reflected in the balance sheet as at January 30, 1994 referred to in paragraph ^8 hereof (other than Properties disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted by paragraph ^6 hereof. All leases necessary in any material respect for the conduct of the respective businesses of the Company and the Subsidiaries are valid and subsisting and are in full force and effect. 8G. PATENTS, TRADEMARKS, LICENSES, ETC. Each of the Company and the Subsidiaries owns or possesses all of the patents, trademarks, service marks, trade names, copyrights, licenses, and rights with respect thereto, necessary for the present conduct of its business, without any known conflict with the rights of others. 8H. TAXES. Each of the Company and the Subsidiaries has filed all Federal, State and other income tax returns that, to the best knowledge of the officers of the Company, are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with generally accepted accounting principles. A-31 8I. CONFLICTING AGREEMENTS AND OTHER MATTERS. (I) RESTRICTIONS. Neither the Company nor any of the Subsidiaries is subject to any charter or by-law restriction that would, in the aggregate with all other such charter or by-law restrictions, be more likely than not to have a material and adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. (II) CONFLICTS. Neither the execution nor delivery of this Agreement or the Notes, nor the offering, issuance and sale of the Notes, nor the fulfillment of nor the compliance with the terms and provisions hereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the Properties of the Company or any of the Subsidiaries pursuant to, the charter or by-laws of the Company or any of the Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of the Subsidiaries is subject. (III) RESTRICTIONS ON DEBT. Neither the Company nor any of the Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) that limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type to be evidenced by the Notes except as set forth in the agreements listed in Annex 3 attached hereto. (IV) SALE IS LEGAL AND AUTHORIZED. Each of the sale of the Notes by the Company and compliance by the Company and each Subsidiary with all of the provisions of this Agreement and of the Notes: (a) is within the corporate powers of the Company and each Subsidiary; and (b) is legal and does not conflict with, result in any breach of any of the provisions of, constitute a default under, or result in the creation of any Lien upon any Property of the Company or any Subsidiary under the provisions of, any agreement, charter instrument, bylaw or other instrument to which it is a party or by which it or any of its Property may be bound. (V) NOTES ARE ENFORCEABLE. The obligations of the Company under this Agreement and the Notes are valid, binding and enforceable in accordance with the terms of this Agreement and the Notes, except the enforceability hereof or thereof, as the case may be, may be: (a) limited by bankruptcy, insolvency or other similar laws affecting the enforceability of creditors' rights generally; and (ii) subject to the availability of equitable remedies. 8J. OFFERING OF NOTES. Neither the Company nor any agent acting on its behalf has, directly or indirectly, offered the Notes or any similar security of the Company for sale to, or A-32 solicited any offers to buy the Notes or any similar security of the Company from, or otherwise approached or negotiated with respect thereto with, any Person other than institutional investors, and neither the Company nor any agent acting on its behalf has taken or will take any action that would subject the issuance or sale of the Notes to the provisions of section 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction. 8K. REGULATION G, ETC. Neither the Company nor any Subsidiary owns or has any present intention of acquiring any "margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System ("margin stock"). The proceeds of sale of the Notes will be used for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any margin stock or for the purpose of maintaining, reducing or retiring any indebtedness that was originally incurred to purchase or carry any stock that is currently a margin stock or for any other purpose that might constitute this transaction a "purpose credit" within the meaning of such Regulation G. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this agreement or the Notes to violate Regulation G, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, as amended, in each case as in effect now or as the same may hereafter be in effect. 8L. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any Subsidiary, nor any of their respective businesses or Properties, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the Closing Date with either or both of the Securities and Exchange Commission and state Blue Sky authorities) in connection with the execution and delivery of this Agreement, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof or of the Notes. 8M. DISCLOSURE. Neither this Agreement nor any other document, certificate or statement furnished to you by or on behalf of the Company in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Company or any of the Subsidiaries that in the future (so far as the Company can now foresee) would, in the aggregate with all other such facts, be more likely than not to have a material and adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes and that has not been set forth in this Agreement or in the other documents, certificates and statements furnished to you by or on behalf of the Company prior to the date hereof in connection with the transactions contemplated hereby. 8N. COMPLIANCE WITH LAW. Neither the Company nor any Subsidiary: (i) is in violation of any law, ordinance, governmental rule or regulation to which it is subject; or A-33 (ii) has failed to obtain any license, certificate, permit, franchise or other governmental authorization necessary to the ownership of its Property or to the conduct of its business; which violation or failure to obtain is more likely than not to have, in the aggregate with all other such violations or failures, a material and adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. 8O. CERTAIN LAWS. (I) INVESTMENT COMPANY ACTS. The Company is not, and is not directly or indirectly controlled by, or acting on behalf of any Person which is, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (II) ABSENCE OF FOREIGN OR ENEMY STATUS. The Company is not (a) an "enemy" or an "ally of the enemy" within the meaning of Section 2 of the Trading with the Enemy Act, as amended, or any executive orders or regulations issued or promulgated pursuant thereto, (b) a "national" of any "designated enemy country" as such terms are defined in Executive Order No. 9095, as amended, of the President of the United States of America, or (c) a "national" of any "designated foreign country" within the meaning of the Foreign Assets Control Regulations of the United States of America (Code of Federal Regulations, Title 31, Chapter V, Part 500 to 543). (III) HOLDING COMPANY STATUS. The Company is not a "holding company" or an "affiliate" of a "holding company," or a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utilities Holding Company Act of 1935, as amended. 9. REPRESENTATIONS OF THE PURCHASER. You represent, and in making this sale to you it is specifically understood and agreed, that you are not acquiring the Notes to be purchased by you hereunder with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the lawful disposition of your Property shall at all times be and remain within your control. You also represent that no part of the funds being used by you to pay the purchase price of the Notes being purchased by you hereunder constitutes assets allocated to any separate account maintained by you in which any employee benefit plan, other than employee benefit plans identified on a list which has been furnished by you to the Company, participates to the extent of five percent (5%) or more. For the purpose of this paragraph ^9, the terms "separate account" and "employee benefit plan" shall have the respective meanings specified in Section 3 of ERISA. 10. DEFINITIONS. For the purpose of this Agreement the following terms shall have the meanings specified with respect thereto below: A-34 10A. YIELD-MAINTENANCE TERMS. "CALLED PRINCIPAL" means, with respect to any Note, the principal of such Note that is to be prepaid or purchased pursuant to paragraph ^4, paragraph ^4 or paragraph 5H hereof (any partial prepayment being applied in satisfaction of required payments of principal in inverse order of their scheduled due dates) or is declared to be immediately due and payable pursuant to paragraph ^7 hereof, as the context requires. "DISCOUNTED VALUE" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on a semiannual basis) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" means, with respect to the Called Principal of any Note, the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the Business Day next preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Service (or such other display as may replace Page 678 on the Telerate Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release # H15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between reported yields. Reinvestment Yield calculated as aforesaid shall be increased by twenty-five one-hundredths percent (0.25%) per annum in the case of any Settlement Date occurring after January 29, 1996. "REMAINING AVERAGE LIFE" means, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying A-35 (a) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (b) the number of years (calculated to the nearest one- twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date. "SETTLEMENT DATE" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid or purchased pursuant to paragraph ^4, paragraph ^4 or paragraph 5H hereof or is declared to be immediately due and payable pursuant to paragraph ^7 hereof, as the context requires. "YIELD-MAINTENANCE PREMIUM" means, with respect to any Note, a premium equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over the sum of (i) such Called Principal, plus (ii) interest accrued thereon as of (including interest due on) the Settlement Date with respect to such Called Principal. The Yield-Maintenance Premium shall in no event be less than zero. 10B. OTHER TERMS. "1994 SENIOR DEBT" shall mean the Company's Senior Notes Due 2003, in the aggregate principal amount of One Hundred Million Dollars ($100,000,000) on substantially the terms and conditions set forth under the heading "DESCRIPTION OF SENIOR NOTES" in Amendment No. 1 to the Registration Statement on Form S-3 of the Company, as filed with the Securities and Exchange Commission on April 19, 1994, relating thereto. "1994 SUBORDINATED DEBT" shall mean the Company's Convertible Subordinated Notes Due 2004, in the aggregate principal amount of up to Fifty-Seven Million Five Hundred Thousand Dollars ($57,500,000) and which are subordinated to payment of principal, interest and Yield-Maintenance Premium in respect of the Notes, and all other obligations under this Agreement, on substantially the terms and conditions set forth under the heading "DESCRIPTION OF SUBORDINATED NOTES" in Amendment No. 2 to the Registration Statement on Form S-3 of the Company, as filed with the Securities and Exchange Commission on April 19, 1994 relating thereto. A-36 "ACCEPTABLE AVAILABILITY" shall mean, at any time on or after the date shown in the first column of the chart below, and on or prior to the date shown in the second column of the chart below, the availability under the Credit Agreement at such time reflected in the third column of the chart below:
ON AND AFTER: TO AND INCLUDING: ACCEPTABLE AVAILABILITY: ====================================================================== Third Amendment Date October 24, 1995 $110,000,000 October 25, 1995 April 24, 1996 $100,000,000 April 25, 1996 October 24, 1996 $ 90,000,000 October 25, 1996 April 24, 1997 $ 80,000,000 April 25, 1997 and thereafter $ 0 ======================================================================
"ACCEPTABLE REPLACEMENT CREDIT FACILITY" shall mean, with respect to any replacement, refunding or refinancing of the Credit Agreement, a revolving credit facility: (i) making available to the Company at least the Acceptable Availability: (ii) which, if such facility provides for extension of credit in forms (including, without limitation, letters of credit or banker's acceptances) other than cash, provides that, at the option of the Company, at least the Acceptable Availability shall be available to the Company in cash; provided, however, that, should the Company actually draw credit in forms other than cash (including, without limitation, the issuance of one or more letters of credit), the amount of cash available under such facility may be reduced by the aggregate amount of such credits for so long as such credits are outstanding, so that the aggregate amount available need not exceed the Acceptable Availability at such time; (iii) which shall not require the maintenance of any compensating balance or other similar arrangement in any amount greater than the difference between the aggregate amount of cash available under such facility minus the Acceptable Availability; (iv) which shall not contain, at the time of the effectiveness of such facility: (a) any financial covenants, events of default or other conditions with which the Company would not be able to comply at such time, based on the most recent business plan presented to the Board of Directors (including updates thereto through the date of effectiveness of such facility) of the Company at such time or, prior to January 25, 1997, that were more onerous than those contained in the Credit Agreement at the time of the effectiveness of such facility; and A-37 (b) any borrowing base provision or similar lending constraints; or (c) any conditions precedent to making advances thereunder that would, based on the most recent business plan presented to the Board of Directors (and updates thereto) of the Company at such time, be reasonably likely to prevent the Company from fully utilizing the Acceptable Availability to it under such credit facility at any time during the term of such credit facility or, prior to January 25, 1997, that were more onerous than those contained in the Credit Agreement at the time of the effectiveness of such facility ; (v) which shall not have a maturity date earlier than that of the Credit Agreement immediately prior to giving effect to such replacement, refunding or refinancing; and (vi) which shall be unsecured and shall not rank senior in right of payment in any respect to the Notes. "ADJUSTED CONSOLIDATED DEBT" shall mean and include all Debt of the Company and the Consolidated Subsidiaries. "ADJUSTED CONSOLIDATED NET INCOME" shall mean for any period (i) the gross revenues of the Company and the Consolidated Subsidiaries for such period, determined on a consolidated basis; less (ii) all operating and non-operating expenses of the Company and the Consolidated Subsidiaries for such period, including all charges of a proper character (including, without limitation, current and deferred taxes on income, provision for taxes on unremitted foreign earnings which are included in gross revenues, and current additions to reserves), determined on a consolidated basis; but not including in such gross revenues (i) any gains (net of expenses and taxes applicable thereto) in excess of losses arising from the sale, conversion or other disposition of capital assets, other than gains arising out of any transaction or series of related transactions in which such gains do not exceed One Hundred Thousand Dollars ($100,000); (ii) any gain arising from any write-up of assets subsequent to July 31, 1992; (iii) earnings of any Consolidated Subsidiary accrued prior to the date it became a Consolidated Subsidiary; A-38 (iv) earnings of any Person, substantially all the assets of which have been acquired in any manner, realized by such Person prior to the date of such acquisition; (v) net earnings or net losses of any Person in which the Company or any Consolidated Subsidiary shall have an ownership interest unless, in the case of net earnings, such net earnings shall have actually been received by the Company or such Consolidated Subsidiary in the form of cash distributions; (vi) any portion of the net earnings of any Consolidated Subsidiary which for any reason is unavailable for payment of dividends to the Company or any other Consolidated Subsidiary; (vii) the earnings of any Person to which assets of the Company shall have been sold, transferred or disposed of, or into which the Company shall have merged, prior to the date of such transaction; (viii) any gain arising from the acquisition of any Securities of the Company or any Consolidated Subsidiary; (ix) any portion of the net earnings of the Company that cannot be freely converted into United States dollars; and (x) any deferred credit representing the excess of equity in any Consolidated Subsidiary at the date of acquisition over the cost of investment in such Consolidated Subsidiary. "ADJUSTED CONSOLIDATED TANGIBLE NET WORTH" shall mean at any time the excess of total assets of the Company and the Consolidated Subsidiaries at such time, determined on a consolidated basis, over total liabilities of the Company and the Consolidated Subsidiaries at such time, determined on a consolidated basis, in each case determined in accordance with generally accepted accounting principles, excluding, however, from the determination of total assets (i) all assets that would be classified as intangible assets under such generally accepted accounting principles, including, without limitation, goodwill (whether representing the excess of cost over book value of assets acquired or otherwise), patents, trademarks, trade names, copyrights, franchises, unamortized debt discount and expense, organization costs, research and development costs and other deferred charges (other than prepaid insurance and taxes and pre- production and production costs including, but not limited to, engineering and tooling costs, that are amortized over anticipated deliveries), (ii) treasury stock and minority interests in any Person, (iii) cash, Securities or other Property set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of capital stock, A-39 (iv) to the extent not already deducted from total assets, reserves for depreciation, depletion, obsolescence or amortization of Properties and all other reserves or appropriations of retained earnings that, in accordance with such generally accepted accounting principles, should be established in connection with the business conducted by the relevant corporation, and (v) any revaluation or other write-up in book value of assets subsequent to July 31, 1992. 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 Company 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 No. 87 and any prepaid pension asset which arises from amounts funded by the Company in accordance with Internal Revenue Service regulations (but not in excess of the minimum amounts required to be contributed thereunder) 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). "AFFILIATE" shall mean any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company, except a Subsidiary. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "AGREED PUT CONSIDERATION" shall mean as of the date of prepayment by the Company upon the exercise by any holder of Notes of its Right to Put or option to be repaid pursuant to paragraph 5H, the sum of (i) the principal amount of the Notes held by such holder subject to the prepayment on such date, plus (ii) all accrued and unpaid interest to such date on such Notes, plus (iii) the Yield-Maintenance Premium as of such date with respect to such Notes. "AGREEMENT" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. "BANK LENDERS" shall mean the Lenders as defined in the Credit Agreement. A-40 "BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of paragraph 7A. "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed. "CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which, under generally accepted accounting principles, would be required to be capitalized on the books of the Company or any Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with such principles. "CLOSING" shall have the meaning assigned to such term in paragraph 2 of this Agreement. "CLOSING DATE" shall have the meaning assigned to such term in paragraph 2 of this Agreement. "COMBINED SUBSIDIARY DEBT" shall mean at any time all unsecured Debt of the Subsidiaries at such time (after eliminating intercompany transactions among the Subsidiaries). "COMPANY" shall have the meaning specified in the introductory paragraph of this Agreement. "CONFIDENTIAL INFORMATION" shall mean any information furnished to any holder of Notes by the Company or any agent of the Company in connection with this Agreement (including, without limitation, any information furnished to you pursuant to paragraph 5D hereof) or obtained by any holder of Notes in connection with an inspection made pursuant to paragraph 5G hereof, that is about the Company (or in respect of which the Company has a confidentiality obligation) and that is marked by the Company as being confidential, other than any such information, (i) that was publicly known, or otherwise known to you, at the time the information was furnished to you, (ii) that subsequently becomes publicly known through no act or omission by you, or (iii) that otherwise becomes known to you, other than through disclosure by the Company or any Subsidiary. "CONSOLIDATED FIXED CHARGES" shall mean, for any period, the sum, without duplication, of (i) interest expense related to Debt of the Company and the Consolidated Subsidiaries, A-41 (ii) amortization expense related to Debt of the Company and the Consolidated Subsidiaries issued at a discount, (iii) dividends in respect of preferred stock of Consolidated Subsidiaries, (iv) dividends in respect of Permitted Preferred Stock to the extent paid to Persons other than the Company or any wholly-owned Consolidated Subsidiary, plus (v) rentals payable in respect of Capitalized Lease Obligations of the Company and the Consolidated Subsidiaries, in each case calculated for such period on a consolidated basis in accordance with generally accepted accounting principles. "CONSOLIDATED NET INCOME" shall mean for any period (i) the gross revenues of the Company and the Subsidiaries for such period, determined on a consolidated basis; less (ii) all operating and non-operating expenses of the Company and the Subsidiaries for such period, including all charges of a proper character (including, without limitation, current and deferred taxes on income, provision for taxes on unremitted foreign earnings which are included in gross revenues, and current additions to reserves), determined on a consolidated basis; but not including in such gross revenues (i) any gains (net of expenses and taxes applicable thereto) in excess of losses arising from the sale, conversion or other disposition of capital assets, other than gains arising out of any transaction or series of related transactions in which such gains do not exceed One Hundred Thousand Dollars ($100,000); (ii) any gain arising from any write-up of assets subsequent to July 31, 1992; (iii) earnings of any Subsidiary accrued prior to the date it became a Subsidiary; (iv) earnings of any Person, substantially all the assets of which have been acquired in any manner, realized by such Person prior to the date of such acquisition; (v) net earnings or net losses of any Person in which the Company or any Subsidiary shall have an ownership interest unless, in the case of net earnings, such net earnings shall have actually been received by the Company or such Subsidiary in the form of cash distributions; A-42 (vi) any portion of the net earnings of any Subsidiary which for any reason is unavailable for payment of dividends to the Company or any other Subsidiary; (vii) the earnings of any Person to which assets of the Company shall have been sold, transferred or disposed of, or into which the Company shall have merged, prior to the date of such transaction; (viii) any gain arising from the acquisition of any Securities of the Company or any Subsidiary; (ix) any portion of the net earnings of the Company that cannot be freely converted into United States dollars; and (x) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of investment in such Subsidiary. "CONSOLIDATED NET INCOME AVAILABLE FOR FIXED CHARGES" shall mean, for any period, the sum of (i) Adjusted Consolidated Net Income for such period, plus (ii) the aggregate amount of (a) Consolidated Fixed Charges, (b) provisions for taxes on earnings, (c) depreciation expense, (d) the Special Charge; (e) in the case of any such period that includes the fiscal month ending May 2, 1993, the cumulative effect through May 2, 1993 of the accounting changes adopted by the Company, effective as of August 1, 1992, as described in the Company's Form 10-Q filed with the Securities and Exchange Commission for the third quarter of its 1993 Fiscal Year; (f) in the case of any such period that includes the fiscal month ending May 2, 1993, the provisions and charges, not in excess of $38,000,000 in the aggregate, established by the Company in the third quarter of its 1993 Fiscal Year; and (g) the Tax Adjustment Amount; A-43 in each case to the extent, and only to the extent, reflected in the computation of Adjusted Consolidated Net Income for such period. As used in this definition, `Special Charge' shall mean that certain special provision of Fifty Million Dollars ($50,000,000) taken by the Company during the third quarter of its 1992 Fiscal Year;" and `Tax Adjustment Amount' shall mean, for any period, the lesser of (i) accrued interest expense on taxes on earnings for such period minus any interest income on tax refunds for such period and (ii) Three Hundred Thirty-Three Thousand Dollars ($333,333) multiplied by the number of fiscal months in such period; provided, however, that, notwithstanding the foregoing, to the extent that such period includes one or more fiscal months of the Company during the third quarter of the Company's 1992 Fiscal Year, "Tax Adjustment Amount" shall be deemed to mean an amount equal to Six Million One Hundred Thousand Dollars ($6,100,000) for each such fiscal month. "CONSOLIDATED SENIOR DEBT" shall mean at any time Senior Debt at such time, determined on a consolidated basis, minus Non-Recourse Debt of the Company and the Subsidiaries at such time, determined on a consolidated basis. "CONSOLIDATED SUBSIDIARY" shall mean any corporation more than fifty percent (50%) of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned, directly or indirectly, by the Company. "CONSOLIDATED TANGIBLE ASSETS" shall mean, at any time, the sum of: (i) Adjusted Consolidated Tangible Net Worth at such time; plus (ii) the total amount of all liabilities of the Company and the Consolidated Subsidiaries on a consolidated basis at such time. "CONSOLIDATED TANGIBLE NET WORTH" shall mean at any time the excess of total assets of the Company and the Subsidiaries at such time, determined on a consolidated basis, over total liabilities of the Company and the Subsidiaries at such time, determined on a consolidated basis, in each case determined in accordance with generally accepted accounting principles, excluding, however, from the determination of total assets: (i) all assets that would be classified as intangible assets under such generally accepted accounting principles, including, without limitation, goodwill (whether representing the excess of cost over book value of assets acquired or otherwise), patents, trademarks, trade names, copyrights, franchises, unamortized debt discount and expense, organization costs, research and development costs A-44 and other deferred charges (other than prepaid insurance and taxes and pre-production and production costs including, but not limited to, engineering and tooling costs, that are amortized over anticipated deliveries); (ii) treasury stock and minority interests in Subsidiaries; (iii) cash, Securities or other Property set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of capital stock; (iv) to the extent not already deducted from total assets, reserves for depreciation, depletion, obsolescence or amortization of Properties and all other reserves or appropriations of retained earnings that, in accordance with such generally accepted accounting principles, should be established in connection with the business conducted by the relevant corporation; and (v) any revaluation or other write-up in book value of assets subsequent to July 31, 1992. 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 Company 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 No. 87 and any prepaid pension asset which arises from amounts funded by the Company in accordance with Internal Revenue Service regulations (but not in excess of the minimum amounts required to be contributed thereunder) 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). "CONSOLIDATED TOTAL DEBT" shall mean, at any time, Debt of the Company and the Subsidiaries at such time minus Non-Recourse Debt of the Company and the Subsidiaries at such time, determined on a consolidated basis. "CONTROL PERSON" shall mean a Person who possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "CREDIT AGREEMENT" shall mean the Credit Agreement, dated as of April 26, 1989, among the Company and the lenders party thereto and the agent thereunder, as such Credit Agreement may be amended or supplemented from time to time. A-45 "DEBT" shall mean, without duplication, (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments (as such term is defined in Article 9 of the Uniform Commercial Code as from time to time in effect in the State of New York), (iii) obligations to pay the deferred purchase price of Property or services (excluding advances, deposits or partial or progress payments, unpaid wages and related employee obligations and excluding trade payables), (iv) obligations as lessee under Capitalized Lease Obligations, (v) obligations under Guaranties of indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, (vi) obligations under Title IV of ERISA for each Plan and Multiemployer Plan, in respect of unfunded accrued liabilities for such plans, if any, as of the first day of the plan year as shown in the annual actuarial report most recently delivered to the obligor in respect of such obligations by the actuary for each such Plan and Multiemployer Plan, and (vii) in the case of any Consolidated Subsidiary, all preferred stock of such Consolidated Subsidiary held by Persons other than the Company or a wholly-owned Consolidated Subsidiary, such preferred stock to be valued at the aggregate liquidation preference thereof. "DEBT RATIO" shall mean, at any time, the ratio of Adjusted Consolidated Debt to Adjusted Consolidated Tangible Net Worth. "DEFAULT" shall mean any event or condition that, with notice or the passage of time, or both, would become an Event of Default. "DE MINIMUS PAYMENTS" shall mean, with respect to any Debt of the Company or any Subsidiary (other than Debt governed or evidenced by the Notes, the 9.33% Senior Notes due December 15, 2002, the Credit Agreement, any Acceptable Replacement Credit Facility, the 1994 Senior Notes, the 1994 Subordinated Notes or the Existing Subordinated Notes of either Series), payments, prepayments, defeasances and redemptions (in each case, other than Originally Scheduled Payments) in respect of any such Debt aggregating not more than Five Hundred Thousand Dollars ($500,000) in any Fiscal Year. "DESIGNATED EVENT" shall mean the occurrence of any one or more of the following after the Closing Date: (i) the direct or indirect acquisition by any person (as such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act), or related A-46 persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act), of (i) beneficial ownership of issued and outstanding shares of Voting Stock of the Company the result of which acquisition is that such person or such group possesses in excess of fifty percent (50%) of the combined voting power of all then issued and outstanding Voting Stock of the Company or (ii) within any period of three-hundred sixty-five (365) consecutive days, all or substantially all of the assets of the Company; or (ii) following the election or removal of directors, a majority of the Company's board of directors consists of individuals who were not members of the Company's board of directors two years before such election or removal, unless the election of each director who was not a director at the beginning of such two-year period has been approved in advance by directors representing at least a majority of the directors then in office who were directors at the beginning of the two-year period; or (iii) the consolidation with, or merger into, any Person by the Company in a transaction in which more than thirty percent (30%) by number of votes of the Voting Stock of the Company is exchanged (the calculation of which shall be made by dividing the number of votes attributable to the Voting Stock so exchanged by the aggregate number of votes attributable to the Voting Stock immediately prior to such transaction); or (iv) (a) any transaction or series of transactions (whether related or unrelated) in which the Company repurchases or otherwise retires in the aggregate, within any period of three hundred sixty-five (365) consecutive days, thirty percent (30%) or more (by number) of the Company's outstanding common stock (the calculation of which shall be made by dividing the number of shares outstanding immediately after giving effect to each such repurchase or retirement, other than any such shares owned by a Subsidiary, by the highest number of shares outstanding at any time during the period of three hundred sixty-five (365) consecutive days ending on (and including) the date of such repurchase or retirement (adjusting in each case for stock splits, stock dividends and other similar transactions, excluding in each case shares held in treasury, and assuming in each case that all securities then convertible into, or representing then effective rights to purchase, common stock have been exercised at such time), or (b) any Distribution made by the Company the Fair Market Value of which, together with the aggregate Fair Market Value of all other Distributions made by the Company during the period of three hundred sixty-five (365) days ending on (and including) the date of such Distribution (each Distribution being valued on the date it is made), equals or exceeds thirty percent (30%) of the Fair Market Value the Company's outstanding common stock (determined at the commencement of such period); in each case if as a result of such event or events Consolidated Total Debt shall, at any time during the period beginning on the date of such transaction (or the date of the A-47 completion of such series of transactions, as the case may be) and ending three hundred sixty-five (365) days thereafter, equal or exceed seventy- five percent (75%) of the sum of Consolidated Total Debt plus Consolidated Tangible Net Worth at such time. "DISTRIBUTION" shall mean: (i) dividends or other distributions on or in respect of the capital stock of the Company or any Subsidiary (except distributions solely in such stock or in Rights, as such term is defined in the Rights Agreement and except to the extent made to the Company or any Wholly-Owned Subsidiary); (ii) the repurchase, purchase, redemption or acquisition of capital stock of the Company or any Subsidiary, or of warrants, rights or other options to purchase such stock (except when solely in exchange for such stock and except to the extent made from the Company or a Wholly-Owned Subsidiary) unless made, contemporaneously, from the net proceeds of a sale of such stock; and (iii) all payments in respect of Subordinated Debt (other than mandatory scheduled payments and prepayments), including optional or voluntary prepayments and including all payments made to acquire Subordinated Debt (except to the extent such payment is made to the Company or a Wholly-Owned Subsidiary). "EQUITY ISSUANCE ACQUISITIONS" shall mean the acquisition by the Company of Debt (including, without limitation, Notes, the 1994 Subordinated Notes, the Company's 9.35% Senior Notes due January 29, 2000 or the Company's 7% Convertible Subordinated Debentures due 2012), or any portion thereof, for consideration consisting solely of common stock of the Company and in connection with tenders of such Debt by the holders thereof in payment of the exercise or purchase price of any rights, warrants or options to acquire such common stock, or upon conversion of such Debt into such common stock. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" shall mean any corporation or trade or business that (i) is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the IRC) as the Company, or (ii) is under common control (within the meaning of Section 414(c) of the IRC) with the Company. "ESOP" shall mean the Salaried Employees Stock Ownership Plan, effective August 1, 1983, as amended from time to time. "EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A hereof. A-48 "EXCEPTED PROPERTY" shall have the meaning set forth in paragraph 6P of this Agreement. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "EXISTING SUBORDINATED NOTES" shall mean and include: (i) the Company's 9.25% Subordinated Debentures due 2017; and (ii) the Company's 7% Convertible Subordinated Debentures due 2012; and the Existing Subordinated Notes of each such series (but not the Existing Subordinated Notes of the other series) shall be referred to collectively as a "SERIES" of Existing Subordinated Notes. "FAIR MARKET VALUE" shall mean at any time with respect to any Property, the sale value of such Property that would be realized in an arm's-length sale at such time between an informed and willing buyer, and an informed and willing seller, under no compulsion to buy or sell, respectively. "FINANCIAL COVENANT" shall mean any covenant, agreement or provision (including, without limitation, the definitions applicable thereto) of or applicable to the Company or any Consolidated Subsidiary contained in any agreement governing, or instrument evidencing, any Debt (or commitment to lend), other than Debt or a commitment to lend among the Company and one or more Consolidated Subsidiaries, of the Company or any Consolidated Subsidiary in an aggregate principal amount greater than $5,000,000, which covenant, agreement or provision: (i) requires the Company or any Consolidated Subsidiary to maintain specified financial amounts or ratios or to meet other financial tests; (ii) restricts the ability of the Company or any Consolidated Subsidiary to: (a) make Distributions, investments, capital expenditures or operating expenditures of any kind; (b) incur, create or maintain any Debt (or other obligations) or Liens; (c) merge, consolidate or acquire or be acquired by any Person; (d) sell, lease, transfer or dispose of any Property (other than restrictions imposed solely upon collateral, and not upon Property of the Company or any Consolidated Subsidiary generally, by holders of Liens thereon which are permitted by this Agreement; or A-49 (e) issue or sell any capital stock of any kind; (iii) is similar to any provision in paragraph 6 of this Agreement; or (iv) provides that a default or event of default shall occur, or that the Company or any Consolidated Subsidiary shall be required to prepay, redeem or otherwise acquire for value any Debt or security as a result of its failure to comply with any provision similar to any of those set forth in any of the foregoing clauses (i), (ii) or (iii). "FIRST AMENDMENT" shall mean the Amendment Agreement, entered into as of June 30, 1993, between the Company and the holders of Notes named therein. "FIRST AMENDMENT DATE" shall mean the "Effective Date," as such term is defined in the First Amendment. "FISCAL YEAR" shall mean any fiscal year of the Company ending on July 31 . "FISCAL QUARTER NET WORTH INCREASE AMOUNTS" shall mean for any fiscal quarter of the Company, the greater of (i) Zero Dollars ($0) and (ii) fifty percent (50%) of Adjusted Consolidated Net Income for such fiscal quarter. "FUJI" shall mean The FUJI Bank, Limited. "GROSS OPERATING INCOME" shall mean for any period, sales minus costs and expenses (other than depreciation and amortization), in each case, as reflected as a line item on the consolidated statements of earnings and cash flows of the Company and the Consolidated Subsidiaries for such period. "GUARANTIES" shall mean, with respect to any Person (the "Guarantor"), any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of the Guarantor guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person (the "Primary Obligor") in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Guarantor: (i) to purchase such indebtedness or obligation or any Property constituting security therefor; (ii) to loan, advance or supply funds, make any capital contribution or purchase Property from any Person (a) for the purpose of payment of such indebtedness or obligation, or (b) to maintain working capital or other balance sheet condition or any income statement condition of the Primary Obligor or otherwise to A-50 advance or make available funds for the purchase or payment of such indebtedness or obligation; or (iii) to lease Property or to purchase Securities or other Property or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of the Primary Obligor to make payment of the indebtedness or obligation or, in the case of any such lease, under terms providing that the obligation to make payments thereunder is absolute and unconditional under conditions not customarily found in commercial leases then in general use; (iv) to contract or agree to purchase any Property or services if such contract or agreement requires that payment for such Property or services (a) shall be made regardless of whether delivery of such Property or services is ever made or tendered or (b) shall be subordinated to any indebtedness (of the purchaser or user of such Property or the Person entitled to the benefit of such services) owed or to be owed to any Person; or (v) otherwise to assure the owner of the indebtedness or obligation of the Primary Obligor against loss in respect thereof. "IDB FINANCING" shall mean any industrial development bond or similar financing in which a state or other governmental authority incurs Debt to construct, improve or acquire (or, in the case of the San Marcos Bonds, to refinance the construction, improvement or acquisition of) fixed assets for use primarily by the Company or a Subsidiary under a lease or similar arrangement of at least five years' duration and in connection with which the Company or such Subsidiary is obligated (directly or indirectly), under such lease or other arrangement, to make payments to such state or other governmental authority which are used to service such Debt. "INSTITUTIONAL INVESTOR" shall mean (i) any original purchaser of any of the Notes, (ii) the subsidiaries and affiliates of any such purchaser and nominees controlled by any such purchaser, and (iii) any insurance company, pension fund, mutual fund, investment company, bank, savings bank, savings and loan association, investment banking company, trust company, finance or credit company, any portfolio or any investment fund managed by any of the foregoing, and any other institutional investor, and any nominee of the foregoing controlled by any such Person, provided that in each case such Person has assets of at least Five Hundred Million Dollars ($500,000,000). "INTERCOMPANY DEBT" shall mean Debt owed by the Company or any Subsidiary to the Company or any Subsidiary. A-51 "IRC" shall mean the Internal Revenue Code of 1986, as amended from time to time. "LEASE TRANSACTION" shall mean a transaction (including, without limitation, a transaction with respect to qualified leased Property meeting the requirements of Section 168(f)(8) of the IRC) pursuant to which the Company or any Subsidiary makes an investment (as a lessor as contemplated by said Section 168(f)(8) or on an equity basis with the meaning of Section 4(1) of Revenue Procedure 75-21, 1975-1 C.B. 715, as amended or supplemented), in all or part of the purchase price of Property, which Property, concurrently with the purchase thereof, is leased under a Capitalized Lease Obligation by the Company or such Subsidiary (acting directly or through either or both of a trust or partnership and with or without other investors) to a lessee, provided that such investment is made in part for the purpose of saving or deferring Federal income tax liability and that the Company or such Subsidiary incurs no obligation, and creates no Lien in connection with such transaction except that: (i) the Company or such Subsidiary, directly or indirectly (a) may borrow part of the funds necessary to pay the purchase price of such Property (and any related leases, contract rights, general intangibles or accounts), and (b) may secure such borrowings by Liens provided that such Liens do not extend to or cover any Property other than Property referred to in subclause (a) above and do not secure any obligations other than those incurred in connection with such purchase and lease transaction, and (ii) the Company or such Subsidiary may incur other obligations in connection with such transaction (and the Company may guarantee any such obligation of a Subsidiary) provided that such obligations and guarantee (a) constitute Non-Recourse Debt, (b) are incidental and necessary to effect such transaction, and (c) are of the type frequently incurred by lessors or equity investors in connection with the business of leasing Property. "LETTER OF CREDIT PREPAYMENT EVENT" shall mean either: (i) the redemption, reacquisition or repurchase of any San Marcos Bonds (other than in connection with a Permitted IDB Acquisition); or (ii) any deposit after November 30, 1994, of cash collateral to secure reimbursement obligations of the Company relating to the San Marcos Bonds or any letter of credit relating thereto; A-52 in either case, solely as result of and in response to the failure of the bank which has issued any letter of credit relating to the San Marcos Bonds to extend or renew such outstanding letter of credit; provided, however, that prior to effecting such redemption, reacquisition, repurchase or cash collateralization the Company shall have used its best efforts to retain such letter of credit. The Company covenants, in connection with any Letter of Credit Prepayment Event described in clause (i) above, to actively seek to remarket the redeemed, reacquired or repurchased San Marcos Bonds or, to the extent necessary, to modify the structure of such IDB Financing to the extent necessary to permit a long-term reissuance of the repurchased San Marcos Bonds, and, in connection with any Letter of Credit Prepayment Event described in clause (ii) above, to continue to seek to obtain an unsecured letter of credit not requiring such cash collateralization. "LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing (but excluding negative pledge clauses in agreements related to the borrowing of money), any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction (but excluding informational filings made in respect of leases)) or any other type of preferential arrangement for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of an obligation. "MAXIMUM PENSION CONTRIBUTION" shall mean, for any fiscal year of the Company, a contribution to any or all Plans or Multiemployer Plans not exceeding the greater of: (i) the sum of: (a) the amount set forth in the chart below under the heading "Base Contribution" for such fiscal year; plus (b) the lesser of: (I) the amount set forth in the chart below under the heading "Maximum Additional Contribution" for such fiscal year; and (II) the amount, if positive, by which cash provided by operating activities of the Company and the Subsidiaries (calculated in a manner consistent with the preparation of the projections contained in the Company's February 28, 1994, financial plan, as provided to the Purchasers) for such fiscal year exceeds the amount set forth in the chart below under the heading "Projected Cash Flow" for such fiscal year, so long as, but only so long as, for a period of not less than thirty (30) days prior to and thirty (30) days following each date on which any contribution made by the Company and the Subsidiary would cause the aggregate amount of contributions during such fiscal year to exceed the "Base Contribution" set forth in the chart below for such A-53 fiscal year, the amount of Debt outstanding under the Credit Agreement (or any replacement, renewal or refinancing thereof) is Zero Dollars ($0); and (ii) the minimum contribution permitted during such fiscal year pursuant to ERISA, the IRC and the rules and regulations under ERISA and the IRC. A contribution to a Plan or Multiemployer Plan permitted by clause (b) of this definition may be made within a period of ninety (90) days immediately following the end of such fiscal year.
MAXIMUM PROJECTED CASH ADDITIONAL PROVIDED BY FISCAL YEAR BASE CONTRIBUTION CONTRIBUTION OPERATIONS ==================================================================== 1994 $17,000,000 $ 0 $36,700,000 1995 $36,000,000 $ 3,200,000 $15,600,000 1996 $37,000,000 $ 6,900,000 $46,100,000 1997 $30,000,000 $10,500,000 $64,900,000 1998 $23,000,000 $18,200,000 $53,400,000 ===================================================================
"MOODY'S" means Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA) in respect of which the Company or any ERISA Affiliate is an "employer" (as such term is defined in Section 3 of ERISA). "MULTIPLE EMPLOYER PLAN" shall mean any employee benefit plan within the meaning of Section 3(3) of ERISA other than a Multiemployer Plan, subject to Title IV of ERISA, to which the Company or any ERISA Affiliate and an employer (as such term is defined in Section 3 of ERISA) other than an ERISA Affiliate or the Company contribute. "NET AFTER-TAX CASH BASIS" shall mean at any time in respect of any investment made in connection with a Lease Transaction, the initial amount of such investment made by the Company or any Subsidiary in such Lease Transaction, less (i) the net aggregate amount (on a cash basis) received by or distributed to the Company or such Subsidiary, on or prior to such time, after payment and deduction of all expenses (including but not limited to insurance and trustee's fees and after payment of interest and principal on any loan incurred in such Lease Transaction) to the extent all such expenses are related to and incurred in connection with such Lease Transaction, and, A-54 (ii) the net aggregate amount (on a cash basis), on account of reductions in the Company's quarterly estimated tax payments to the United States and to the State of California, on or prior to such time, as such shall be adjusted at year-end to reflect the actual tax benefits obtained on account of reduced taxes payable by virtue of such Lease Transaction. In computing quarterly estimated tax payments, the Company shall take into consideration, on a consolidated basis, the full taxable year's anticipated benefits of the Lease Transaction, including allowable depreciation and interest, expenses, deductions, investment and other tax credits, and net rental income. "NET RENTALS" shall mean, with respect to any period, all fixed payments that the lessee is required to make during such period by the terms of any lease having an original term of one year or more, but shall not include amounts required to be paid in respect of maintenance, repairs, income taxes, property taxes, insurance, assessments or other similar charges or additional rentals (in excess of fixed minimums) based upon a percentage of gross receipts. "NON-EMPLOYEE DIRECTORS STOCK-OPTION PLANS" shall mean the Company's 1988 Non-Employee Directors Stock-Option Plan and any other comparable future plan. "NON-RECOURSE DEBT" shall mean, as to any Person, in connection with a Lease Transaction, all indebtedness and other obligations of such Person (i) incurred in connection with such Lease Transaction and (ii) of the type described in clause (i) of the definition of Lease Transaction; provided, that the obligations of such Person to repay borrowed money shall be expressly limited as to recourse solely to (A) the property subject to such Lease Transaction (including the proceeds of such property) and (B) the amounts payable by or on behalf of the lessee under or in connection with such Lease Transaction. "NOTEHOLDER ACCEPTANCE" shall have the meaning set forth in paragraph 5H(ii) of this Agreement. "NOTEHOLDER SHARE" shall mean, in respect of any holder of Notes and any Ratable Prepayment Amount, such holder's ratable share of such Ratable Prepayment Amount, such ratable share being determined by reference to the outstanding principal amount of Notes held by such holder as a percentage of the outstanding principal amount of all Notes. "NOTICE OF SALE" shall have the meaning specified in clause (ii) of paragraph 4.E hereof. "OFFER PERIOD" shall have the meaning set forth in paragraph 5I(ii) of this Agreement. "OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the Company by its President, one of its Vice Presidents, its Chief Financial Officer, its Controller, its Secretary or its Treasurer. A-55 "ORIGINALLY SCHEDULED PAYMENTS" shall mean and include: (i) payment of any Debt at scheduled maturity; (ii) with respect to any Debt, originally scheduled prepayments, originally scheduled redemptions, originally scheduled sinking fund payments or originally scheduled reductions in maximum commitments thereof; and (iii) payments in respect of any revolving credit agreement, including, without limitation, the Credit Agreement, which do not result in a permanent reduction of the original commitment thereunder. As used in the preceding sentence, "original" or "originally scheduled" means the maturity, payments, prepayments, or reductions in commitment established as of the Third Amendment Date, or, if later, at the time of execution of the relevant credit facility but does not include any payments, prepayments or reductions in commitment which result from the occurrence of any contingency, even if the provision requiring such payment, prepayment or reduction as a result of such contingency was originally contained in the agreements governing such Debt, and even if the occurrence of such contingency was foreseeable, at the time of the execution of the documentation of such issue of Debt. "OTHER NOTE AGREEMENT" shall have the meaning assigned to such term in paragraph 2 of this Agreement. "OTHER PURCHASERS" shall have the meaning assigned to such term in paragraph 2 of this Agreement. "PERMITTED EXISTING SUBORDINATED DEBT ACQUISITIONS" shall mean, with respect to either Series of Existing Subordinated Notes, the purchase or acquisition by the Company or any Subsidiary of Existing Subordinated Notes of such Series in anticipation of satisfying an Originally Scheduled Payment thereof; provided, however, that all of the following conditions are met: (i) no Existing Subordinated Notes may be acquired more than three hundred sixty-four (364) days prior to the date of any such Originally Scheduled Payment thereof; (ii) the Company or any Subsidiary, more than one hundred eighty (180) days, but not more than three hundred sixty-four (364) days, prior to the date of the next succeeding Originally Scheduled Payment thereof, may acquire no more than fifty percent (50%) of the aggregate principal amount of Existing Subordinated Notes of such Series required to be prepaid or redeemed on the date of the next succeeding Originally Scheduled Payment; (iii) the Company or any Subsidiary, not more than one hundred eighty (180) days prior to the date of the next succeeding Originally Scheduled Payment thereof, may acquire an aggregate principal amount of Existing Subordinated Notes of such Series not exceeding (together with any Existing Subordinated A-56 Notes of such Series acquired more than one hundred eighty (180) days, but not more than three hundred sixty-four (364) days, prior to the date of the next succeeding Originally Scheduled Payment thereof) one hundred percent (100%) of the aggregate principal amount of Existing Subordinated Notes of such Series required to be prepaid or redeemed on the date of the next succeeding Originally Scheduled Payment; (iv) at the time of such acquisition: (a) no Default or Event of Default shall be continuing; (b) the Company shall not reasonably foresee the occurrence of any Default or Event of Default at any time prior to the date of the next succeeding Originally Scheduled Payment thereof; (c) the Debt Ratio would not exceed 2.50:1.00; and (d) the Company could incur $1.00 of additional Debt; (v) the purchase price paid by the Company and the Subsidiaries in respect of such acquisition of Existing Subordinated Notes shall be less than one hundred percent (100%) of the principal amount of Existing Subordinated Notes so acquired; and (vi) the Company, on the date of each Originally Scheduled Payment in respect of the Existing Subordinated Notes, shall actually apply, in accordance with the provisions of such Existing Subordinated Notes, all Existing Subordinated Notes of such Series acquired by the Company and the Subsidiaries to the prepayment or redemption of such Existing Subordinated Notes required to be prepaid or redeemed on such date. "PERMITTED IDB ACQUISITIONS" shall mean: (i) prepayments or repurchases of San Marcos Bonds upon tender by the holders thereof after May 10, 1994 in accordance with the terms of the indenture governing the San Marcos Bonds; provided, however, that San Marcos Bonds in an aggregate principal amount of Sixteen Million Five Hundred Thousand Dollars ($16,500,000) shall have been issued, outstanding and held and owned by Persons other than the Company, any Subsidiary or any Affiliate on May 10, 1994 (whether or not subsequently repurchased by the Company); and provided, further, that the Company shall be actively seeking to either remarket the San Marcos Bonds that were so prepaid or repurchased pursuant to the provisions of the IDB Financing of the Company's San Marcos, Texas facility or, to the extent necessary in connection with any termination of any outstanding letter of credit relating to such facility, to modify the structure of such IDB Financing to the extent necessary to permit a long-term reissuance of the repurchased San Marcos Bonds; and A-57 (ii) the redemption in full on or before June 1, 1994 of all the San Marcos Bonds, but solely as result of and in response to the failure of FUJI to extend or renew its outstanding letter of credit relating to the IDB Financing of the Company's San Marcos, Texas facility; provided, however, that: (a) prior to effecting such redemption, the Company shall have used its best efforts to retain such letter of credit by offering to deposit cash collateral to secure its obligations to FUJI under the Reimbursement Agreement, dated as of May 1, 1990, with the Company relating to such IDB Financing; (b) following the making of such redemption, the Company shall use its best efforts to obtain a replacement unsecured letter of credit to issue replacement unsecured San Marcos Bonds, and shall thereafter use its best efforts to market or sell such San Marcos Bonds. "PERMITTED INVESTMENTS" means any of the following, to the extent owned by the Company free and clear of all Liens (except such Liens as are permitted by the terms of this Agreement): (i) marketable direct obligations issued or unconditionally guaranteed by the United States government or issued by an agency or instrumentality thereof and backed by the full faith and credit of the United States, in each case maturing within one year after the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 180 days after the date of acquisition thereof and, at the time of acquisition, having a rating of A or higher from either S&P or Moody's (or, if at any time neither S&P nor Moody's shall be rating such obligations, then one of the three highest ratings from another nationally recognized rating service reasonably acceptable to the Required Holders) and not listed in the Credit Watch published by S&P; (iii) commercial paper (other than commercial paper issued by the Company or any Affiliate or Consolidated Subsidiary) maturing no more than 180 days after the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or Moody's (or, if at any time neither S&P nor Moody's shall be rating such obligations, then the highest rating from other nationally recognized rating services reasonably acceptable to the Required Holders); (iv) domestic and Eurodollar certificates of deposit or time deposits, bankers' acceptances or bank notes maturing within one year after the date of acquisition thereof issued by any commercial bank organized under the laws of the United States or any state thereof or the District of Columbia having a rating of A or higher from S&P or Moody's; A-58 (v) money market funds having an average portfolio maturity, at the time of acquisition thereof, of not more than 180 days, which money market funds either: (a) have a rating from a nationally recognized rating service reasonably acceptable to the Required Holders which is equivalent to a rating of either AAAm-G or AAAm from S&P or a rating of Prime-1 from Moody's; or (b) are required to invest at least 95% of their assets in instruments described in other clauses of this definition; (vi) repurchase obligations with a term of not more than 30 days for instruments described in clauses (i) and (ii) of this definition; (vii) investments made in connection with the Citibank, N.A., overnight Nassau Sweep Account; and (viii) repurchase obligations having Kidder, Peabody & Co., Inc., or any other investment bank organized under the laws of any state of the United States and approved by the Required Holders as the counterparty, with a term of not more than 45 days for whole loans secured by commercial or residential real estate mortgages. "PERMITTED PREFERRED DIVIDEND" shall mean dividends in respect of any Permitted Preferred Stock in an aggregate amount not to exceed in any period of 365 days (or 366 days in any year in which there is a February 29th) the product of (i) the lesser of: (a) an amount equal to 100 basis points in excess of the yield on the U.S. Treasury security with a constant maturity of 30 years on the date of issuance of the Permitted Preferred Stock; and (b) 10% per annum, times (ii) the aggregate cash consideration paid to the Company in consideration of the issuance of the Permitted Preferred Stock. "PERMITTED PREFERRED STOCK" shall mean any issue of preferred stock of the Company which is not required to be redeemed, repurchased or otherwise acquired or retired, in whole or in part, for value by the Company, upon the occurrence of any contingency or otherwise, prior to July 1, 2003. A-59 "PERSON" shall mean an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "PLAN" shall mean at any time any "employee pension benefit plan" (as such term is defined in Section 3 of ERISA) maintained by the Company or any ERISA Affiliate for employees of the Company or such ERISA Affiliate, excluding any Multiemployer Plan, but including, without limitation, any Multiple Employer Plan. "PREPAYMENT EVENT" shall mean any Letter of Credit Prepayment Event, any mandatory or optional defeasance, prepayment or repurchase, in whole or in part, of any issue of Debt (other than Debt owing solely to the Company or any Wholly-Owned Subsidiary), or reduction in commitment in any credit facility, of the Company or any Subsidiary, or any event which occurs that gives rise to an obligation of the Company or any Subsidiary to make any such defeasance, prepayment, repurchase or reduction, in each case, other than: (i) Originally Scheduled Payments; (ii) Permitted Existing Subordinated Debt Acquisitions; (iii) Permitted IDB Acquisitions; (iv) Equity Issuance Acquisitions; and (v) De Minimus Payments. In connection with any Debt described in clause (vi) of the definition of "Debt," payments in respect of contributions of amounts not exceeding, during any fiscal year of the Company, the Maximum Pension Contribution for such fiscal year to any Plan or Multiemployer Plan shall not give rise to a Prepayment Event, but a Prepayment Event will result from the payment or contribution to any such Plan or Multiemployer Plan of any amount in excess of the Maximum Pension Contribution during any fiscal year. "PREPAYMENT OFFER" shall have the meaning set forth in paragraph 5H(i) of this Agreement. "PREPAYMENT PORTION" shall have the meaning set forth in paragraph 5I(iii) of this Agreement. "PROPERTY" shall mean any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "PURCHASE MONEY MORTGAGES" shall mean a Lien held by any Person (whether or not the seller of such assets) on tangible assets (other than assets acquired to replace, repair, upgrade or alter assets owned by the Company or any Subsidiary on the Closing Date) acquired, improved or constructed by the Company or any Subsidiary after the Closing Date, which Lien secures all or a portion of the related purchase price or A-60 improvement or construction costs of such assets (or Debt incurred to pay such purchase price or costs), or any Lien existing on any tangible assets of any corporation at the time it becomes a Subsidiary, and extensions (as to time), renewals and replacements of any such Lien or the Debt secured thereby, provided that, in each such case such Lien does not extend to any other asset of the Company or any Subsidiary; provided, further, that any Lien on acquired Property, or on Property of a corporation at the time it becomes a Subsidiary, was not created in contemplation of such acquisition or such corporation becoming a Subsidiary, as the case may be. "PURCHASERS" shall mean you and the Other Purchasers. "RATABLE PREPAYMENT AMOUNT" shall mean, in respect of the Notes: (i) in connection with any Letter of Credit Prepayment Event, an amount equal to the product of: (a) the aggregate principal amount of San Marcos Bonds redeemed, reacquired or repurchased, or with respect to which cash collateral has been deposited to secure reimbursement obligations of the Company relating to the San Marcos Bonds or any letter of credit relating thereto, as the case may be, by the Company; times (b) the quotient of: (I) the aggregate amount of Notes then outstanding; divided by (II) the aggregate amount of the Notes and the 9.33% Senior Notes due December 15, 2002 of the Company then outstanding; and (ii) with respect to each other Prepayment Event, a principal amount of the Notes equal to the product of: (a) the highest percentage of any issue of Debt being prepaid, or as to which any offer to prepay shall apply, as a result of the occurrence of such Prepayment Event, multiplied by (b) the outstanding principal amount of the Notes. "REQUIRED HOLDERS" shall mean at any time the holder or holders of at least sixty-six and two-thirds percent (66 2/3%) of the aggregate principal amount of the Notes outstanding at such time, provided that Notes owned by the Company, any Subsidiary or any Affiliate at such time shall be deemed not to be outstanding for purposes of determining such percentage. A-61 "RESPONSIBLE OFFICER" shall mean the chief executive officer, chief operating officer, chief financial officer or chief accounting officer of the Company or any other officer of the Company involved principally in its financial administration or its controllership function. "RESTRICTED STOCK PLANS" shall mean the 1969, 1970, 1972, 1974 and 1984 Restricted Stock Plans of the Company and any other comparable future plan. "RIGHT TO PUT" shall have the meaning specified in clause (i) of paragraph 4.E hereof. "RIGHTS AGREEMENT" shall mean the Rights Agreement dated as of August 15, 1986, between the Company and The First National Bank of Chicago, as in effect on December 21, 1992. "S&P" means Standard & Poor's Corporation. "SAN MARCOS BONDS" shall mean bonds originally issued in connection with the IDB Financing of Company's San Marcos, Texas facility, or replacement bonds issued on substantially the same terms as the originally issued bonds. "SECOND AMENDMENT" shall mean the Second Amendment Agreement entered into as of September 24, 1993, between the Company and the holder of Notes named therein. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SECURITY" shall have the meaning specified in Section 2(1) of the Securities Act. "SENIOR DEBT" shall mean all Debt of Subsidiaries, all Debt of the Company secured by any Lien and all other Debt ranking senior to or pari passu with the Notes with respect to distributions of the Company's Property in any bankruptcy proceeding. "SENIOR OFFICER" shall mean with respect to any corporation each of the Chairman, President, any Vice-President, the Chief Financial Officer, the Secretary, and the Treasurer of such corporation. "STOCK INCENTIVE PLANS" shall mean the 1989 Stock Incentive Plan of the Company and any other future comparable plan. "STOCK OPTION PLANS" shall mean the 1972, 1973, 1974, 1982 and 1984 Stock Option Plans of the Company and any other future comparable plan. "SUBSIDIARY" shall mean any corporation organized under the laws of any state of the United States of America, Canada, or any province of Canada, that has the majority of its Property located in and makes the major portion of its sales to Persons located in the United States of America or Canada, and more than fifty percent (50%) of the total A-62 combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned, directly or indirectly, by the Company. "THIRD AMENDMENT" shall mean the Third Amendment Agreement entered into as of May 10, 1994, between the Company and the holder of Notes named therein. "THIRD AMENDMENT DATE" shall mean the "Effective Date," as such term is defined in the Third Amendment. "TRADE RECEIVABLES AGREEMENT" shall mean (i) the Amended and Restated Trade Receivables Purchase and Sale Agreement dated as of January 26, 1990 and as amended thereafter among the Company, Corporate Asset Funding Company, Inc., Citibank, N.A. and Citicorp North America, Inc., individually and as agent, (ii) the Amended and Restated Trade Receivables Purchase and Sale Agreement dated as of January 26, 1990 and as amended thereafter among the Company, Citibank, N.A. and Citicorp North America, Inc., individually and as agent, and (iii) other agreements for the sale of receivables, or other amounts payable to the Company on account of any pre-production costs, by the Company or any Subsidiary, with recourse to the Company or such Subsidiary no greater than as set forth in the agreement referred to in clause (i) of this definition, provided that in no event shall (a) the Company or any Subsidiary sell Property (or subject Property to any Liens) under any such agreements other than Property of the type that may be sold under any such agreements in accordance with the terms of any such agreements as in effect on the Closing Date, and in no event shall such sales be made unless they are sales of interests in accounts and general intangibles as such terms are defined by the Uniform Commercial Code as in effect in New York, (b) at any time the aggregate amount of claims (whether or not asserted at such time) against any one or more of the Company or the Subsidiaries, or assets of any of them, arising out of such agreements (but only that portion of such claims that represents principal) exceed the greater of, (I) thirty-five percent (35%) of Adjusted Consolidated Tangible Net Worth, or (II) Sixty Million Dollars ($60,000,000), and (c) for any period of ten consecutive Business Days, the aggregate amount of claims (whether or not asserted at such time) against any one or more of the Company or the Subsidiaries, or assets of any of them, arising out of such A-63 agreements (but only that portion of such claims that represents principal) exceed ninety-one percent (91%) of the aggregate face amount of the receivables and general intangibles with respect to which the Company may or has sold interests under any such agreements and which receivables and general intangibles are outstanding at such time. "TRANSFEREE" shall mean any direct or indirect transferee of all or any part of any Note purchased by any Purchaser under this Agreement. "VOTING STOCK" shall mean, with respect to any corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "WARRANT AGREEMENT" shall mean that certain Warrant Agreement entered into among the Company and holders of the Notes and certain other Debt of the Company on or after the Amendment Date in compliance with the provisions of paragraph 7A of the Amendment. "WARRANTS" shall mean warrants to purchase shares of the common stock of the Company issued pursuant to the Warrant Agreement. "WHOLLY-OWNED SUBSIDIARY" shall mean any Subsidiary one hundred percent (100%) of the capital stock of which (other than directors' qualifying shares) is held of record and beneficially owned by the Company or any other Wholly-Owned Subsidiary. 11. MISCELLANEOUS. 11A. NOTE PAYMENTS. The Company agrees that, so long as you shall hold any Note, it will make payments of principal thereof, premium, if any, Agreed Put Consideration, and interest thereon, by wire transfer of immediately available funds for credit to your account or accounts as specified in the Purchaser Schedule attached hereto, or such other account or accounts in the United States as you may designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. You agree that, before disposing of any Note, you will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid. The Company agrees to afford the benefits of this paragraph 11.A to any Transferee that shall have made the same agreement as you have made in this paragraph 11.A. 11B. EXPENSES. The Company agrees, whether or not the transactions contemplated hereby shall be consummated, to pay, and save you and any Transferee harmless against liability for the payment of all out-of-pocket expenses arising in connection with such transactions, including (i) all document production and duplication charges and the fees and expenses of any special counsel engaged by you or any Transferee in connection with this Agreement, the transactions contemplated hereby and any subsequent proposed A-64 modification of, or proposed consent under, this Agreement, whether or not such proposed modification shall be effected or proposed consent granted, and (ii) the costs and expenses, including attorneys' fees, incurred by you or any Transferee in enforcing any rights under this Agreement or the Notes or in responding to any subpoena or other legal process issued in connection with this Agreement or the transactions contemplated hereby or by reason of you or any Transferee having acquired any Note, including without limitation costs and expenses incurred in any bankruptcy case, provided that the Company shall be required to pay for such attorney's fees only to the extent that such attorneys are retained by the Required Holders to represent, as a group, the Required Holders and all other holders of Notes which shall consent to such representation. The obligations of the Company under this paragraph 11.B shall survive the transfer of any Note or portion thereof or interest therein by you or any Transferee and the payment of any Note. 11C. CONSENT TO AMENDMENTS. This Agreement and the Note may be amended, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holder(s) except that, without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to this Agreement shall change the maturity of any Note, or change the principal of, or the rate or time of payment of interest or any premium payable with respect to any Note, or affect the time, amount or allocation of any required prepayments, or reduce the proportion of the principal amount of the Notes required with respect to any consent. With respect to waivers or consents to amendments to or concerning the provisions of paragraph 5H hereof, the provisions of such paragraph and (except as set forth in this sentence) the definitions used therein (as used therein) may not be waived, amended or supplemented without the consent of each holder of Notes, but waivers concerning the occurrence of any Prepayment Event, and waivers and consents to amendments or supplements to the definition of Prepayment Event, may be given by the Required Holders. Each holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this paragraph 11.C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. 11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The Notes are issuable as registered notes without coupons in denominations of at least One Million Dollars ($1,000,000), except as may be necessary to reflect any principal amount not evenly divisible by, One Million Dollars ($1,000,000). The Company shall keep at its principal office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of the Transferee or Transferees so long as any such Transferee or Transferees are Institutional Investors. At the option of the holder of any Note, such Note may be exchanged for other Notes of like tenor and of any authorized A-65 denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes that the holder making the exchange is entitled to receive. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed by the holder of such Note or such holder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue that were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holder's unsecured indemnity agreement, or in the case of any such mutilation, upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. 11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of and premium, if any, and interest on such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in all or any part of such Note to any Institutional Investor on such terms and conditions as may be determined by such holder in its sole and absolute discretion, it being understood that such holder's obligations under this Agreement shall remain unchanged and that such holder shall remain solely responsible to the other parties hereto for the performance of such obligations, and in addition, that you agree that you shall only grant such participations in compliance with any applicable provisions of the Securities Act. 11F. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements contained in the Company's Quarterly Report on Form 10-Q for fiscal quarter ended May 2, 1993. If any change in accounting principles from those used in the preparation of such financial statements hereafter occasioned by the promulgation of rules and regulations by or required by the Financial Accounting Standards Board, the Cost Accounting Standards Board or the Securities and Exchange Commission (or successors thereto or agencies with similar functions) result in a material change in the accounting principles used to prepare the financial statements contained in the Company's Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q, the Company and the holders of Notes agree, upon notification of such change by the Company to the holders of Notes or by a holder of Notes to the Company, to enter into negotiations in order to amend paragraph 6 and the Financial Covenants incorporated by reference herein, as applicable, so as to equitably reflect such change with the desired result that the criteria for evaluating the Company's financial condition shall be the same after such change as if such change had not been made. 11G. DIRECTLY OR INDIRECTLY. Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person, including actions taken by or on behalf of any partnership in which such Person is a general partner. A-66 11H. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Notes, the transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of you or any Transferee. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 11I. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this Agreement contained by or on behalf of either of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not. 11J. DISCLOSURE TO OTHER PERSONS. You agree to use your best efforts to hold in confidence and not to disclose any Confidential Information, provided, that you will be free, after notice to the Company, to correct any false or misleading information that may become public concerning your relationship to the Company and the Subsidiaries or to the transactions contemplated by this Agreement. Notwithstanding the foregoing, the Company acknowledges that the holder of any Note may deliver copies of any financial statements and other documents delivered to such holder, and disclose any other information disclosed to such holder (including, without limitation, Confidential Information), by or on behalf of the Company or any Subsidiary in connection with or pursuant to this Agreement, to (i) such holder's directors, officers, employees, agents and professional consultants, (ii) any other holder of any Note, (iii) any Institutional Investor to which such holder sells or offers to sell such Note or any part thereof, provided that such Institutional Investor signs a written agreement to comply with the confidentiality provisions of this Agreement, regardless of whether or not such offeree purchases any Notes, and provided further that no such agreement shall be required so long as such Institutional Investor is furnished only with information that is not Confidential Information, (iv) any Institutional Investor to which such holder sells or offers to sell a participation in all or any part of such Note, provided that such Institutional Investor signs a written agreement to comply with the confidentiality provisions of this Agreement, regardless of whether or not such offeree purchases any Notes, and provided further that no such agreement shall be required so long as such Institutional Investor is furnished only with information that is not Confidential Information, (v) any federal or state regulatory authority having jurisdiction over such holder, (vi) the National Association of Insurance Commissioners or any similar organization or A-67 (vii) any other Person to which such delivery or disclosure may be necessary, (a) in compliance with any law, rule, regulation or order applicable to such holder, (b) in response to any subpoena or other legal process, or (c) in connection with any litigation to which such holder is a party. 11K. NOTICES. All written communications provided for hereunder shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid), and (i) if to you, addressed to you at the address specified for such communications in the Purchaser Schedule attached hereto, or at such other address as you shall have specified to the Company in writing, (ii) if to any other holder of any Note, addressed to such other holder at such address as such other holder shall have specified to the Company in writing or, if any such other holder shall not have so specified an address to the Company, then addressed to such other holder in care of the last holder of such Note which shall have so specified an address to the Company, and (iii) if to the Company, addressed to it at Rohr, Inc. Foot of H Street Chula Vista, CA 92012 Attention: Treasurer copy to: General Counsel or at such other address as the Company shall have specified to the holder of each Note in writing; provided, however, that any such communication to the Company may also, at the option of the holder of any Note, be delivered by any other means either to the Company at its address specified above or to any officer of the Company. Any written communication sent in accordance with the first sentence of this paragraph 11K, other than in accordance with the proviso thereto, shall be deemed to have been received when sent; any written communication delivered in accordance with such proviso shall be deemed to have been received when delivered. 11L. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement, 11M. SATISFACTION REQUIREMENT. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to you or to the Required Holders, the determination of such satisfaction shall be made by you or the Required Holders, as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. A-68 11N. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE INTERNAL LAW OF THE STATE OF NEW YORK. 11O. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day. If the date for any payment is extended to the next succeeding Business Day by reason of the preceding sentence, the period of such extension shall be included in the computation of the interest payable on such Business Day. 11P. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the Company, whereupon this letter shall become a binding agreement between you and the Company. Very truly yours, ROHR, INC. By: ------------------------------------ Name: Title: A-69 The foregoing Agreement is hereby accepted as of the date first above written. [NAME OF PURCHASER] By: ----------------------------------- Name: Title: A-70 EXHIBIT B1 FORM OF OPINION OF GIBSON, DUNN & CRUTCHER [Closing Date] To the Persons Listed on Annex 1 hereto Re: Rohr, Inc. Ladies and Gentlemen: Reference is made to the Third Amendment Agreement dated as of May 10, 1994 (the "Third Amendment") among Rohr, Inc., a Delaware corporation (together with its predecessor, Rohr Industries, Inc., the "Company"), and each of the Persons listed on Annex 1 hereto (the "Holders"), which Third Amendment, among other things, amends those certain Note Agreements (collectively, the "Original Note Agreement"), each dated as of January 15, 1990, between the Company and each of the Holders, as previously amended by that certain Amendment Agreement dated June 30, 1993 (the "First Amendment") and that certain Second Amendment Agreement dated September 24, 1993 (the "Second Amendment," and, collectively, the "Existing Note Agreement," and, as amended and restated by the Third Amendment, the "Amended Note Agreement"). The capitalized terms used herein and not defined herein have the meanings assigned to them by or pursuant to the terms of the Third Amendment. The Third Amendment, the Amended Note Agreement and the Company's 9.35% Notes due January 29, 2000 (as amended by the First Amendment, the "Notes") are hereinafter referred to collectively as the "Amendment Documents." We have acted as special counsel to the Company in connection with the transactions contemplated by the Third Amendment. This opinion is delivered to you pursuant to paragraph 4B(i) of the Third Amendment. In acting as such counsel, we have examined: (a) the Third Amendment, together with the Amended and Restated Note Agreement set forth as Exhibit A thereto; (b) conformed copies of the Original Note Agreement, the First Amendment and the Second Amendment; (c) a copy of the form of the Notes; (d) a certified copy of the certificate of incorporation and bylaws of the Company as in effect on the date hereof; A-71 (e) the opinion of Hebb & Gitlin, special counsel to the Holders, dated the date hereof; and (f) originals, or copies certified or otherwise identified to our satisfaction, of such other documents, records, instruments and certificates as we have deemed necessary or appropriate to enable us to render this opinion. In rendering our opinion, we have assumed with your permission the following: (a) the authenticity of all documents submitted to us as originals; (b) the conformity of any documents submitted to us as copies to their respective originals; (c) the accuracy of all reports and certificates received from public officials; (d)(i) each Holder has all requisite power and authority to execute and deliver the Third Amendment and to perform its obligations under the Amended Note Agreement (and at all relevant times had the requisite power and authority to execute and deliver the Original Note Agreement, the First Amendment and the Second Amendment and to perform its obligations under the Existing Note Agreement); (ii) the execution and delivery of the Third Amendment by such Holder and performance of the obligations of such Holder under the Amended Note Agreement have been duly authorized by all necessary action (and the execution and delivery of the Original Note Agreement, the First Amendment and the Second Amendment by such Holder and the performance of the obligations of such Holder pursuant to the Amended Note Agreement were at all relevant times duly authorized by all necessary action); (iii) the Third Amendment has been executed and delivered by duly authorized officers of such Holder (and the Original Note Agreement, the First Amendment and the Second Amendment were executed and delivered by duly authorized officers of such Holder); and (iv) the Third Amendment and the Amended Note Agreement are legal, valid and binding obligations of such Holder, enforceable against it in accordance with their respective terms; (e) the Company is a corporation duly incorporated, validity existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business and own its Property; (f) the Company has the requisite corporate power and authority to execute and deliver the Third Amendment and to perform its obligations set forth in the Amended Note Agreement (and the Company had at all relevant times the requisite corporate power and authority to execute and deliver the Original Note Agreement, the First Amendment and the Second Amendment and to perform its obligations under the Existing Note Agreement); A-72 (g) the Third Amendment and the Amended Note Agreement have been duly authorized by all necessary corporate action on the part of the Company and the Third Amendment has been executed and delivered by duly authorized officers of the Company (and the Existing Note Agreement was at all relevant times duly authorized by all necessary corporate action on the part of the Company and the Original Note Agreement, the First Amendment, the Second Amendment were executed and delivered by duly authorized officers of the Company); (h) all parties to the Third Amendment have filed all required franchise tax returns, if any, and paid all required taxes, if any, under the California Revenue & Taxation Code (see White Dragon Productions, Inc. ---------------------------------- v. Performance Guarantees, Inc., 196 Cal. App. 3d 163, 24 Cal. Rptr. 745 ------------------------------- (1987); Damato v. Slevin, 214 Cal. App. 3d 668, 262 Cal. Rptr. 879 (1989); ---------------- California Revenue and Taxation Code Section 23301 et seq.); ------ (i) there are no agreements or understandings between or among the Company, any Holder or third parties which would expand, modify or otherwise affect the terms of the Third Amendment or the Amended Note Agreement or the respective rights or obligations of the parties thereunder and each of the foregoing documents correctly and completely sets forth the intent of all parties thereto (see Trident Center v. Connecticut General --- ------------------------------------- Life Insurance Company, 847 F.2d 564 (9th Cir. 1989)); ---------------------- (j) Each Holder holds its Note, as amended, for its own account and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended; and (k) Each Holder is an "incorporated admitted insurer" within the meaning of Section 1100.1 of the California Insurance Code. In rendering our opinion, we have relied, as to certain factual matters, on warranties and representations contained in the Third Amendment, certificates of officers of the Company or certificates obtained from public officials. Based on the foregoing and in reliance thereon, and subject to the assumptions, exceptions, qualifications and limitations set forth herein, we are of the opinion that: 1. Each of the Third Amendment, the Amended Note Agreement and the Notes constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 2. The execution and delivery of the Third Amendment by the Company, the repayment of Debt by the Company pursuant to the Third Amendment and Amended Note Agreement and the consummation of the transactions which are contemplated by the Third Amendment to be consummated by the Company on the Effective Date do not violate the certificate of incorporation or bylaws of the Company or any statute, rule or regulation of the A-73 State of California or the Untied States of America applicable to the Company which is generally applicable to transactions in the nature of those contemplated by the Third Amendment and the Amended Note Agreement, or the Delaware General Corporation Law. 3. No consents, approvals or authorizations of any governmental authorities of the State of California or the United States of America are required by law to be obtained on the part of the Company in connection with the execution and delivery of the Third Amendment or the performance of the Amended Note Agreement, except such consents, approvals or authorizations that have been obtained on or prior to the date hereof. The foregoing opinions are subject to the following exceptions, qualifications and limitations: A. Our opinion is based upon the laws of the State of California, the State of Delaware (with respect to corporate law) and the United States of America. We have relied upon the opinion of Hebb & Gitlin with respect to all matters governed by New York law. We have not examined the question of what law would govern the interpretation or enforcement of the Third Amendment, the Amended Note Agreement and the Notes and our opinion is based on the assumption that the internal laws of the State of California and the laws of the United States of America would govern the provisions of such agreements and instruments and the transactions contemplated thereby. However, we note that if any such agreement or instrument is not, in fact, enforceable under the laws of New York, such agreement or instrument may not be enforced by a California court under applicable conflict-of-law principles. B. This opinion is limited to the effect of the present state of the laws of the State of California, the United States of America and, to the limited extent set forth above, the State of Delaware and the facts as they presently exist. We assume no obligation to revise or supplement this opinion in the event of future changes in such laws or the interpretations thereof or such facts. C. Our opinions, and our assumptions and qualifications relating to enforceability of agreements or instruments against parties other than the Company, are subject to (i) the effect of any bankruptcy, insolvency, reorganization, moratorium, arrangement or similar laws affecting the enforcement of creditors' rights generally (including, without limitation, the effect of statutory or other laws regarding fraudulent transfers or preferential transfers) and (ii) general principles of equity, including without limitation concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance, injunctive relief or other equitable remedies, regardless of whether enforceability is considered in a proceeding in equity or at law. A-74 D. We express no opinion with respect to the legality, validity, binding nature or enforceability of any provision of the Amendment Documents to the effect that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to any other right or remedy, that the election of some particular remedy does not preclude recourse to one or more others or that failure to exercise or delay in exercising rights or remedies will not operate as a waiver of any such right or remedy. E. We express no opinion as to the legality, validity, binding nature or enforceability (i) of any provision of the Amendment Documents insofar as it provides for the payment or reimbursement of costs and expenses or for claims, losses or liabilities in excess of a reasonable amount determined by any court or other tribunal or (ii) regarding any Holder's ability to collect attorneys' fees and costs in an action involving the Amendment Documents and the Amended Note Agreement if the Holder is not the prevailing party in such action (we call your attention to the effect of Section 1717 of the California Civil Code, which provides that, where a contract permits one party thereto to recover attorneys' fees, the prevailing party in any action to enforce any provision of the contract shall be entitled to recover its reasonable attorneys' fees). F. We express no opinion as to the legality, validity, binding nature or enforceability of (i) any waiver of rights existing, or duties owed, that is broadly or vaguely stated or does not describe the right or duty purportedly waived with reasonable specificity, (ii) any waivers or consents (whether or not characterized as a waiver or consent in the Amendment Documents relating to the rights of the Company or duties owing to it existing as a matter of law, including, without limitation, waivers of the benefits of statutory or constitutional provisions, to the extent such waivers or consents may be found by a California court to be against public policy or which are ineffective pursuant to California statutes and judicial decisions or (iii) provisions in the Amendment Documents that may be construed as imposing penalties, forfeitures, late payment charges or an increase in the interest rate upon delinquency in payment or the occurrence of default. G. We express no opinion as to any provision of the Amendment Documents requiring written amendments or waivers of such documents insofar as it suggests that oral or other modifications, amendments or waivers could not be effectively agreed upon by the parties or that the doctrine of promissory estoppel might not apply. H. We express no opinion as to the applicability or effect of each Holder's compliance with any state or federal laws applicable to the transactions contemplated by the Amendment Documents because of the nature of its business. A-75 This opinion is rendered to the Holders in connection with the Third Amendment and the Amended Note Agreement and may not be relied upon by any person other than the Holders or by the Holders in any other context, without our written consent, which consent will not be unreasonably withheld, provided that the Holders may provide this opinion (i) to regulatory authorities should they so request or in connection with their normal examinations, (ii) to the independent auditors and attorneys of the Holders, (iii) pursuant to order or legal process of any court or governmental agency or (iv) in connection with any legal action to which the Holder is a party arising out of the transactions contemplated by the Amendment Documents. This opinion may not be quoted without the prior written consent of this Firm. Very truly yours, Gibson, Dunn & Crutcher A-76 ANNEX 1 ADDRESSEES The Prudential Insurance Company of America Four Gateway Center, 9th Floor Newark, NJ 07102-4069 Principal Mutual Life Insurance Company 711 High Street Des Moines, IA 50392 Connecticut General Life Insurance Company c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Securities Accounting Department CIGNA Property and Casualty Insurance Company c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Private Placement Department Insurance Company of North America c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Private Placement Department Life Insurance Company of North America c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Private Placement Department Sun Life Assurance Company of Canada Wellesley Hills, MA 02181 Attention: Investment Department/Private Placements SC #1303 Sun Life Assurance Company of Canada (U.S.) Wellesley Hills, MA 02181 Attention: Investment Department/Private Placements SC #1303 Hebb & Gitlin P.C. One State Street Hartford, CT 06103-3178 A-77 EXHIBIT B2 FORM OF OPINION OF RICHARD MADSEN, ESQ. [LETTERHEAD OF RICHARD MADSEN, ESQ.] [Closing Date] To the Persons Listed on Annex 1 hereto Re: Third Amendment Agreement, dated as of May 10, 1994 Ladies and Gentlemen: Reference is made to the Third Amendment Agreement dated as of May 10, 1994 (the "Third Amendment") among Rohr, Inc., a Delaware corporation (together with its predecessor, Rohr Industries, Inc., the "Company"), and each of the Persons listed on Annex 1 hereto (the "Holders"), which Third Amendment, among other things, amends those certain several Note Agreements (collectively, the "Original Note Agreement"), each dated as of January 15, 1990, between the Company and each of the Holders, as previously amended by that certain Amendment Agreement dated June 30, 1993 (the "First Amendment") and that certain Second Amendment Agreement dated September 24, 1993 (the "Second Amendment," and, collectively, the "Existing Note Agreement," and, as amended and restated by the Third Amendment, the "Amended Note Agreement"). The capitalized terms used herein and not defined herein have the meanings assigned to them by or pursuant to the terms of the Third Amendment. The Third Amendment, the Amended Note Agreement and the Company's 9.35% Notes due January 29, 2000 (as amended by the First Amendment, the "Notes") are hereinafter referred to collectively as the "Amendment Documents." I am the General Counsel of the Company and have acted in such capacity in connection with the transactions contemplated by the Third Amendment. This opinion is delivered to you pursuant to paragraph 4B(ii) of the Third Amendment. In acting as such counsel, I have examined: (a) the Third Amendment, together with the Amended and Restated Note Agreement set forth as Exhibit A thereto; (b) conformed copies of the Original Note Agreement, the First Amendment and the Second Amendment; (c) a copy of the form of the Notes; (d) the certificates delivered to the Holders pursuant to paragraph 4C of the Third Amendment; A-78 (e) the amendment described in paragraph 4I of the Third Amendment; (f) the Seventh Amendment to the Credit Agreement, dated of even date herewith; (g) a certified copy of the restated certificate of incorporation of the Company, and a copy of the bylaws of the Company, each as in effect on the date hereof (the "Charter" and the "Bylaws", respectively); and (h) a long-form good standing certificate from the state of Delaware for the Company and foreign good standing certificates or similar certificates for the Company from each of the states set forth on Annex 2 hereto. I have also examined (or at my direction, a lawyer on my staff has examined and reported to me concerning) originals, or copies certified or otherwise identified to my (or his or her) satisfaction, of such other records of the Company, documents, agreements, instruments and certificates of public officials as I have deemed necessary or appropriate to enable me to render this opinion. In rendering my opinion, I have assumed the following: (a) the authenticity of all documents submitted to me as originals; (b) the conformity of any documents submitted to me as copies to their respective originals; and (c) the accuracy of all reports and certificates received from public officials. In rendering my opinion, I have relied as to matters of fact, to the extent I deem necessary and proper, on warranties and representations as to factual matters contained in the Third Amendment. Without making any investigation thereof, I have no actual knowledge of any material inaccuracies in any of the facts contained in the Third Amendment. Based on the foregoing, I am of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business and own its Property. 2. The Company has duly qualified and is in good standing as a foreign corporation in the States of California, Maryland, Arkansas, Alabama and Texas. 3. To the best of my knowledge after reasonable inquiry, there is no default or existing condition which, with the passage of time or notice, or both, would result in a default by the Company or any Subsidiary under any contract, lease or commitment known to me to which any one or more of the Company or any Subsidiary is a party or by which their respective Properties may be bound, except where such default would not have a material adverse effect A-79 on the ability of the Company to perform its obligations set forth in each of the Amendment Documents. 4. Except as set forth in Annex 2 to the Third Amendment, to the best of my knowledge after due inquiry, there is no judgment, order, action, suit, proceeding, inquiry or investigation, at law or in equity, before any court or governmental authority, arbitration board or tribunal, pending or threatened against the Company, except for any such judgment, order, action, suit, proceeding, inquiry, or investigation that is not reasonably likely to have a material adverse effect on the ability of the Company to perform its obligations under the Amendment Documents. 5. The Company has the requisite corporate power and authority to execute and deliver the Third Amendment and to perform its obligations set forth in each of the Amendment Documents. 6. The Third Amendment has been duly authorized by all necessary corporate action on the part of the Company and has been executed and delivered by a duly authorized officer of the Company. 7. The execution and delivery of the Third Amendment by the Company, the repayment of the Debt of the Company governed and evidenced by the Amendment Documents and the consummation of the transactions which are contemplated by the Third Amendment to be consummated by the Company on the Effective Date: (a) do not violate: (i) the Charter or the Bylaws; or (ii) any statute, rule or regulation of the State of California or the United States of America applicable to the Company which is generally applicable to transactions of the nature of those contemplated by the Third Amendment, or the Delaware General Corporation Law; (b) to the best of my knowledge after reasonable inquiry, will not conflict with, result in a breach of, or constitute a default under, any indenture, mortgage, deed of trust, bank loan, credit agreement or similar agreement of which I have knowledge to which the Company or any of its Subsidiaries is a party or by which it or any of them or its or any of their Property may be bound; and (c) to the best of my knowledge after reasonable inquiry, do not result in or require the creation of any Lien or encumbrance upon or with respect to any of the Company's Property or the Property of any Subsidiary. 8. No consents, approvals or authorizations of any governmental authorities of the State of California, the State of Delaware or the United States of America are required by law to be obtained on the part of the Company in connection with the execution and delivery of the Third Amendment, except such consents, approvals or authorizations that have been obtained on or prior to the date hereof. A-80 I render no opinion herein as to matters involving the laws of any jurisdiction other than the State of California and the United States of America and, to the limited extent discussed below, the laws of the State of Delaware. I am generally familiar with the Delaware General Corporation Law and, for the limited purpose of my opinions in paragraphs 1, 5, 6, 7(a) and 8 and limited solely to the Delaware General Corporation Law, I have expressed my opinions regarding the effect of the Delaware General Corporation Law and did not feel it necessary to obtain the opinion of Delaware counsel. This opinion is limited to the effect of the present state of the laws of the States of California and, for the limited purpose referred to above, Delaware, and of the United States of America and to the facts bearing upon this opinion as they presently exist. I assume no obligation to revise or supplement this opinion in the event of future changes in such laws or the interpretations thereof or in such facts. This opinion is rendered to the Holders in connection with the Third Amendment and may not be relied upon by any person other than the Holders and their successors and assigns or by the Holders in any other context, without our written consent, which consent will not be unreasonably withheld, provided that the Holders may provide this opinion (i) to regulatory authorities should they so request or in connection with their normal examinations, (ii) to the independent auditors and attorneys of the Holders, (iii) pursuant to order or legal process of any court or governmental agency or (iv) in connection with any legal action to which the Holder is a party arising out of the transactions contemplated by the Amendment Documents. This opinion may not be quoted without my prior written consent. Sincerely, R. W. Madsen General Counsel and Secretary A-81 ANNEX 1 ADDRESSEES The Prudential Insurance Company of America Four Gateway Center, 9th Floor Newark, NJ 07102-4069 Principal Mutual Life Insurance Company 711 High Street Des Moines, IA 50392 Connecticut General Life Insurance Company c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Securities Accounting Department CIGNA Property and Casualty Insurance Company c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Private Placement Department Insurance Company of North America c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Private Placement Department Life Insurance Company of North America c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Private Placement Department Sun Life Assurance Company of Canada Wellesley Hills, MA 02181 Attention: Investment Department/Private Placements SC #1303 Sun Life Assurance Company of Canada (U.S.) Wellesley Hills, MA 02181 Attention: Investment Department/Private Placements SC #1303 Hebb & Gitlin P.C. One State Street Hartford, CT 06103-3178 A-82 ANNEX 2 FOREIGN QUALIFICATIONS Alabama Arkansas California Maryland Texas A-83 EXHIBIT B3 FORM OF OPINION OF HEBB & GITLIN [LETTERHEAD OF HEBB & GITLIN] [Closing Date] To the Persons Listed on Annex 1 hereto Re: Rohr, Inc. ---------- Ladies and Gentlemen: Reference is made to the Third Amendment Agreement (the "Third Amendment"), dated as of May 10, 1994, among Rohr, Inc., a Delaware corporation (together with its predecessor, Rohr Industries, Inc., the "Company"), and each of the Persons listed on Annex 1 hereto (the "Holders"), which Third Amendment, among other things, amends those certain several Note Agreements (collectively, the "Original Note Agreement"), each dated as of January 15, 1990, between the Company and, respectively, each of the Purchasers identified on Annex 1 thereto, as said Note Agreement has been previously amended by that certain Amendment Agreement (the "First Amendment") dated June 30, 1993 and that certain Second Amendment Agreement (the "Second Amendment"), dated September 24, 1993 (collectively, the "Existing Note Agreement," and, as amended and restated by the Third Amendment, the "Amended Note Agreement"). The capitalized terms used herein and not defined herein have the meanings assigned to them by or pursuant to the terms of the Third Amendment. The Third Amendment, the Amended Note Agreement and the Company's 9.35% Notes due January 29, 2000 (as amended by the First Amendment, the "Notes") are hereinafter referred to collectively as the "Amendment Documents." We have acted as special counsel to the Holders in connection with the transactions contemplated by the Third Amendment. This opinion is delivered to you pursuant to paragraph 4B(iii) of the Third Amendment. In acting as such counsel, we have examined: (a) the Third Amendment, together with the Amended and Restated Note Agreement set forth as Exhibit A thereto; (b) conformed copies of the Original Note Agreement, the First Amendment and the Second Amendment; (c) a copy of the form of the Notes; A-84 (d) a certificate of officers of the Company, substantially in the form attached to the Third Amendment as Exhibit C; (e) a certificate of the Secretary of the Company, substantially in the form attached to the Third Amendment as Exhibit D; (f) copies of the certificate of incorporation (the "Certificate of Incorporation") and bylaws (the "Bylaws") of the Company, as attached to a certificate of the Secretary of the Company, dated July 9, 1993 and delivered to the holders in connection with the transactions contemplated by the First Amendment; (g) the opinion of Gibson, Dunn & Crutcher, special counsel to the Company, dated the date hereof; (h) the opinion of Richard Madsen, Esq., general counsel to the Company, dated the date hereof; and (i) originals, or copies certified or otherwise identified to our satisfaction, of such other documents, records, instruments and certificates of public officials as we have deemed necessary or appropriate to enable us to render this opinion. In rendering our opinion, we have relied, to the extent we deem necessary and proper, on: (a) warranties and representations as to factual matters contained in the Third Amendment and the Amended Note Agreement; and (b) said opinions of Gibson, Dunn & Crutcher and Richard Madsen, Esq., with respect to all questions governed by California law, Delaware corporate law and with respect to all questions concerning the due incorporation, valid existence, corporate power and authority, good standing of, and the authorization, execution and delivery of instruments by, the Company (except that we have made an independent examination of the Certificate of Incorporation and the Bylaws, and of the aforementioned certificates of officers of the Company); based on such investigation as we have deemed appropriate, said opinion is satisfactory in form and content to us and in our opinion the Holders and we are justified in relying thereon. As to such opinions and the matters therein upon which we are relying, we incorporate herein the assumptions and qualifications to such opinions set forth therein. In rendering our opinion, we have assumed the following: (a) the authenticity of all documents submitted to us as originals; (b) the conformity of any documents submitted to us as copies to their respective originals; A-85 (c) the authenticity of all signatures other than those of officers and directors of the Company executing the Third Amendment and the documents and instruments executed pursuant to the terms thereof; (d) the legal capacity of all natural persons; (e) the accuracy of all reports and certificates received from public officials; and (f) as to corporations other than the Company, the corporate power and authority to execute and deliver, and the due authorization of, all documents, instruments and agreements contemplated by the Third Amendment. Based on the foregoing, we are of the following opinions: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the state of Delaware. 2. The Company has the requisite corporate power and authority to execute and deliver the Third Amendment and to perform its obligations set forth in each of the Amendment Documents. 3. The Third Amendment has been duly authorized by all necessary corporate action on the part of the Company and has been executed and delivered by duly authorized officers of the Company. Each of the Third Amendment and the Amended Note Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 4. The execution and delivery of the Third Amendment by the Company and the performance by the Company of its obligations under the Amendment Documents will not conflict with, result in a breach of any provision of, constitute a default under, or result in the creation or imposition of any Lien upon any of its Property pursuant to, the Certificate of Incorporation or Bylaws of the Company. All opinions herein contained with respect to the enforceability of documents and instruments are qualified to the extent that: (a) the availability of equitable remedies, including without limitation, specific enforcement and injunctive relief, is subject to the discretion of the court before which any proceedings therefor may be brought; and (b) the enforceability of certain terms provided in the Third Amendment and the Amendment Documents may be limited by: (i) applicable bankruptcy, reorganization, arrangement, insolvency, moratorium or similar laws affecting the enforcement of creditors' rights generally as at the time in effect; A-86 (ii) general principles of equity and the discretion of a court in granting equitable remedies (whether enforceability is considered in a proceeding at law or in equity); and (iii) common law or statutory requirements with respect to commercial reasonableness. One or more members of this firm are admitted to the Bar in the State of New York. We express no opinion as to the law of any jurisdiction other than the law of such state and United States federal law. Gibson, Dunn & Crutcher and Richard Madsen, Esq., may rely on this opinion with respect to matters governed by the laws of the State of New York for the sole purpose of rendering their opinions to be rendered pursuant to paragraph 4B(i) and paragraph 4B(ii) of the Third Amendment. Subsequent holders of the Notes may rely on this opinion as if it were addressed to them. Very truly yours, A-87 ANNEX 1 ADDRESSEES The Prudential Insurance Company of America Four Gateway Center, 9th Floor Newark, NJ 07102-4069 Principal Mutual Life Insurance Company 711 High Street Des Moines, IA 50392 Connecticut General Life Insurance Company c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Securities Accounting Department CIGNA Property and Casualty Insurance Company c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Private Placement Department Insurance Company of North America c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Private Placement Department Life Insurance Company of North America c/o CIGNA Investments, Inc. Hartford, Connecticut 06152 Attention: Private Placement Department Sun Life Assurance Company of Canada Wellesley Hills, MA 02181 Attention: Investment Department/Private Placements SC #1303 Sun Life Assurance Company of Canada (U.S.) Wellesley Hills, MA 02181 Attention: Investment Department/Private Placements SC #1303 Hebb & Gitlin P.C. One State Street Hartford, CT 06103-3178 A-88 EXHIBIT C FORM OF OFFICERS' CERTIFICATE CERTIFICATE OF OFFICERS OF ROHR, INC. We, L.A. Chapman and R.W. Madsen, each hereby certify that we are, respectively, the Senior Vice President and the Chief Financial Officer, and the Vice President, General Counsel and Secretary of ROHR, INC., a Delaware corporation (the "Company"), and that, as such, we are authorized to execute and deliver this Certificate in the name and on behalf of the Company, and that: 1. This certificate is being delivered pursuant to paragraph 4C of the Third Amendment Agreement (the "Third Amendment"), dated as of May 10, 1994, between the Company and the holders of the Company's 9.35 Senior Notes due January 29, 2000 listed on Annex 1 thereto (collectively, the "Purchasers"). The terms used in this certificate and not defined herein shall have the respective meanings ascribed to them in the Third Amendment. 2. The warranties and representations contained in paragraph 5 of the Third Amendment are true in all material respects on the date hereof with the same effect as though made on and as of the date hereof. 3. The Company has performed and complied with all agreements and conditions contained in the Third Amendment that are required to be performed or complied with by the Company before or at the date hereof, and no unwaived Default or Event of Default exists on the date hereof. 4. R.W. Madsen is on and as of the date hereof, and at all times subsequent to March 31, 1994 has been, the duly elected, qualified and acting Secretary of the Company, and the signature appearing on the Certificate of Secretary dated the date hereof and delivered to the Purchasers contemporaneously herewith is his genuine signature. IN WITNESS WHEREOF, we have executed this Certificate in the name and on behalf of the Company on May ____, 1994. ROHR, INC. By: ------------------------------- Name: By: ------------------------------- Name: A-89 EXHIBIT D FORM OF SECRETARY'S CERTIFICATE CERTIFICATE OF SECRETARY OF ROHR, INC. I, R.W. Madsen, hereby certify that: I am the duly elected, qualified and acting Secretary of ROHR, INC., a Delaware corporation (the "Company"), and that, as such, I have access to its corporate records and am familiar with the matters herein certified, and I am authorized to execute and deliver this Certificate in the name and on behalf of the Company, and that: 1. This certificate is being delivered pursuant to paragraph 4C of the Third Amendment Agreement (the "Third Amendment"), dated as of May 10, 1994, between the Company and the holders of the Company's 9.35% Senior Notes due January 29, 2000 listed on Annex 1 thereto (collectively, the "Purchasers"). The terms used in this certificate and not defined herein shall have the respective meanings ascribed to them in the Third Amendment. 2. Attached hereto as Attachment A is a true and correct copy of resolutions, and the preamble thereto, adopted by the Board of Directors of the Company on March 31 and April 1, 1994, and such resolutions and preamble set forth in Attachment A hereto were duly adopted by said Board of Directors and are in full force and effect on and as of the date hereof, not having been amended, altered or repealed, and such resolutions are filed with the records of the Board of Directors. 3. The Third Amendment was executed and delivered by the Company pursuant to and in accordance with the resolutions set forth in Attachment A hereto. 4. The bylaws of the Company were last amended by the Board of Directors of the Company on, and have been in full effect in said form at all times from and after January 7, 1993 to and including the date hereof, without modification or amendment in any respect. 5. Each of the following named persons is on and as of the date hereof, and at all times subsequent to January 7, 1993, has been a duly elected, qualified and acting officer of the Company holding the office or offices set forth below opposite his name (except for Mr. Chapman, who became an officer of the Company on May 1, 1994):
Name Office Signature - - ---- ------ --------- Vice President, /s/ General Counsel and Secretary -------------------------------- Assistant Secretary /s/ -------------------------------- Vice President and /s/ Treasurer --------------------------------
A-90 6. The signature appearing opposite the name of each such person set forth above is his or her genuine signature. 7. Attached hereto as Attachment B is a long-form good standing certificate in respect of the Company from the State of Delaware, which certificate (i) lists all corporate documents filed with the Secretary of State of Delaware on or prior to the date hereof in respect of the Company, (ii) bears the certification of the Secretary of State of Delaware, and (iii) is true, correct and complete. 8. There have been no amendments or supplements to or restatements of the Certificate of Incorporation of the Company since December 13, 1991. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of the Company on ______ __, 1994. [Closing Date] ROHR, INC. Secretary A-91 ATTACHMENT A RESOLUTIONS OF THE BOARD OF DIRECTORS Intentionally Omitted A-92 ATTACHMENT B GOOD STANDING CERTIFICATE AND CHARTER DOCUMENTS Intentionally Omitted A-93 EX-4.6 3 9.33% NOTE AGMT EXHIBIT 4.6 FORM OF AMENDED AND RESTATED NOTE AGREEMENT ROHR, INC. -------------- AMENDED AND RESTATED NOTE AGREEMENT -------------- DATED AS OF MAY 10, 1994 $62,000,000 9.33% SENIOR NOTES DUE DECEMBER 15, 2002 A-1 TABLE OF CONTENTS (NOT PART OF AGREEMENT)
PAGE 1. AUTHORIZATION OF ISSUE OF NOTE ....................................... A-5 2. PURCHASE AND SALE OF NOTES ........................................... A-5 3. CONDITIONS OF CLOSING ................................................ A-6 3A. Opinion of Purchasers' Special Counsel .......................... A-6 3B. Opinion of Company's Counsel .................................... A-6 3C. Representations and Warranties; No Default ...................... A-6 3D. Purchase Permitted By Applicable Laws ........................... A-6 3E. Proceedings ..................................................... A-6 3F. Sale of Notes to Other Purchasers ............................... A-6 3G. Closing Expenses ................................................ A-7 4. PREPAYMENTS .......................................................... A-7 4A. Required Prepayments ............................................ A-7 4B. Optional Prepayment With Yield-Maintenance Amount ............... A-7 4C. Notice of Optional Prepayment ................................... A-7 4D. Partial Payments Pro Rata ....................................... A-7 4E. Right to Put .................................................... A-8 4F. Retirement of Notes ............................................. A-8 4G. Tender of Notes in Payment of Warrant Exercise Price ............ A-8 5. AFFIRMATIVE COVENANTS ................................................ A-9 5A. Payment of Taxes and Claims ..................................... A-9 5B. Maintenance of Properties and Corporate Existence; Other Matters. A-9 5C. Payment of Notes and Maintenance of Office ...................... A-10 5D. Financial Statements ............................................ A-10 5E. Default Notices ................................................. A-13 5F. Information Required by Rule 144A ............................... A-13 5G. Inspection of Property .......................................... A-13 5H. Covenant to Secure Note Equally ................................. A-13 5I. Involuntary Prepayment .......................................... A-14 6. NEGATIVE COVENANTS ................................................... A-16 6A. Limitations on Liens ............................................ A-16 6B. Limitations on Leases ........................................... A-18 6C. Limitations on Indebtedness ..................................... A-18 6D. Limitations on Mergers and Sales of Assets ...................... A-20 6E. Adjusted Consolidated Tangible Net Worth Maintenance ............ A-20 6F. Limitations on Distributions .................................... A-21 6G. Fixed Charge Coverage ........................................... A-22 6H. Limitations on Capital Expenditures ............................. A-22 6I. Private Offering ................................................ A-22
A-2 TABLE OF CONTENTS (Continued) (NOT PART OF AGREEMENT) 6J. Transactions with Affiliates .................................... A-22 6K. Line of Business ................................................ A-22 6L. Limitation on Certain Obligations ............................... A-23 6M. Incorporation of Negative Covenants ............................. A-23 6N. Maintenance of Senior Status .................................... A-24 6O. Certain Amendments .............................................. A-25 6P. Sales of Assets ................................................. A-25 6Q. Sale of Receivables ............................................. A-27 6R. Debt Ratio ...................................................... A-27 7. EVENTS OF DEFAULT .................................................... A-27 7A. Acceleration .................................................... A-27 7B. Rescission of Acceleration ...................................... A-30 7C. Notice of Acceleration or Rescission ............................ A-30 7D. Other Remedies .................................................. A-30 8. REPRESENTATIONS AND WARRANTIES ....................................... A-31 8A. Subsidiaries .................................................... A-31 8B. Corporate Organization and Authority ............................ A-31 8C. Financial Statements ............................................ A-32 8D. Actions Pending ................................................. A-32 8E. Outstanding Debt ................................................ A-32 8F. Title to Properties ............................................. A-32 8G. Patents, Trademarks, Licenses, etc. ............................. A-33 8H. Taxes ........................................................... A-33 8I. Conflicting Agreements and Other Matters ........................ A-33 8J. Offering of Notes ............................................... A-34 8K. Use of Proceeds ................................................. A-34 8L. ERISA ........................................................... A-34 8M. Governmental Consent ............................................ A-35 8N. Environmental Compliance ........................................ A-35 8O. Disclosure ...................................................... A-35 8P. Compliance with Law ............................................. A-36 8Q. Certain Laws .................................................... A-36 9. REPRESENTATIONS OF EACH PURCHASER .................................... A-36 9A. Nature of Purchase .............................................. A-36 9B. Source of Funds ................................................. A-37 10. DEFINITIONS .......................................................... A-37 10A. Yield-Maintenance Terms ......................................... A-37 10B. Other Terms ..................................................... A-38 11. MISCELLANEOUS ........................................................ A-66 11A. Note Payments ................................................... A-66 11B. Expenses ........................................................ A-67
A-3 TABLE OF CONTENTS (Continued) (NOT PART OF AGREEMENT) 11C. Consent to Amendments ........................................... A-67 11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes .. A-68 11E. Persons Deemed Owners; Participations ........................... A-68 11F. Accounting ...................................................... A-68 11G. Directly or Indirectly .......................................... A-69 11H. Survival of Representations and Warranties; Entire Agreement .... A-69 11I. Successors and Assigns .......................................... A-69 11J. Disclosure to Other Persons ..................................... A-69 11K. Notices ......................................................... A-70 11L. Payments Due on Non-Business Days ............................... A-71 11M. Satisfaction Requirement ........................................ A-71 11N. Governing Law ................................................... A-71 11O. Severability .................................................... A-71 11P. Descriptive Headings ............................................ A-71 11Q. Counterparts .................................................... A-71 11R. Severalty of Obligations ........................................ A-71
Annex 1 -- Purchaser Schedule Annex 2 -- Payment Instructions at Closing Annex 3 -- Information as to Company Exhibit A -- Form of 9.33% Senior Note Due December 15, Exhibit B1 -- Form of Purchasers' Special Counsel's Opinion Exhibit B2 -- Form of Company's General Counsel Opinion Exhibit C -- Form of Officers' Certificate Exhibit D -- Form of Secretary's Certificate Exhibit E -- Form of Notice of Sale A-4 ROHR, INC. FOOT OF H STREET CHULA VISTA, CALIFORNIA 92012 -------------- AMENDED AND RESTATED NOTE AGREEMENT -------------- $62,000,000 9.33% SENIOR NOTES DUE DECEMBER 15, 2002 Dated as of May 10, 1994 [Insert Name and Address of Each Purchaser] Ladies and Gentlemen: The undersigned, Rohr, Inc. (herein called, together with its successors, the "Company"), hereby agrees with the purchasers named in the Purchaser Schedule attached hereto as Annex 1 (herein called the "Purchasers") as follows: 1. AUTHORIZATION OF ISSUE OF NOTES. The Company has authorized the issuance of its senior promissory notes in the aggregate principal amount of $62,000,000, dated the date of issue thereof, to mature December 15, 2002, bearing interest on the unpaid balance thereof from the date thereof until the principal thereof shall have become due and payable at the rate of nine and thirty-three one-hundredths percent (9.33%) per annum and on overdue payments at the rate specified therein, which senior promissory notes have been amended pursuant to the First Amendment and, as amended, are substantially in the form of Exhibit A attached hereto. The term "Notes" as used herein shall include each such senior promissory note delivered pursuant to any provision of this Agreement and each such senior promissory note delivered in substitution or exchange for any other Note pursuant to any such provision. 2. PURCHASE AND SALE OF NOTES. The Company sold to each Purchaser and, subject to the terms and conditions herein set forth, each Purchaser purchased from the Company the aggregate principal amount of Notes set forth opposite such Purchaser's name in the Purchaser Schedule attached hereto as Annex 1 at one hundred percent (100%) of such aggregate principal amount. On the date of closing, December 22, 1992 (herein called the "Closing Date"), the Company delivered to each Purchaser, at the offices of Hebb & Gitlin, a Professional Corporation, at One State Street, Hartford, Connecticut, one or more Notes registered in such Purchaser's name, evidencing the aggregate principal amount of Notes to be A-5 purchased by such Purchaser and in the denomination or denominations specified with respect to such Purchaser in the Purchaser Schedule attached as Annex 1 hereto against payment of the purchase price thereof by transfer of immediately available funds as directed by the Company on Annex 2 attached hereto. 3. CONDITIONS OF CLOSING. Each Purchaser's obligation to purchase and pay for the Notes to be purchased by such Purchaser hereunder was subject to the satisfaction, on or before the Closing Date, of the following conditions: 3A. OPINION OF PURCHASERS' SPECIAL COUNSEL. Such Purchaser shall have received from Hebb & Gitlin, who is acting as special counsel for the Purchasers in connection with this transaction, a favorable opinion satisfactory to such Purchaser as to such matters incident to the matters herein contemplated as it may reasonably request, substantially in the form of Exhibit B1 attached hereto. 3B. OPINION OF COMPANY'S COUNSEL. Such Purchaser shall have received from Richard Madsen, Esq., general counsel for the Company, a favorable opinion satisfactory to such Purchaser and substantially in the form of Exhibit B2 attached hereto. 3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and warranties contained in paragraph 8 hereof shall be true on and as of the Closing Date, except to the extent of changes caused by the transactions herein contemplated; there shall exist on the Closing Date no Event of Default or Default; and the Company shall have delivered to such Purchaser a certificate dated the Closing Date, substantially in the form of Exhibit C attached hereto, and signed by the officers indicated in such form, to such effect. The Company shall have delivered a certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of the Company, substantially in the form of Exhibit D attached hereto, with respect to the matters therein set forth. 3D. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment for the Notes to be purchased by such Purchaser on the Closing Date on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject such Purchaser to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and such Purchaser shall have received such certificates or other evidence as it may request to establish compliance with this condition. 3E. PROCEEDINGS. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in substance and form to such Purchaser, and such Purchaser shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request. 3F. SALE OF NOTES TO OTHER PURCHASERS. The Company shall have sold to the other Purchasers the Notes to be purchased by them at the closing and shall have received payment in full therefor. A-6 3G. CLOSING EXPENSES. The Company shall have paid at the closing the statement for fees and disbursements of the special counsel for the Purchasers presented at the closing. 4. PREPAYMENTS. The Notes shall be subject to prepayment with respect to the required prepayments specified in paragraph 4A hereof, prepayment with respect to the optional prepayments permitted by paragraph 4B hereof, repurchase by the Company at the option of each holder as specified in paragraph 4E, paragraph 4G hereof and paragraph 5I hereof. 4A. REQUIRED PREPAYMENTS. Until the Notes shall be paid in full, the Company shall apply to the prepayment of the Notes, without premium, the sum of Eight Million Eight Hundred Fifty Thousand Dollars ($8,850,000) on December 15 in each of the years 1996 to 2001, inclusive, and such principal amounts of the Notes, together with interest thereon to the prepayment dates, shall become due on such prepayment dates. The remaining Eight Million Nine Hundred Thousand Dollars ($8,900,000) in principal amount of the Notes, together with interest accrued thereon, shall become due on the maturity date of the Notes. 4B. OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The Notes shall be subject to prepayment, in whole at any time or from time to time in part (in multiples of $5,000,000), at the option of the Company, at one hundred percent (100%) of the principal amount so prepaid plus interest thereon to the prepayment date and the Yield-Maintenance Amount, if any, with respect to each Note. Any partial prepayment of the Notes pursuant to this paragraph 4B shall be applied in satisfaction of required payments of principal in inverse order of their scheduled due dates. 4C. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the holder of each Note irrevocable written notice of any prepayment pursuant to paragraph 4B hereof not less than 30, nor more than 60, days prior to the prepayment date, specifying such prepayment date and the principal amount of the Notes, and of the Notes held by such holder, to be prepaid on such date and stating that such prepayment is to be made pursuant to paragraph 4B of this Agreement. Notice of prepayment having been given as aforesaid, the principal amount of the Notes specified in such notice, together with interest thereon to the prepayment date and together with the Yield-Maintenance Amount, if any, with respect thereto, shall become due and payable on such prepayment date. The Company shall, on or before the day on which it gives written notice of any prepayment pursuant to paragraph 4B hereof, give telephonic notice of the principal amount of the Notes to be prepaid and the prepayment date to each Significant Holder which shall have designated a recipient of such notices in the Purchaser Schedule attached hereto or by notice in writing to the Company. In addition, the Company shall, on the day before such prepayment date, deliver, by facsimile, a written notice to such recipient of the amount of the Yield-Maintenance Amount, if any, together with supporting calculations in reasonable detail. 4D. PARTIAL PAYMENTS PRO RATA. Upon any partial prepayment of the Notes pursuant to paragraph 4A or paragraph 4B of this Agreement, the principal amount so prepaid shall be allocated to all Notes at the time outstanding (including, for the purpose of this paragraph 4D only, all Notes prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of the Subsidiaries or Affiliates other than by prepayment pursuant to paragraph 4A, paragraph 4B or paragraph 5I) in proportion to the respective outstanding principal amounts thereof. A-7 4E. RIGHT TO PUT. (i) GRANTING OF PUT. The Company hereby gives and grants to each holder of Notes the option, right and privilege (such option, right and privilege herein collectively referred to as the "Right to Put") to require the Company, upon or after the occurrence of any Designated Event, to purchase from such holder on the terms and conditions hereinafter set forth, and the Company agrees so to purchase from such holder, for an amount equal to the Agreed Put Consideration, all, but not less than all, of the Notes held by such holder. (ii) EXERCISE OF PUT. Within ten (10) Business Days after the occurrence of any Designated Event, the Company shall give each holder of Notes substantially simultaneous written notice thereof describing such Designated Event, and the facts and circumstances surrounding the occurrence thereof, in reasonable detail. At any time prior to ninety (90) days after any holder of Notes shall receive such notice, such holder may exercise its Right to Put by delivering to the Company a notice of sale (a "Notice of Sale") substantially in the form of Exhibit E hereto. If a holder of Notes shall deliver a Notice of Sale, the Company shall purchase the Notes then held by such holder on the date specified in such notice (which shall be not less than fifteen (15) days after delivery of such Notice of Sale), and such holder shall sell such Notes to the Company without recourse, representation or warranty (other than as to such holder's full right, title and interest to such Notes free of any adverse claim therein), at a price, payable in immediately available funds by wire transfer to the account specified pursuant to paragraph 11.A hereof or to such other account as may be specified in such notice, equal to the Agreed Put Consideration. Promptly after (and, in any event, within two (2) Business Days of) its receipt of any Notice of Sale, the Company shall give substantially simultaneous written notice thereof to all other holders of Notes. Each holder of Notes shall have the rights specified in this paragraph 4.E with respect to each Designated Event which shall occur, regardless of any act or omission to act with respect to any previous Designated Event. 4F. RETIREMENT OF NOTES. The Company shall not, and shall not permit any of the Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their stated final maturity (other than by prepayment pursuant to paragraph 4A or paragraph 4B or upon acceleration of such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire, directly or indirectly (other than pursuant to paragraph 4E hereof, paragraph 4G or paragraph 5I hereof), Notes held by any holder unless the Company or such Subsidiary or Affiliate shall have offered to prepay or otherwise retire or purchase or otherwise acquire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each other holder of Notes at the time outstanding upon the same terms and conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of the Subsidiaries or Affiliates shall not be deemed to be outstanding for any purpose under this Agreement except as provided in paragraph 4D hereof. 4G. TENDER OF NOTES IN PAYMENT OF WARRANT EXERCISE PRICE. The Warrant Agreement will provide that the purchase price for the Warrants issuable thereunder may be paid, in whole or in part, by a tender of Notes. The Company shall be deemed to have reacquired a principal amount of Notes equal to the aggregate principal amount of Notes tendered in payment of the A-8 Warrant exercise price, and such Notes so deemed to have been reacquired shall not be considered outstanding for any purposes of this Agreement. In the event that less than the entire outstanding principal amount of a Note is tendered in payment of the Warrant exercise price, the Company shall issue and deliver to the holder thereof a new Note equal in principal amount to the outstanding principal amount of the Note so tendered less the portion thereof applied to the Warrant exercise price. 5. AFFIRMATIVE COVENANTS. 5A. PAYMENT OF TAXES AND CLAIMS. The Company will, and will cause each Subsidiary to, pay before they become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or its Property, and (ii) all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons that, if unpaid, will more likely than not result in the creation of a Lien upon its Property, provided that items of the foregoing description need not be paid while being contested in good faith and in an appropriate manner. 5B. MAINTENANCE OF PROPERTIES AND CORPORATE EXISTENCE; OTHER MATTERS. The Company will, and will cause each Subsidiary to, (i) PROPERTY -- maintain its Property in good condition and make all necessary renewals, replacements, additions, betterments and improvements thereto; (ii) INSURANCE -- (a) maintain, with financially sound and reputable insurers, insurance (or maintain self-insurance, including without limitation, insurance with subsidiaries, if that shall be reasonable in the circumstances) with respect to its Property and business against such casualties and contingencies, of such types (including, without limitation, loss or damage, public liability, business interruption, larceny, embezzlement or other criminal misappropriation) and in such amounts as is reasonably appropriate for the risks associated with the business of the Company and the Subsidiaries; and (b) at the request of any Significant Holder, deliver to such Significant Holder for examination, as soon as practicable, policies or certificates of insurance or self-insurance or certificates of insurance brokers evidencing compliance with the provisions of this clause (ii); (iii) FINANCIAL RECORDS -- keep true books of records and accounts in which full and correct entries shall be made of all its business transactions so that the financial statements required by paragraph 5D hereof may be prepared in accordance with generally accepted accounting principles as in effect at the time of such preparation; A-9 (iv) CORPORATE EXISTENCE AND RIGHTS -- maintain, preserve and renew the Company's existence as a corporation organized under the laws of a state of the United States of America; (v) COMPLIANCE WITH LAW -- not be in violation of any law, ordinance or governmental rule or regulation to which it is subject (including, without limitation, laws, ordinances, rules or regulations relating to environmental matters) and not fail to obtain any license, permit, franchise or other governmental authorization necessary to the ownership of its Properties or to the conduct of its business, which violation or failure to obtain will, more likely than not, materially adversely affect the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes; (vi) OFFERING OF NOTES -- take no action (and will allow no agent acting on its behalf to take any action) that would subject the issuance or sale of the Notes to the provisions of section 5 of the Securities Act or to the registration or qualification provisions of any securities or Blue Sky law of any applicable jurisdiction; and (vii) USE OF PROCEEDS -- use the proceeds of sale of the Notes to repay Debt of the Company, to reduce the amount of receivables sold pursuant to the Trade Receivables Agreement and for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System (herein called "margin stock") or for the purpose of maintaining, reducing or retiring any Debt which was originally incurred to purchase or carry any stock that is currently a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation G. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation G, Regulation T, Regulation U, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as was in effect on the Closing Date, as is now in effect or as the same may hereafter be in effect. 5C. PAYMENT OF NOTES AND MAINTENANCE OF OFFICE. The Company will punctually pay, or cause to be paid, the principal and interest (and Yield- Maintenance Amount, if any) to become due in respect of the Notes according to the terms thereof and shall maintain an office at the address of the Company set forth in paragraph 11K hereof where notices, presentations and demands in respect of this Agreement or the Notes may be made upon it. Such office shall be maintained at such address until such time as the Company shall notify in writing the holders of the Notes of any change of location of such office. 5D. FINANCIAL STATEMENTS. The Company covenants that it will deliver to each Significant Holder in quadruplicate: (i) as soon as practicable and in any event within sixty (60) days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of income and cash flows of the Company and the Subsidiaries A-10 for such period and for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company and the Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, accompanied by additional financial statements containing the same information prepared in accordance with generally accepted accounting principles as then in effect if the accounting principles applied by the Company in the preparation of the financial statements first described in this clause (i) differ in any material respect from generally accepted accounting principles as then in effect, in both cases in reasonable detail and satisfactory in form to the Required Holders and certified by an authorized financial officer of the Company, subject to changes resulting from year-end adjustments, provided, however, that so long as the accounting principles applied by the Company in the preparation of the financial statements first described in this clause (i) do not differ in any material respect from generally accepted accounting principles as then in effect, delivery pursuant to clause (iii) below of copies of the Quarterly Report on Form 10-Q of the Company for such quarterly period filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i) (provided that such Form 10-Q is accompanied by any other financial information incorporated by reference in such Form 10-Q, and provided further, that the Company provide to each holder of Notes who so requests in writing any document incorporated by reference in such Form 10-Q); (ii) as soon as practicable and in any event within 90 days after the end of each fiscal year, consolidating and consolidated statements of income and cash flows and a consolidated statement of stockholders' equity of the Company and the Subsidiaries for such year, and a consolidating and consolidated balance sheet of the Company and the Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding annual audit, accompanied by additional financial statements containing the same information prepared in accordance with generally accepted accounting principles as then in effect if the accounting principles applied by the Company in the preparation of the financial statement first described in this clause (ii) differ in any material respect from generally accepted accounting principles as then in effect, in both cases all in reasonable detail and satisfactory in form to the Required Holders and, as to the consolidated statements prepared in accordance with generally accepted accounting principles as then in effect, reported on by independent public accountants of recognized national standing selected by the Company whose report shall be without limitation as to the scope of the audit and satisfactory in form and substance to the Required Holders and, as to the consolidating statements and financial statements not certified by such independent public accountants, certified by an authorized financial officer of the Company, provided, however, that so long as the accounting principles applied by the Company in the preparation of the financial statements first described in this clause (ii) do not differ in any material respect from generally accepted accounting principles as then in effect, delivery pursuant to clause (iii) below of copies of the Annual Report on Form 10-K of the Company for such fiscal year filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii) (provided that such Form 10-K is accompanied by any other financial information incorporated by reference in such Form 10-K, and provided further, that the Company provide to each holder of Notes who so requests in writing any document incorporated by reference in such Form 10-K); A-11 (iii) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as it shall send to its public stockholders and copies of all registration statements (without exhibits) and all reports which it files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); (iv) a copy of each other report submitted to the Company or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company or any Subsidiary (to be provided to each Significant Holder at such time, if any, as the contents of or analysis contained within any such report is (or becomes likely to be) incorporated into a Form 10-Q or a Form 10-K filing to be made by the Company with the Securities and Exchange Commission); (v) copies of all agreements governing and instruments evidencing Debt (other than Debt of a type described in subsection (vi) of the definition of Debt) of the Company or any Consolidated Subsidiary containing any Financial Covenant, and all agreements amending, modifying or supplementing any such agreement or instrument affecting, adding or deleting any Financial Covenant, in each case, entered into on or after the First Amendment Date; (vi) all certificates and notices delivered or required to be delivered to the holders of any other Debt of the Company or any Consolidated Subsidiary on or after the First Amendment Date, in each case, in connection with the compliance by the Company or any Consolidated Subsidiary with any Financial Covenant; and (vii) with reasonable promptness, such other financial data as such Significant Holder may reasonably request. Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to each Significant Holder an Officer's Certificate (a) demonstrating (with computations in reasonable detail, where appropriate) compliance by the Company and the Subsidiaries with the provisions of paragraph 6A through paragraph 6M hereof and paragraph 5I, (b) demonstrating a reconciliation in reasonable detail of the differences between financial statements prepared in accordance with generally accepted accounting principles as then in effect and any other similar financial statements provided contemporaneously therewith prepared other than in accordance with generally accepted accounting principles, (c) stating that there exists no Event of Default or Default, or, if any Event of Default or Default exists, specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto, and (d) stating whether or not there has been any material change in the self-insurance requirements of the Company. Together with each delivery of financial statements required by clause (ii) above, the Company will deliver to each Significant Holder a certificate of such accountants stating that, in making the audit necessary for their report on such financial statements, they have obtained no knowledge of any Event of Default or Default, or, if they have obtained knowledge of any Event of Default or Default, specifying the nature and period of existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Event A-12 of Default or Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. 5E. DEFAULT NOTICES. The Company covenants that immediately after any Responsible Officer obtains knowledge of an Event of Default or Default, it will deliver to each Significant Holder an Officer's Certificate specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. 5F. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it will, upon the request of any Significant Holder, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such Significant Holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Notes, except at such times as the Company is subject to the reporting requirements of sections 13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5F, the term "qualified institutional buyer" shall have the meaning specified in Rule 144A under the Securities Act. 5G. INSPECTION OF PROPERTY. The Company will permit any Person designated in writing by any Significant Holder, at such Significant Holder's expense (or if an Event of Default or a Default shall exist, at the expense of the Company), to visit and inspect any of the Properties of the Company and the Subsidiaries, to examine the corporate books and financial records of the Company and the Subsidiaries and make copies thereof or extracts therefrom, all at such reasonable times and as often as such Significant Holder may reasonably request. In addition, so long as (i) a Default or an Event of Default shall have occurred and be continuing, (ii) in the reasonable judgment of any Significant Holder, a material adverse change shall have occurred with respect to the business or financial condition of the Company and the Subsidiaries taken as a whole, or (iii) any Significant Holder shall have a reasonable basis for questioning the validity of any line item in any financial statement of the Company or the validity of such financial statement as a whole, the Company will permit any Person designated in writing by any Significant Holder to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and its independent public accountants, all at such reasonable times and as often as such Significant Holder may reasonably request. 5H. COVENANT TO SECURE NOTE EQUALLY. The Company covenants that, if it or any Subsidiary shall create or assume any Lien upon any of its Property, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 6A hereof or any similar provision incorporated herein by reference (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to paragraph 11C hereof), it will make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured so long as any such other Debt shall be so secured. A-13 5I. INVOLUNTARY PREPAYMENT. (i) Upon the occurrence of any Prepayment Event, the Company shall make an offer to the holders of Notes to repurchase the Notes as set forth in this paragraph 5I. Immediately upon the occurrence of the Prepayment Event but in any event within five (5) Business Days thereafter, the Company shall give each holder of the Notes substantially simultaneous written notice thereof describing such Prepayment Event in reasonable detail including, without limitation, a description of the issue of Debt giving rise to such Prepayment Event, the facts and circumstances surrounding the occurrence thereof, the manner of the prepayment, redemption or defeasance of such other Debt in connection therewith and the manner specified in this paragraph 5I of accepting or rejecting such offer by the holder. Such notice shall also contain the Company's offer (the "Prepayment Offer") to purchase from each such holder of Notes a principal amount of the Notes held by such holder equal to its Noteholder Share of the Ratable Prepayment Amount at a purchase price equal to the Agreed Put Consideration. (ii) A holder of Notes may accept the Prepayment Offer, in whole or in part, through a written acceptance (the "Noteholder Acceptance") delivered to the Company within forty-five (45) days of such holder's receipt of the Prepayment Offer (the "Offer Period"). Promptly after (and, in any event, within two (2) Business Days of) its receipt of any Noteholder Acceptance, the Company shall give substantially simultaneous written notice thereof to all other holders of Notes. (iii) If such holder shall accept the offer, the Company shall purchase that portion (the "Prepayment Portion"), expressed as a percentage, of the principal amount of Notes held by such holder specified in its Noteholder Acceptance, provided that the principal amount of Notes the Company is required to purchase shall not exceed such holder's Noteholder Share of the Ratable Prepayment Amount. Such purchase shall be made on the fifteenth (15th) day after the expiration of the Offer Period or, if later, the first day on which any holder of any other issue of Debt would receive a prepayment in respect of such Prepayment Event but in no event later than sixty (60) days after the expiration of the Offer Period. On the date of purchase, such holder shall sell the Prepayment Portion of such Notes to the Company without recourse, representation or warranty (other than as to such holder's full right, title and interest to the Prepayment Portion of such Notes free of any adverse claim created by such holder therein), at a price, payable in immediately available funds by wire transfer to the account specified pursuant to paragraph 11.A hereof or to such other account as may be specified in such notice, equal to the Agreed Put Consideration. (iv) Upon any partial prepayment of a Note pursuant to this paragraph 5I, such Note may, at the option of the holder thereof, be: (a) surrendered to the Company, in which case the Company shall promptly execute and issue to the holder thereof a new Note in a principal amount equal to the principal amount remaining unpaid on the surrendered Note after giving effect to such prepayment; or A-14 (b) made available to the Company for notation thereon of the portion of the principal so prepaid. In case the entire principal amount of any Note is prepaid, such Note shall be surrendered to the Company for cancellation and shall not be reissued, and no Note shall be issued in lieu of the prepaid principal amount of any Note. (v) If the occurrence of any Prepayment Event causes the Company or any Subsidiary to defease, prepay, repurchase or have a reduction in the available commitment under any issue of Debt prior to the time that any Notes would be repurchased hereunder, then simultaneously with such defeasance, prepayment, repurchase or reduction in respect of such other Debt, the Company shall pay to each holder an amount equal to its Noteholder Share of the Ratable Prepayment Amount at a purchase price equal to the Agreed Put Consideration, which payment shall satisfy all obligations of the Company to the holders in respect of clauses (i) through (iii), inclusive, of this paragraph 5I. At the time of the making of such payment, the Company shall notify the holder of such payment in writing, which notice shall state that such payment is being made pursuant to this paragraph 5I(v), shall contain a description of the issue of Debt giving rise to such Prepayment Event, the facts and circumstances surrounding the occurrence thereof and the manner of the prepayment, redemption or defeasance of such other Debt in connection therewith (unless such information shall have been contained in a previously delivered notice pursuant to paragraph 5I(i) with respect to such Prepayment Event) and describe the procedure detailed in this paragraph 5I(v) pursuant to which a holder may elect to rescind such payment. In the event that a holder of Notes receiving a payment pursuant to this paragraph 5I(v) elects to rescind the prepayment arising from such Prepayment Event with respect to all Notes or any portion of the Notes held by such holder, such holder shall deliver to the Company, within forty-five (45) days of such holder's receipt of the notice specified in this paragraph 5I(v), written notice of such recision, and shall contemporaneously pay to the Company in immediately available funds an amount equal to the amount so paid such holder pursuant to this paragraph 5I(v) or, in the case of a recision with respect to only a portion of the prepayment made to such holder, an amount equal to that portion of such prepayment which such holder wishes to rescind. (vi) Each holder of Notes shall have the rights specified in this paragraph 5I with respect to each Prepayment Event which shall occur, regardless of any act or omission to act with respect to any previous Prepayment Event. In the event that the Prepayment Event is also a Designated Event subject to paragraph 4 of this Agreement, the Company shall comply with the provisions of clause (v) of this paragraph 5I with respect to the matters contained therein; in all other respect such Designated Event will be treated as a Designated Event and not as a Prepayment Event, and the Company will be required to comply with paragraph 4E in connection therewith. In the event that the Prepayment Event would also be an event which results in an Event of Default, this paragraph 5I shall not be deemed to in any respects limit the rights and remedies of the holders under paragraph 7. A-15 (vii) Prepayments made pursuant to this paragraph 5I shall be applied ratably to the obligations of the Company to make required prepayments in respect of the Notes pursuant to paragraph 4A hereof and to pay the remaining principal amount thereof at maturity. 6. NEGATIVE COVENANTS. 6A. LIMITATIONS ON LIENS. (i) NEGATIVE PLEDGE. The Company will not, and will not permit any Subsidiary to, create, assume, or suffer to exist any Lien upon any of the Property of the Company or any Subsidiary, whether now owned or hereafter acquired, except: (a) Liens securing Debt and other obligations in an aggregate principal amount at any time not exceeding ten percent (10%) of Consolidated Tangible Net Worth at such time, provided, however, that neither the Company nor any Subsidiary shall create, assume or otherwise incur any Lien upon any of its respective Properties unless the Company is in compliance with paragraph 6L of this Agreement; (b) Liens arising out of transactions contemplated by the terms of the Trade Receivables Agreement; (c) Purchase Money Mortgages if, after giving effect thereto and to any concurrent transactions: (i) each such Purchase Money Mortgage secures an amount not exceeding one hundred percent (100%) of the cost of the particular Property to which it relates (or, in the case of a Lien existing on any Property of any corporation at the time it becomes a Subsidiary, the Fair Market Value of such Property at such time); (ii) such Purchase Money Mortgage encumbers only Property (A) purchased after the Closing Date and (B) acquired with the proceeds of the Debt secured thereby; and (iii) such Property was acquired in the ordinary course of business of the corporation acquiring such Property, provided, however, that neither the Company nor any Subsidiary shall create, assume or otherwise incur any Purchase Money Mortgage unless the Company is in compliance with paragraph 6L of this Agreement; (d) Liens incurred in connection with Lease Transactions to the extent that such Liens encumber Property covered by such Lease Transactions; provided, however, that neither the Company nor any Subsidiary shall create, assume or otherwise incur any such Liens unless the Company is in compliance with paragraph 6L of this Agreement, and provided further that, immediately after A-16 giving effect to the investment of the Company or the Subsidiary in such Lease Transaction, the aggregate amount of the investments then outstanding of the Company and the Subsidiaries in all Lease Transactions does not exceed Fifty Million Dollars ($50,000,000), it being agreed that for the purpose of such calculation the amount of each investment shall be determined on a Net After-Tax Cash Basis; (e) Liens upon San Marcos Bonds, and the proceeds thereof, which have been repurchased upon tender by the holders thereof in accordance with the terms of the indenture governing such San Marcos Bonds, until, but only until, the trustee with respect to such San Marcos Bonds has received the purchase price therefor upon the remarketing thereof and the issuer of the letter of credit that was drawn in connection with such tender has been reimbursed for such amounts drawn; provided, however, that the Company shall actively seek to remarket such bonds pursuant to the provisions of the IDB Financing of the Company's San Marcos, Texas facility or, to the extent necessary in connection with any termination of any outstanding letter of credit relating to such facility, to modify the structure of such IDB Financing to the extent necessary to permit a long-term reissuance of the repurchased San Marcos Bonds; and (f) unless, at the time of incurrence thereof, a Default or an Event of Default shall occur or be continuing, Liens incurred in connection with the deposit of cash collateral to secure reimbursement obligations of the Company relating to the San Marcos Bonds, but only in connection with the extension of an outstanding letter of credit relating to such facility and only in an amount of cash collateral not exceeding the maximum amount which may be drawn under such letter of credit; provided, however, that the Company shall actively seek to obtain a replacement letter of credit that does not require cash collateralization (and thus relieves the Company of any requirement to deposit cash collateral or to secure such reimbursement obligations); it being understood that each such Lien may be allocated by the Company to any one of the preceding categories in which it may, by the terms of such category, be included. (ii) FINANCING STATEMENTS. The Company will not, and will not permit any Subsidiary to, sign or file a financing statement under the Uniform Commercial Code of any jurisdiction that names the Company or such Subsidiary as debtor, or sign any security agreement authorizing any secured party thereunder to file any such financing statement, except, in any such case, a financing statement filed or to be filed to perfect or protect a Lien that the Company or such Subsidiary is entitled to create, assume or incur, or permit to exist, under the foregoing provisions of this paragraph 6.A or to evidence for informational purposes a lessor's interest in Property leased to the Company or any such Subsidiary. A-17 6B. LIMITATIONS ON LEASES. (i) LIMITATIONS ON LEASES. The Company will not, and will not permit any Subsidiary to, at any time be or become liable at any time as lessee under any lease (other than a lease giving rise to a Capitalized Lease Obligation) having an original (or then unexpired) term of one year or more if: (a) the aggregate Net Rentals payable in any period of twelve (12) consecutive calendar months following such time under such lease and all other such leases under which the Company or a Subsidiary is lessee, minus (b) all amounts of a similar nature due from sub-lessees under such leases that are reasonably expected to be collected during the same period, would exceed ten percent (10%) of Consolidated Tangible Net Worth at such time. (ii) SUBSIDIARY. Any corporation that becomes a Subsidiary after the Closing Date shall be deemed to have become liable as lessee, at the time it becomes a Subsidiary, under all leases (under which it is liable as lessee) of such corporation existing immediately after it becomes a Subsidiary. 6C. LIMITATIONS ON INDEBTEDNESS. The Company will not, and will not permit any Subsidiary to, create, issue, assume or guarantee any Debt (other than Intercompany Debt) except that: (i) on or prior to April 26, 1997: (a) the Company may incur Debt under the Credit Agreement or an Acceptable Replacement Credit Facility; (b) the Company may incur the 1994 Senior Debt and the 1994 Subordinated Debt; (c) the Company and the Subsidiaries may incur unsecured 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; (d) the Subsidiaries may incur Debt under revolving credit facilities so long as the aggregate amount of all such Debt outstanding at any time shall not exceed $5,000,000; (e) the Company and the Subsidiaries may incur Debt described in clause (vi) of the definition of "Debt" contained in paragraph 10B; (f) Debt incurred in connection with the resale or remarketing of San Marcos Bonds, but only to the extent that: A-18 (i) San Marcos Bonds in an aggregate principal amount of Sixteen Million Five Hundred Thousand Dollars ($16,500,000) were issued and outstanding and held and owned by Persons other than the Company, any Subsidiary or any Affiliate on May 10, 1994; and (ii) the San Marcos Bonds to be resold or remarketed were repurchased by the Company upon tender by the holders thereof after May 10, 1994 in accordance with the terms of the indenture governing the San Marcos Bonds; and (g) replacement unsecured San Marcos Bonds, in an aggregate principal amount not exceeding Sixteen Million Five Hundred Thousand Dollars ($16,500,000), if, and only if, Sixteen Million Five Hundred Thousand Dollars ($16,500,000) in aggregate amount of San Marcos Bonds were redeemed in full as a result of the failure of the bank which has issued any letter of credit relating to the San Marcos Bonds to extend or renew such outstanding letter of credit (for the avoidance of doubt, the aggregate principal amount of San Marcos Bonds and replacement San Marcos Bonds, whether outstanding on the date hereof or thereafter issued pursuant to clause (f) or clause (g) of this paragraph 6C(i), shall not exceed Sixteen Million Five Hundred Thousand Dollars ($16,500,000) at any time); in each case, so long as after the incurrence thereof, and after giving effect thereto, no Default or Event of Default (including any Default or Event of Default arising out of any breach of paragraph 6R hereof) shall have occurred or be continuing; and (ii) on or after April 27, 1997, and at any time during any period set forth in the tables below, the Company or any Subsidiary may incur Debt if, immediately after giving effect to such incurrence of Debt: (a) Consolidated Senior Debt would not exceed the percentage applicable to such period of the sum of Consolidated Total Debt plus Consolidated Tangible Net Worth, all as set forth in the table immediately below: If such time occurs during the period: Percentage: ------------------------------------- ---------- From April 27, 1997 through and including July 31, 1998 38.00% At all times on or after August 1, 1998 35.00%; and (b) Combined Subsidiary Debt would not exceed five percent (5%) of Consolidated Tangible Net Worth; A-19 and so long as after the incurrence thereof, and after giving effect thereto , no Default or Event of Default (including any Default or Event of Default arising out of any breach of paragraph 6L or paragraph 6R hereof) shall have occurred or be continuing. 6D. LIMITATIONS ON MERGERS AND SALES OF ASSETS. The Company will not, and will not permit any Subsidiary to (whether in a single transaction or a series of transactions), consolidate with, merge into or transfer substantially all of its Property (whether now owned or hereafter acquired) to any other Person, or permit any other Person to consolidate with, merge into, or transfer substantially all of its Property to, the Company, except that any Subsidiary may merge or consolidate with or into, or transfer substantially all of its Property to, or acquire substantially all of the Property of, any other Person and the Company may merge or consolidate with or into, or acquire substantially all of the Property of, any other Person, if: (i) in the case of any merger or consolidation involving the Company, the corporation that results from such merger or consolidation is organized under the laws of the United States of America or any jurisdiction thereof and such corporation expressly assumes in writing the due and punctual payment of the principal of, and Yield-Maintenance Amount, if any, and interest on, all of the Notes, according to their tenor, and the due and punctual performance and observance of all the covenants in the Notes and this Agreement to be performed or observed by the Company, all in an agreement or instrument satisfactory in form and substance to the Required Holders; (ii) immediately after the consummation of the transaction, and after giving effect thereto, the Company, the corporation that results from any such merger or consolidation with the Company or the Person that acquires such Property from the Company, and in each case, its Subsidiaries shall be engaged principally in the businesses of either or both of manufacturing and distributing aerospace products or technically related products and of providing services related to such products; (iii) immediately after the consummation of the transaction, and after giving effect thereto, no Event of Default or Default would exist; and (iv) immediately after the consummation of the transaction, and after giving effect thereto, the Company could incur at least One Dollar ($1.00) of additional Debt pursuant to paragraph 6.C hereof. 6E. ADJUSTED CONSOLIDATED TANGIBLE NET WORTH MAINTENANCE. The Company will maintain at all times Adjusted Consolidated Tangible Net Worth of not less than the sum of: (i) $125,000,000; plus (ii) the sum of the Fiscal Quarter Net Worth Increase Amounts for each fiscal quarter of the Company ended after July 31, 1994; plus (iii) the aggregate amount of all capital contributions (which amount shall include, without limitation, all amounts attributable to the conversion of debt of the Company to equity of the Company, valued at the amount added to A-20 stockholders' equity in accordance with GAAP) received by the Company or any Consolidated Subsidiary (in each case, other than contributions originally made by the Company or any Consolidated Subsidiary) in cash, in Property other than cash or by conversion of Debt of the Company at any time after the Third Amendment Date. 6F. LIMITATIONS ON DISTRIBUTIONS. (i) LIMIT ON DISTRIBUTIONS. The Company will not, and will not permit any Subsidiary to, at any time declare or make or incur any liability to declare or make any Distribution; provided, however, that: (a) the Company may, repurchase, purchase, redeem or otherwise acquire shares of its common stock or warrants, rights or options to acquire such stock issued pursuant to Restricted Stock Plans, Stock Option Plans, Stock Incentive Plans, the Rights Agreement, the ESOP, or Non-Employee Directors Stock-Option Plans; (b) the Company may declare or make any Distribution if, immediately after giving effect to such Distribution, (i) the Debt Ratio would not exceed 2.50:1.00; (ii) the Company could incur $1.00 of additional Debt pursuant to paragraph 6.C hereof; (iii) if the time of declaration or making, as the case may be, of such Distribution is on or prior to April 26, 1997, Consolidated Senior Debt at such time would not exceed thirty- eight percent (38%) of the sum of Consolidated Total Debt plus Consolidated Tangible Net Worth at such time; and (iv) after giving effect to such transactions, no Event of Default or Default would then exist; and (c) the Company may declare or make any Permitted Preferred Dividend if, prior to and immediately after giving effect to such Permitted Preferred Dividend, no Default or Event of Default shall exist. (ii) TIME OF PAYMENT. The Company will not authorize a Distribution on its capital stock which is not payable within sixty (60) days of authorization. A-21 6G. FIXED CHARGE COVERAGE. The Company will maintain for each day 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 to Consolidated Fixed Charges for such period, of not less than the ratio set forth in the chart below opposite the period set forth below in which such day occurs:
Period Ratio ------ ----- Fiscal Year 1994 1.40 to 1.00 Fiscal Year 1995 1.55 to 1.00 Fiscal Year 1996 1.90 to 1.00 Fiscal Year 1997 and thereafter 2.00 to 1.00;
6H. LIMITATIONS ON CAPITAL EXPENDITURES. The Company will not, and will not permit any Subsidiary to, make, on or before April 26, 1997, any expenditures for fixed or capital assets which would cause the aggregate of all such expenditures made by the Company and the Subsidiaries in any period of four full consecutive fiscal quarters to exceed the sum of the amounts set forth below opposite such four fiscal quarters:
Fiscal Quarters Amounts --------------- ------- Each Fiscal Quarter 1994 $4,500,000 Each Fiscal Quarter 1995 $6,000,000 Each Fiscal Quarter 1996 $7,500,000 Each Fiscal Quarter 1997 $7,500,000.
6I. PRIVATE OFFERING. The Company will not, and will not permit anyone acting on its behalf to, offer the Notes or any part thereof or any similar Securities for issue or sale to, or solicit any offer to acquire any of the same from, anyone so as to bring the issuance and sale of the Notes within the provisions of Section 5 of the Securities Act. 6J. TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any Subsidiary to, sell or transfer any Property to, or purchase or acquire any Property of, or otherwise engage in any other transaction with, any Affiliate, except at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, provided, however, that this paragraph 6J shall not prohibit any transaction between (i) the Company or any Subsidiary and (ii) any Affiliate that is an EEC Affiliate, if such transaction will not have a material, adverse effect on the business, condition (financial or otherwise) or operations of the Company, any Subsidiary or any EEC Affiliate. 6K. LINE OF BUSINESS. The Company shall not, nor shall it permit any Subsidiary to, make any change in the nature of its business if such change would constitute a material change in the nature of the business of the Company and the Subsidiaries taken as a whole as conducted on the Closing Date, or commence or permit any Subsidiary to commence any major project for the development of a new line of products or services other than aerospace products or technically related products or services related to such products; provided that the Company or any Subsidiary may commence any project for the development of such new line of products A-22 or services if, and only if, the aggregate costs and expenses related to all such projects (including, without limitation, budgeted costs (determined from time to time) for such new project minus any reasonably budgeted reimbursements for such costs due from parties other than the Company or the Subsidiaries) shall not exceed ten percent (10%) of Consolidated Tangible Net Worth at the time each such project is commenced. 6L. LIMITATION ON CERTAIN OBLIGATIONS. The Company will not at any time permit the sum of (w) obligations secured by Liens allocated by the Company to the category described in paragraph 6A(i)(a) hereof, (x) obligations secured by Liens allocated by the Company to the category described in paragraph 6A(i)(c) hereof, (y) obligations secured by Liens allocated by the Company to the category described in paragraph 6A(i)(d) hereof which obligations were incurred on or subsequent to the Closing Date, and (z) Combined Subsidiary Debt, in each case at such time, to exceed fifteen percent (15%) of Consolidated Tangible Net Worth at such time. 6M. INCORPORATION OF NEGATIVE COVENANTS. (i) During all such times as both the Credit Agreement shall remain in force, and either any Debt shall be outstanding thereunder or the lenders party thereto shall have any obligation to lend or make advances thereunder: (a) the provisions of paragraph 6A (except for clauses (i)(e) and (i)(f) thereof, to the extent provided in paragraph 6M(i)(c) below) and paragraph 6B of this Agreement shall be of no force and effect; (b) the provisions of Sections 5.02(b), 5.02(c), 5.02(d), 5.02(e), 5.02(g), 5.02(h) and 5.02(i) of the Credit Agreement, as in effect on the Third Amendment Date (after giving effect to the Seventh Amendment to the Credit Agreement), but without amendment, supplement or modification (except as set forth in paragraph 6M(ii) hereof), and together with all relevant definitions pertaining thereto, shall be incorporated herein by reference, mutatis mutandis; (c) the Company shall not, nor shall it permit any Subsidiary to, create, assume or suffer to exist any Lien securing any Debt existing on the date hereof or incurred thereafter in connection with any IDB Financing, except for such Liens as are expressly permitted by the provisions of clause (e) or clause (f) of paragraph 6A(i) hereof; provided, however, that at all times during which either the Credit Agreement shall be of no force or effect, or there shall be no Debt outstanding thereunder and no obligation on the part of the lenders thereto to lend or make any advance thereunder, the provisions of paragraph 6A and paragraph 6B of this Agreement shall be in full force and effect. (ii) If at any time: (a) after the Third Amendment Date, the Credit Agreement is amended, supplemented or modified to provide Financial Covenants in addition to, or which are more restrictive of the Company or the Consolidated Subsidiaries than, the provisions of the Credit Agreement, as in effect on the Third Amendment Date A-23 (after giving effect to the Seventh Amendment to the Credit Agreement dated as of such date); (b) after the First Amendment Date, the Company enters into any other agreement governing, or executes any other instrument evidencing, any Debt (or any commitment to lend), other than Debt or commitments solely among the Company and/or one or more Consolidated Subsidiaries; or (c) after the First Amendment Date, the Company enters into any amendment, supplement or modification of any agreement governing, or any instrument evidencing, any Debt (or any commitment to lend), other than Debt or commitments solely among the Company and/or one or more Consolidated Subsidiaries; then, and in each such case, each Financial Covenant set forth in such amendment, supplement, modification or other agreement or instrument shall be incorporated by reference herein for the remaining term of such agreement or instrument, but only to the extent that such covenant is more restrictive of the Company or the Consolidated Subsidiaries than the corresponding provision of this Agreement. (iii) In the event that any Financial Covenant contained in any other agreement governing, or instrument evidencing, any Debt (or commitment to lend), which Financial Covenant has been or is incorporated into this Agreement pursuant to the provisions of paragraph 6M(ii) hereof, is amended, supplemented or modified to make such Financial Covenant less restrictive of the Company or the Consolidated Subsidiaries than the incorporated Financial Covenant, the more restrictive incorporated Financial Covenant shall continue to be incorporated herein for the remaining term of such agreement or instrument notwithstanding such amendment, supplement or modification. Notwithstanding the foregoing sentence, if the provisions of such incorporated Financial Covenant were expressed when incorporated to be more restrictive on a temporary basis, or more restrictive only for a prescribed period, such more restrictive provision shall be incorporated herein only on such temporary basis or only for such prescribed period, as the case may be. (iv) No Financial Covenant incorporated herein by virtue of paragraph 6M(ii) or paragraph 6M(iii) hereof shall supersede, replace, amend, supplement or modify any other provision of this Agreement, including any covenant contained herein which addresses a subject matter similar to that of such incorporated Financial Covenant. 6N. MAINTENANCE OF SENIOR STATUS. The Company will not take any action at any time to amend, modify or supplement any subordination provision (or any definition of any defined term as used in any such provision) in the Existing Subordinated Notes, the 1994 Subordinated Notes or any indenture governing the provisions of any thereof, or otherwise take any action which would result in any of the Existing Subordinated Notes or 1994 Subordinated Notes not being junior or subordinated in right of payment to the Notes to the same extent such Existing Subordinated Notes or 1994 Subordinated Notes, as the case may be, are subordinated to the Notes on the Third Amendment Date (after giving effect to the issuance of the 1994 Subordinated Notes). The Company shall not take any action which would result in the Notes not constituting, A-24 or not being fully entitled to the benefits of, "Senior Indebtedness" and "Designated Senior Indebtedness" as defined in the indenture governing the 1994 Subordinated Notes. 6O. CERTAIN AMENDMENTS. The Company shall not, nor shall it permit any Consolidated Subsidiary to, consent to any amendment, modification, supplement or waiver of: (i) any of the provisions of any of Sections 3.02, 3.03, 3.04 or 3.05 of the Credit Agreement, as in effect on the Third Amendment Date (after giving effect to the Seventh Amendment to the Credit Agreement), or any other provision referred to therein or any defined term as used therein, other than a waiver by the banks party thereto of any condition set forth therein; or (ii) any other provision of the Credit Agreement or, prior to April 25, 1997, any Acceptable Replacement Credit Facility, to the extent that such amendment, modification, supplement or waiver would have the effect of: (a) reducing the amount or availability of credit thereunder, changing the timing of or reducing the commitments of the lenders thereunder to lend or make credits available pursuant thereto; (b) making more restrictive upon the Company any condition precedent to the funding of the credits available thereunder; (c) requiring the Company or any Subsidiary to grant any lender thereunder any Lien securing the obligations thereunder; or (d) requiring the Company or any Subsidiary to maintain any deposit accounts in any minimum amount, compensating balances, cash management or clearing house relationship or similar arrangements, with the lenders thereunder; in each case, without the prior written consent of the Required Holders. 6P. SALES OF ASSETS. The Company will not, and will not permit any Consolidated Subsidiary to, at any time after the First Amendment Date, sell, lease, transfer or otherwise dispose of any Property (except for sales of inventory and of obsolete or surplus Property in the ordinary course of business, sales of accounts receivable, the issuance of director's qualifying shares and sales, leases, transfers or other dispositions of Property to the Company or a Consolidated Subsidiary (collectively, "Excepted Property")); provided, however, that the foregoing restrictions shall not apply to the sale, lease, transfer or other disposition of any such Property to any Person if all of the following conditions are met: (i) the book value of all such Property then being sold, leased, transferred or otherwise disposed of, together with the book value of all other Property (other than Excepted Property) sold, leased, transferred or otherwise disposed of by the Company and the Consolidated Subsidiaries since the First Amendment Date shall not, in the aggregate, exceed ten percent (10%) of Consolidated Tangible Assets, determined as of the end of the then most recently ended fiscal quarter of the Company; A-25 (ii) in the case of the sale, lease, transfer or other disposition of a Consolidated Subsidiary (whether by disposition of any capital stock of such Consolidated Subsidiary, the Property thereof or otherwise) or a line or segment of business of the Company or a Consolidated Subsidiary, in either case, substantially as an entirety (except with respect to the sale, lease, transfer or other disposition of capital stock of a Consolidated Subsidiary), the sum of: (A) that portion, expressed as a percentage, of Gross Operating Income attributable to or contributed by all Property of a type described in this paragraph 6P(ii) and then being sold, leased, transferred or otherwise disposed of, for the period of eight (8) full consecutive fiscal quarters most recently ended on or prior to the date of such sale, lease, transfer or other disposition; plus (B) with respect to each other sale, lease, transfer or other disposition of Property of a type described in this paragraph 6P(ii) occurring during the period beginning on the later of the First Amendment Date and the beginning of the eight full (8) fiscal quarters of the Company most recently ended prior to the consummation of the transaction referred to in clause (A) above, and ending on the date of the transaction referred to in clause (A) above, that portion, expressed as a percentage, of Gross Operating Income attributable to or contributed by such Property described in this clause (B) for the period of eight (8) full consecutive fiscal quarters most recently ended on or prior to the date of such sale, lease, transfer or other disposition thereof; shall not exceed ten percent (10%); (iii) in the good faith opinion of the board of directors of the Company (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 Company; and (iv) immediately after the consummation of such sale, lease, transfer or other disposition, and after giving effect thereto, no Default or Event of Default would exist. Sales and other dispositions of accounts receivable shall be subject to paragraph 6Q of this Agreement. Sales of all or any portion of the capital stock of a Consolidated Subsidiary shall, for purposes of determining the book value thereof in clause (i) above, be deemed to be the sale of all or such portion of the book value of the assets of the Consolidated Subsidiary which shall have issued such capital stock. Sales of all or a portion of the capital stock of any Consolidated Subsidiary shall, for purposes of determining its contribution to Gross Operating Income in clause (ii) above, be deemed to have contributed all or such portion of that proportion of Gross Operating Income attributable to the Consolidated Subsidiary which shall have issued such capital stock. As used in this paragraph 6P, the term `lease' shall mean an original lease, as lessor, by the Company or any Consolidated Subsidiary, and the continuance, extension or renewal of any existing lease shall not be treated as a lease pursuant to, or restricted by, this paragraph 6P. A-26 6Q. SALE OF RECEIVABLES. The Company covenants that it will not, and will not permit any Consolidated Subsidiary to, sell with recourse or otherwise sell for less than the face value thereof, any of its notes or accounts receivable, except pursuant to the Trade Receivables Agreement; provided, however, that the Company and any Consolidated Subsidiary may sell for book value the accounts receivable owing from any Person (i) that has commenced a voluntary case under the Bankruptcy Law of the United States or any proceedings under the Bankruptcy Law of any other jurisdiction, or (ii) against whom any such case or proceedings have been commenced and have remained undismissed for a period of at least sixty (60) days. 6R. DEBT RATIO. The Company shall not permit the Debt Ratio for any day to be greater than the ratio set forth opposite the period set forth in the chart below in which such day occurs:
Fiscal Year Ratio ----------- ----- 1994 5.60 to 1.00 1995 5.00 to 1.00 1996 4.10 to 1.00 1997 3.20 to 1.00 1998 2.80 to 1.00 1999 and thereafter 2.50 to 1.00.
7. EVENTS OF DEFAULT. 7A. ACCELERATION. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (i) the Company defaults in the payment of any principal of or Yield- Maintenance Amount payable with respect to any Note when the same shall become due, either by the terms thereof or otherwise as herein provided; or (ii) the Company defaults in the payment of any interest on any Note for more than five (5) days after the date due; or (iii) the Company or any Subsidiary defaults in any payment of principal of or interest on any obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for Property whether or not secured by a Purchase Money Mortgage or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or the Company or any Subsidiary fails to perform or observe any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due prior to any originally stated maturity, or to be repurchased by the Company or any Subsidiary, provided that the aggregate A-27 amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing or permitting acceleration shall occur and be continuing exceeds Fifteen Million Dollars ($15,000,000), and provided, further, that obligations for the deferred purchase price of goods or services (including, without limitation, Capitalized Lease Obligations and Purchase Money Mortgages) shall be excluded from the operation of this clause (iii) so long as such obligations are being contested in good faith by appropriate proceedings and adequate reserves have been established therefor; or (iv) any representation or warranty made by the Company herein, in the First Amendment, the Second Amendment, the Third Amendment or any other amendment, modification or supplement hereto, or in the Warrant Agreement, or by the Company or any of its officers in any writing furnished in connection with or pursuant to this Agreement (including, without limitation, the certificates furnished by the Company at the closing) shall be false in any material respect on the date as of which made; or (v) the Company or any Subsidiary shall fail to perform or observe any covenant contained in paragraph 6 hereof, in paragraph 4E hereof, paragraph 5E hereof or paragraph 5I hereof; or (vi) the Company fails to perform or observe any other agreement, term or condition contained herein, in the First Amendment, the Second Amendment, the Third Amendment or in the Warrant Agreement or the Warrants, and such failure shall not be remedied within thirty (30) days after the occurrence of such failure first becomes known to any Senior Officer of the Company; or (vii) the Company or any Subsidiary makes an assignment for the benefit of creditors; or (viii) any decree or order for relief in respect of the Company or any Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the "Bankruptcy Law"), of any jurisdiction; or (ix) the Company or any Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or the taking of possession by, a trustee, receiver, custodian, liquidator or similar official of the Company or any Subsidiary, or of any substantial part of the assets of the Company or any Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary) relating to the Company or any Subsidiary under the Bankruptcy Law of any other jurisdiction; or (x) any such petition or application is filed, or any such proceedings are commenced, against the Company or any Subsidiary and the Company or such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, A-28 and such order, judgment or decree remains unstayed and in effect for more than sixty (60) days; or (xi) any order, judgment or decree is entered in any proceedings against the Company decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than sixty (60) days; or (xii) any order, judgment or decree is entered in any proceedings against the Company or any Subsidiary decreeing a split-up of the Company or such Subsidiary that requires the divestiture of Properties representing at least ten percent (10%), or the divestiture of the stock of a Subsidiary whose assets represent at least ten percent (10%), of the consolidated assets of the Company and the Subsidiaries (determined in accordance with generally accepted accounting principles) or that requires the divestiture of assets, or stock of a Subsidiary, that shall have contributed at least ten percent (10%) to Consolidated Net Income for any of the three (3) fiscal years most recently ended as of the date such order, judgment or decree shall be entered, and such order, judgment or decree remains unstayed and in effect for more than sixty (60) days; or (xiii) a final judgment in an amount in excess of Fifteen Million Dollars ($15,000,000) is rendered against the Company or any Subsidiary and, within sixty (60) days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within sixty (60) days after the expiration of any such stay, such judgment is not discharged; or (xiv) the Company or any Subsidiary is generally not paying its debts as such debts become due; or (xv) the Company or any ERISA Affiliate, in its capacity as an employer under a Multiemployer Plan, makes a complete or partial withdrawal from such Multiemployer Plan resulting in the incurrence by such withdrawing employer of a withdrawal liability in an amount exceeding Ten Million Dollars ($10,000,000); or (xvi) any lender under the Credit Agreement or any Acceptable Replacement Credit Facility fails or refuses, or announces its intention to fail or refuse, to make any required advance under such Credit Agreement or any Acceptable Replacement Credit Facility, or refuses to lend due to or as a result of any material adverse change in the business, Properties, profits or condition (financial or otherwise) of the Company; or (xvii) there shall occur any "Change of Control" as defined in the indenture relating to the 1994 Subordinated Debt; then (a) if such event is an Event of Default specified in clause (i) or (ii) of this paragraph 7A, the holder of any Note (other than the Company or any of the Subsidiaries or Affiliates) may at its option, by notice in writing to the Company, declare such Note to be, and such Note shall thereupon be and become, immediately due and payable at par A-29 together with interest accrued thereon, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, (b) if such event is an Event of Default specified in clause (vii), (viii), (ix) or (x) of this paragraph 7A with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, and (c) if such event is not an Event of Default specified in clause (vii), (viii), (ix) or (x) of this paragraph 7A with respect to the Company, the Required Holders may at its or their option, by notice in writing to the Company, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, provided that the Yield-Maintenance Amount, if any, with respect to each Note shall be due and payable upon such declaration only if (x) such event is an Event of Default specified in any of clauses (i) to (vi), inclusive, of this paragraph 7A, (y) the Required Holders shall have given to the Company, at least ten (10) Business Days before such declaration, written notice stating its or their intention so to declare the Notes to be immediately due and payable and identifying one or more such Events of Default whose occurrence on or before the date of such notice permits such declaration and (z) one or more of the Events of Default so identified shall be continuing at the time of such declaration. 7B. RESCISSION OF ACCELERATION. At any time after any or all of the Notes shall have been declared immediately due and payable pursuant to paragraph 7A hereof, the Required Holders may, by notice in writing to the Company, rescind and annul such declaration and its consequences if (i) the Company shall have paid all overdue interest on the Notes, the principal of and Yield-Maintenance Amount, if any, payable with respect to any Notes which have become due otherwise than by reason of such declaration, and interest on such overdue interest and overdue principal and Yield-Maintenance Amount at the rate specified in the Notes, (ii) the Company shall not have paid any amounts which have become due solely by reason of such declaration, (iii) all Events of Default and Defaults, other than non-payment of amounts which have become due solely by reason of such declaration, shall have been cured or waived pursuant to paragraph 11C hereof, and (iv) no judgment or decree shall have been entered for the payment of any amounts due pursuant to the Notes or this Agreement. No such rescission or annulment shall extend to or affect any subsequent Event of Default or Default or impair any right arising therefrom. 7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be declared immediately due and payable pursuant to paragraph 7A hereof or any such declaration shall be rescinded and annulled pursuant to paragraph 7B hereof, the Company shall forthwith give written notice thereof to the holder of each Note at the time outstanding. 7D. OTHER REMEDIES. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under A-30 applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise. 8. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants as follows: 8A. SUBSIDIARIES. Annex 2 to this Agreement accurately states, (i) the name of each of the Subsidiaries, its jurisdiction of incorporation and the percentage of its Voting Stock owned by the Company and each other Subsidiary, and (ii) the name of each of the Company's joint ventures and the nature thereof. Each of the Company and the Subsidiaries has good and marketable title to all of the shares it purports to own of the stock of each Subsidiary, free and clear in each case of any Lien. All such shares have been duly issued and are fully paid and nonassessable. 8B. CORPORATE ORGANIZATION AND AUTHORITY. The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, (ii) has all requisite legal and corporate power and authority to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted, (iii) has all necessary licenses, certificates and permits to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted, except where the failure to have any such licenses, certificates and permits, together with all other such failures, would not be likely to have a material and adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes, and (iv) has duly qualified or has been duly licensed, and is authorized to do business and is in good standing as a foreign corporation, except where the failure to be so qualified, licensed and authorized in any jurisdiction, together with all such other failures, would not be likely to have a material and adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. The revenues and net income of the Company for the fiscal year ended July 31, 1992, and the total assets of the Company as of July 31, 1992, in each case exceed ninety percent (90%) of A-31 the consolidated revenues, consolidated net income, and consolidated assets of the Company and the Subsidiaries for such period and at such time. 8C. FINANCIAL STATEMENTS. The Company has furnished each Purchaser with the following financial statements, identified by a principal financial officer of the Company: (i) a consolidated balance sheet of the Company and its subsidiaries as at July 31 in each of the years 1990 to 1993, inclusive, and consolidated statements of income, stockholders' equity and cash flows of the Company and its subsidiaries for each such year, all reported on by Deloitte & Touche; and (ii) a consolidated balance sheet of the Company and its subsidiaries as at January 30, 1994 and January 31, 1993 and consolidated statements of income and cash flows for the three month period ended on each such date, prepared by the Company. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and year-end adjustments), have been prepared in accordance with generally accepted accounting principles as in effect at such time and consistently followed throughout the periods involved (except as otherwise noted therein) and show all liabilities, direct and contingent, of the Company and its subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Company and its subsidiaries as at the dates thereof, and the statements of income, stockholders' equity and cash flows fairly present the results of the operations of the Company and its subsidiaries and their cash flows for the periods indicated. There has been no material adverse change in the business, condition (financial or otherwise) or operations of the Company and the Subsidiaries taken as a whole since July 31, 1993, except for charges in the third Fiscal Quarter of Fiscal Year 1994 to shareholders' equity in connection with the increases in the underfunded status of the Company's pension plans, and to income in connection with the expensing of unamortized pension benefit past service costs, each as described in the Company's Quarterly Report on Form 10-Q for Fiscal Quarter ended January 30, 1994. 8D. ACTIONS PENDING. Except as set forth on Annex 3 hereto, it is not reasonably foreseeable that any action, suit, investigation or proceeding or group of similar actions, suits, investigations or proceedings (including, as such a group, without limitation, all actions, suits, investigations or proceedings arising out of federal or state environmental protection laws), pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries, or any properties or rights of the Company or any of the Subsidiaries, by or before any court, arbitrator or administrative or governmental body would result in any material adverse change in the business, condition (financial or otherwise) or operations of the Company and the Subsidiaries taken as a whole. 8E. OUTSTANDING DEBT. Neither the Company nor any of the Subsidiaries has outstanding any Debt except as permitted by paragraph 6C hereof. There exists no default under the provisions of any instrument evidencing such Debt or of any agreement relating thereto. 8F. TITLE TO PROPERTIES. Each of the Company and the Subsidiaries has good and indefeasible title to its respective real Properties (other than Properties that it leases) and good A-32 title to all of its other respective Properties, including the Properties reflected in the balance sheet as at January 30, 1994 referred to in paragraph 8C(ii) hereof (other than Properties disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted by paragraph 6A hereof. All leases necessary in any material respect for the conduct of the respective businesses of the Company and the Subsidiaries are valid and subsisting and are in full force and effect. 8G. PATENTS, TRADEMARKS, LICENSES, ETC. Each of the Company and the Subsidiaries owns or possesses all of the patents, trademarks, service marks, trade names, copyrights, licenses, and rights with respect thereto, necessary for the present conduct of its business, without any known conflict with the rights of others. 8H. TAXES. Each of the Company and the Subsidiaries has filed all federal, state and other income tax returns that are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with generally accepted accounting principles. 8I. CONFLICTING AGREEMENTS AND OTHER MATTERS. (i) RESTRICTIONS. Neither the Company nor any of the Subsidiaries is a party to any contract or agreement or subject to any charter or bylaw restriction that would, in the aggregate with all other such contracts, agreements, or charter or bylaw restrictions, be more likely than not to have a material and adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. (ii) CONFLICTS. Neither the execution nor delivery of this Agreement or the Notes, nor the offering, issuance and sale of the Notes, nor the fulfillment of nor the compliance with the terms and provisions hereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the Properties of the Company or any of the Subsidiaries pursuant to, the charter or bylaws of the Company or any of the Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of the Subsidiaries is subject. (iii) RESTRICTIONS ON DEBT. Neither the Company nor any of the Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) that limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type to be evidenced by the Notes except as set forth in the agreements listed in Annex 3 attached hereto. A-33 (iv) SALE IS LEGAL AND AUTHORIZED. Each of the sale of the Notes by the Company and compliance by the Company and each Subsidiary with all of the provisions of this Agreement and of the Notes: (a) is within the corporate powers of the Company and each Subsidiary; and (b) is legal and does not conflict with, result in any breach of any of the provisions of, constitute a default under, or result in the creation of any Lien upon any Property of the Company or any Subsidiary under the provisions of, any agreement, charter instrument, bylaw or other instrument to which it is a party or by which it or any of its Property may be bound. (v) NOTES ARE ENFORCEABLE. The obligations of the Company under this Agreement and the Notes are valid, binding and enforceable in accordance with the terms of this Agreement and the Notes, except the enforceability hereof or thereof, as the case may be, may be: (a) limited by bankruptcy, insolvency or other similar laws affecting the enforceability of creditors' rights generally; and (b) subject to the availability of equitable remedies. 8J. OFFERING OF NOTES. Neither the Company nor any agent acting on its behalf has, directly or indirectly, offered the Notes or any similar security of the Company for sale to, or solicited any offers to buy the Notes or any similar security of the Company from, or otherwise approached or negotiated with respect thereto with, any Person other than institutional investors, and neither the Company nor any agent acting on its behalf has taken any action that would subject the issuance or sale of the Notes to the provisions of section 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction. 8K. USE OF PROCEEDS. Neither the Company nor any Subsidiary owns or has any present intention of acquiring any margin stock. The proceeds of sale of the Notes will be used to repay Debt of the Company, to reduce the amount of receivables sold pursuant to the Trade Receivables Agreement and for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any margin stock or for the purpose of maintaining, reducing or retiring any Debt which was originally incurred to purchase or carry any stock that is currently a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation G. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation G, Regulation T, Regulation U or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as was in effect on the Closing Date, as in effect now or as the same may hereafter be in effect. 8L. ERISA. No accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the IRC), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). No liability to the Pension Benefit Guaranty Corporation has been or is A-34 expected by the Company or any ERISA Affiliate to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company, any Subsidiary or any ERISA Affiliate which is or would be materially adverse to the business, condition (financial or otherwise) or operations of the Company and the Subsidiaries taken as a whole. Neither the Company, any Subsidiary nor any ERISA Affiliate has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan which is or would be materially adverse to the business, condition (financial or otherwise) or operations of the Company and the Subsidiaries taken as a whole. The execution and delivery of this Agreement and the issuance and sale of the Notes will be exempt from, or will not involve any transaction which is subject to, the prohibitions of section 406 of ERISA and will not involve any transaction in connection with which a penalty could be imposed under section 502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the IRC. The representation by the Company in the next preceding sentence is made in reliance upon and subject to the accuracy of each Purchaser's representation in paragraph 9B hereof. 8M. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any Subsidiary, nor any of their respective businesses or Properties, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the Closing Date with either or both of the Securities and Exchange Commission and state Blue Sky authorities) in connection with the execution and delivery of this Agreement, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof or of the Notes. 8N. ENVIRONMENTAL COMPLIANCE. The Company and the Subsidiaries and all of their respective properties and facilities have complied at all times and in all respects with all federal, state, local and regional statutes, laws, ordinances and judicial or administrative orders, judgments, rulings and regulations relating to protection of the environment except, in any such case, where failure to comply would not result in a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and the Subsidiaries taken as a whole. 8O. DISCLOSURE. Neither this Agreement nor any other document, certificate or statement furnished to any Purchaser by or on behalf of the Company in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Company or any of the Subsidiaries that in the future (so far as the Company can now foresee) would, in the aggregate with all other such facts, be more likely than not to have a material and adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes and that has not been set forth in this Agreement or in the other documents, certificates and statements furnished to each Purchaser by or on behalf of the Company prior to the date hereof in connection with the transactions contemplated hereby. A-35 8P. COMPLIANCE WITH LAW. Neither the Company nor any Subsidiary: (i) is in violation of any law, ordinance, governmental rule or regulation to which it is subject; or (ii) has failed to obtain any license, certificate, permit, franchise or other governmental authorization necessary to the ownership of its Property or to the conduct of its business; which violation or failure to obtain is more likely than not to have, in the aggregate with all other such violations or failures, a material and adverse effect on the business or financial condition of the Company and the Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations set forth in this Agreement and in the Notes. 8Q. CERTAIN LAWS. (i) INVESTMENT COMPANY ACTS. The Company is not, and is not directly or indirectly controlled by, or acting on behalf of any Person which is, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (ii) ABSENCE OF FOREIGN OR ENEMY STATUS. The Company is not (a) an "enemy" or an "ally of the enemy" within the meaning of Section 2 of the Trading with the Enemy Act, as amended, or any executive orders or regulations issued or promulgated pursuant thereto, (b) a "national" of any "designated enemy country" as such terms are defined in Executive Order No. 9095, as amended, of the President of the United States of America, or (c) a "national" of any "designated foreign country" within the meaning of the Foreign Assets Control Regulations of the United States of America (Code of Federal Regulations, Title 31, Chapter V, Part 500 to 543). (iii) HOLDING COMPANY STATUS. The Company is not a "holding company" or an "affiliate" of a "holding company," or a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utilities Holding Company Act of 1935, as amended. 9. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser represents as follows: 9A. NATURE OF PURCHASE. Such Purchaser is not acquiring the Notes to be purchased by it hereunder with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the disposition of such Purchaser's Property shall at all times be and remain within its control. A-36 9B. SOURCE OF FUNDS. No part of the funds being used by such Purchaser to pay the purchase price of the Notes being purchased by such Purchaser hereunder constitutes assets allocated to any separate account maintained by such Purchaser in which any employee benefit plan, other than employee benefit plans identified on a list which has been furnished by such Purchaser to the Company, participates to the extent of ten percent (10%) or more. For the purpose of this paragraph 9B, the terms "separate account" and "employee benefit plan" shall have the respective meanings specified in section 3 of ERISA. 10. DEFINITIONS. For the purpose of this Agreement, the terms defined in the introductory sentence and in paragraphs 1 and 2 shall have the respective meanings specified therein, and the following terms shall have the meanings specified with respect thereto below: 10A. YIELD-MAINTENANCE TERMS. "CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of such Note that is to be prepaid or purchased pursuant to paragraph 4B, paragraph 4.E or paragraph 5I hereof (any partial prepayment being applied in satisfaction of required payments of principal in inverse order of their scheduled due dates) or is declared to be immediately due and payable pursuant to paragraph 7A hereof, as the context requires. "DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" shall mean, with respect to the Called Principal of any Note, the yield to maturity implied by (i) the yields reported, as of 10:00 a.m. (New York City time) on the Business Day next preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Service (or such other display as may replace Page 678 on the Telerate Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. A-37 Such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between yields reported for various maturities. Reinvestment Yield calculated as aforesaid shall be increased by twenty-five one-hundredths percent (0.25%) per annum in the case of any Settlement Date occurring after December 15, 1998. "REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one- twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (b) the number of years (calculated to the nearest one- twelfth year) which will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date. "SETTLEMENT DATE" shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid or purchased pursuant to paragraph 4B, paragraph 4E or paragraph 5I hereof or is declared to be immediately due and payable pursuant to paragraph 7A hereof, as the context requires. "YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over the sum of (i) such Called Principal plus (ii) interest accrued thereon as of (including interest due on) the Settlement Date with respect to such Called Principal. The Yield-Maintenance Amount shall in no event be less than zero. 10B. OTHER TERMS. "1994 SENIOR DEBT" shall mean the Company's Senior Notes Due 2003, in the aggregate principal amount of One Hundred Million Dollars ($100,000,000) on substantially the terms and conditions set forth under the heading "DESCRIPTION OF A-38 SENIOR NOTES" in Amendment No. 1 to the Registration Statement on Form S-3 of the Company, as filed with the Securities and Exchange Commission on April 19, 1994, relating thereto. "1994 SUBORDINATED DEBT" shall mean the Company's Convertible Subordinated Notes Due 2004, in the aggregate principal amount of up to Fifty-Seven Million Five Hundred Thousand Dollars ($57,500,000) and which are subordinated to payment of principal, interest and Yield-Maintenance Amount in respect of the Notes, and all other obligations under this Agreement, on substantially the terms and conditions set forth under the heading "DESCRIPTION OF SUBORDINATED NOTES" in Amendment No. 2 to the Registration Statement on Form S-3 of the Company, as filed with the Securities and Exchange Commission on April 19, 1994 relating thereto. "ACCEPTABLE AVAILABILITY" shall mean, at any time on or after the date shown in the first column of the chart below, and on or prior to the date shown in the second column of the chart below, the availability under the Credit Agreement at such time reflected in the third column of the chart below:
ON AND AFTER: TO AND INCLUDING: ACCEPTABLE AVAILABILITY: ====================================================================== Third Amendment Date October 24, 1995 $110,000,000 October 25, 1995 April 24, 1996 $100,000,000 April 25, 1996 October 24, 1996 $ 90,000,000 October 25, 1996 April 24, 1997 $ 80,000,000 April 25, 1997 and thereafter $ 0 ======================================================================
"ACCEPTABLE REPLACEMENT CREDIT FACILITY" shall mean, with respect to any replacement, refunding or refinancing of the Credit Agreement, a revolving credit facility: (i) making available to the Company at least the Acceptable Availability: (ii) which, if such facility provides for extension of credit in forms (including, without limitation, letters of credit or banker's acceptances) other than cash, provides that, at the option of the Company, at least the Acceptable Availability shall be available to the Company in cash; provided, however, that, should the Company actually draw credit in forms other than cash (including, without limitation, the issuance of one or more letters of credit), the amount of cash available under such facility may be reduced by the aggregate amount of such credits for so long as such credits are outstanding, so that the aggregate amount available need not exceed the Acceptable Availability at such time; (iii) which shall not require the maintenance of any compensating balance or other similar arrangement in any amount greater than the difference A-39 between the aggregate amount of cash available under such facility minus the Acceptable Availability; (iv) which shall not contain, at the time of the effectiveness of such facility: (a) any financial covenants, events of default or other conditions with which the Company would not be able to comply at such time, based on the most recent business plan presented to the Board of Directors (including updates thereto through the date of effectiveness of such facility) of the Company at such time or, prior to January 25, 1997, that were more onerous than those contained in the Credit Agreement at the time of the effectiveness of such facility; and (b) any borrowing base provision or similar lending constraints; or (c) any conditions precedent to making advances thereunder that would, based on the most recent business plan presented to the Board of Directors (and updates thereto) of the Company at such time, be reasonably likely to prevent the Company from fully utilizing the Acceptable Availability to it under such credit facility at any time during the term of such credit facility or, prior to January 25, 1997, that were more onerous than those contained in the Credit Agreement at the time of the effectiveness of such facility ; (v) which shall not have a maturity date earlier than that of the Credit Agreement immediately prior to giving effect to such replacement, refunding or refinancing; and (vi) which shall be unsecured and shall not rank senior in right of payment in any respect to the Notes. "ADJUSTED CONSOLIDATED DEBT" shall mean and include all Debt of the Company and the Consolidated Subsidiaries. "ADJUSTED CONSOLIDATED NET INCOME" shall mean for any period (i) the gross revenues of the Company and the Consolidated Subsidiaries for such period, determined on a consolidated basis; less (ii) all operating and non-operating expenses of the Company and the Consolidated Subsidiaries for such period, including all charges of a proper character (including, without limitation, current and deferred taxes on income, provision for taxes on unremitted foreign earnings which are included in gross revenues, and current additions to reserves), determined on a consolidated basis; A-40 but not including in such gross revenues (i) any gains (net of expenses and taxes applicable thereto) in excess of losses arising from the sale, conversion or other disposition of capital assets, other than gains arising out of any transaction or series of related transactions in which such gains do not exceed One Hundred Thousand Dollars ($100,000); (ii) any gain arising from any write-up of assets subsequent to July 31, 1992; (iii) earnings of any Consolidated Subsidiary accrued prior to the date it became a Consolidated Subsidiary; (iv) earnings of any Person, substantially all the assets of which have been acquired in any manner, realized by such Person prior to the date of such acquisition; (v) net earnings or net losses of any Person in which the Company or any Consolidated Subsidiary shall have an ownership interest unless, in the case of net earnings, such net earnings shall have actually been received by the Company or such Consolidated Subsidiary in the form of cash distributions; (vi) any portion of the net earnings of any Consolidated Subsidiary which for any reason is unavailable for payment of dividends to the Company or any other Consolidated Subsidiary; (vii) the earnings of any Person to which assets of the Company shall have been sold, transferred or disposed of, or into which the Company shall have merged, prior to the date of such transaction; (viii) any gain arising from the acquisition of any Securities of the Company or any Consolidated Subsidiary; (ix) any portion of the net earnings of the Company that cannot be freely converted into United States dollars; and (x) any deferred credit representing the excess of equity in any Consolidated Subsidiary at the date of acquisition over the cost of investment in such Consolidated Subsidiary. "ADJUSTED CONSOLIDATED TANGIBLE NET WORTH" shall mean at any time the excess of total assets of the Company and the Consolidated Subsidiaries at such time, determined on a consolidated basis, over total liabilities of the Company and the Consolidated Subsidiaries at such time, determined on a consolidated basis, in each case determined in accordance with generally accepted accounting principles, excluding, however, from the determination of total assets A-41 (i) all assets that would be classified as intangible assets under such generally accepted accounting principles, including, without limitation, goodwill (whether representing the excess of cost over book value of assets acquired or otherwise), patents, trademarks, trade names, copyrights, franchises, unamortized debt discount and expense, organization costs, research and development costs and other deferred charges (other than prepaid insurance and taxes and pre- production and production costs including, but not limited to, engineering and tooling costs, that are amortized over anticipated deliveries), (ii) treasury stock and minority interests in any Person, (iii) cash, Securities or other Property set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of capital stock, (iv) to the extent not already deducted from total assets, reserves for depreciation, depletion, obsolescence or amortization of Properties and all other reserves or appropriations of retained earnings that, in accordance with such generally accepted accounting principles, should be established in connection with the business conducted by the relevant corporation, and (v) any revaluation or other write-up in book value of assets subsequent to July 31, 1992. 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 Company 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 No. 87 and any prepaid pension asset which arises from amounts funded by the Company in accordance with Internal Revenue Service regulations (but not in excess of the minimum amounts required to be contributed thereunder) 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). "AFFILIATE" shall mean any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company, except a Subsidiary. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "AGREED PUT CONSIDERATION" shall mean as of the date of prepayment by the Company upon the exercise by any holder of Notes of its Right to Put or option to be repaid pursuant to paragraph 5I, the sum of A-42 (i) the principal amount of the Notes held by such holder subject to the prepayment on such date, plus (ii) all accrued and unpaid interest to such date on such Notes, plus (iii) the Yield-Maintenance Amount as of such date with respect to such Notes. "AGREEMENT" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. "BANK LENDERS" shall mean the Lenders as defined in the Credit Agreement. "BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of paragraph 7A. "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed. "CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which, under generally accepted accounting principles, would be required to be capitalized on the books of the Company or any Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with such principles. "CLOSING DATE" shall have the meaning assigned to such term in paragraph 2 of this Agreement. "COMBINED SUBSIDIARY DEBT" shall mean at any time all unsecured Debt of the Subsidiaries at such time (after eliminating intercompany transactions among the Subsidiaries). "COMPANY" shall have the meaning specified in the introductory paragraph of this Agreement. "CONFIDENTIAL INFORMATION" shall mean any information furnished to any holder of Notes by the Company or any agent of the Company in connection with this Agreement (including, without limitation, any information furnished to you pursuant to paragraph 5D hereof) or obtained by any holder of Notes in connection with an inspection made pursuant to paragraph 5G hereof, that is about the Company (or in respect of which the Company has a confidentiality obligation) and that is marked by the Company as being confidential, other than any such information, (i) that was publicly known, or otherwise known to you, at the time the information was furnished to you, (ii) that subsequently becomes publicly known through no act or omission by you, or A-43 (iii) that otherwise becomes known to you, other than through disclosure by the Company or any Subsidiary. "CONSOLIDATED FIXED CHARGES" shall mean, for any period, the sum, without duplication, of (i) interest expense related to Debt of the Company and the Consolidated Subsidiaries, (ii) amortization expense related to Debt of the Company and the Consolidated Subsidiaries issued at a discount, (iii) dividends in respect of preferred stock of Consolidated Subsidiaries, (iv) dividends in respect of Permitted Preferred Stock to the extent paid to Persons other than the Company or any wholly-owned Consolidated Subsidiary, plus (v) rentals payable in respect of Capitalized Lease Obligations of the Company and the Consolidated Subsidiaries, in each case calculated for such period on a consolidated basis in accordance with generally accepted accounting principles. "CONSOLIDATED NET INCOME" shall mean for any period (i) the gross revenues of the Company and the Subsidiaries for such period, determined on a consolidated basis; less (ii) all operating and non-operating expenses of the Company and the Subsidiaries for such period, including all charges of a proper character (including, without limitation, current and deferred taxes on income, provision for taxes on unremitted foreign earnings which are included in gross revenues, and current additions to reserves), determined on a consolidated basis; but not including in such gross revenues (i) any gains (net of expenses and taxes applicable thereto) in excess of losses arising from the sale, conversion or other disposition of capital assets, other than gains arising out of any transaction or series of related transactions in which such gains do not exceed One Hundred Thousand Dollars ($100,000); (ii) any gain arising from any write-up of assets subsequent to July 31, 1992; (iii) earnings of any Subsidiary accrued prior to the date it became a Subsidiary; A-44 (iv) earnings of any Person, substantially all the assets of which have been acquired in any manner, realized by such Person prior to the date of such acquisition; (v) net earnings or net losses of any Person in which the Company or any Subsidiary shall have an ownership interest unless, in the case of net earnings, such net earnings shall have actually been received by the Company or such Subsidiary in the form of cash distributions; (vi) any portion of the net earnings of any Subsidiary which for any reason is unavailable for payment of dividends to the Company or any other Subsidiary; (vii) the earnings of any Person to which assets of the Company shall have been sold, transferred or disposed of, or into which the Company shall have merged, prior to the date of such transaction; (viii) any gain arising from the acquisition of any Securities of the Company or any Subsidiary; (ix) any portion of the net earnings of the Company that cannot be freely converted into United States dollars; and (x) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of investment in such Subsidiary. "CONSOLIDATED NET INCOME AVAILABLE FOR FIXED CHARGES" shall mean, for any period, the sum of (i) Adjusted Consolidated Net Income for such period, plus (ii) the aggregate amount of (a) Consolidated Fixed Charges, (b) provisions for taxes on earnings, (c) depreciation expense, (d) the Special Charge; (e) in the case of any such period that includes the fiscal month ending May 2, 1993, the cumulative effect through May 2, 1993 of the accounting changes adopted by the Company, effective as of August 1, 1992, as described in the Company's Form 10-Q filed with the Securities and Exchange Commission for the third quarter of its 1993 Fiscal Year; A-45 (f) in the case of any such period that includes the fiscal month ending May 2, 1993, the provisions and charges, not in excess of $38,000,000 in the aggregate, established by the Company in the third quarter of its 1993 Fiscal Year; and (g) the Tax Adjustment Amount; in each case to the extent, and only to the extent, reflected in the computation of Adjusted Consolidated Net Income for such period. As used in this definition, `Special Charge' shall mean that certain special provision of Fifty Million Dollars ($50,000,000) taken by the Company during the third quarter of its 1992 Fiscal Year;" and `Tax Adjustment Amount' shall mean, for any period, the lesser of (i) accrued interest expense on taxes on earnings for such period minus any interest income on tax refunds for such period and (ii) Three Hundred Thirty-Three Thousand Dollars ($333,333) multiplied by the number of fiscal months in such period; provided, however, that, notwithstanding the foregoing, to the extent that such period includes one or more fiscal months of the Company during the third quarter of the Company's 1992 Fiscal Year, "Tax Adjustment Amount" shall be deemed to mean an amount equal to Six Million One Hundred Thousand Dollars ($6,100,000) for each such fiscal month. "CONSOLIDATED SENIOR DEBT" shall mean at any time Senior Debt at such time, determined on a consolidated basis, minus Non-Recourse Debt of the Company and the Subsidiaries at such time, determined on a consolidated basis. "CONSOLIDATED SUBSIDIARY" shall mean any corporation more than fifty percent (50%) of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned, directly or indirectly, by the Company. "CONSOLIDATED TANGIBLE ASSETS" shall mean, at any time, the sum of: (i) Adjusted Consolidated Tangible Net Worth at such time; plus (ii) the total amount of all liabilities of the Company and the Consolidated Subsidiaries on a consolidated basis at such time. "CONSOLIDATED TANGIBLE NET WORTH" shall mean at any time the excess of total assets of the Company and the Subsidiaries at such time, determined on a consolidated basis, over total liabilities of the Company and the Subsidiaries at such time, determined A-46 on a consolidated basis, in each case determined in accordance with generally accepted accounting principles, excluding, however, from the determination of total assets: (i) all assets that would be classified as intangible assets under such generally accepted accounting principles, including, without limitation, goodwill (whether representing the excess of cost over book value of assets acquired or otherwise), patents, trademarks, trade names, copyrights, franchises, unamortized debt discount and expense, organization costs, research and development costs and other deferred charges (other than prepaid insurance and taxes and pre- production and production costs including, but not limited to, engineering and tooling costs, that are amortized over anticipated deliveries); (ii) treasury stock and minority interests in Subsidiaries; (iii) cash, Securities or other Property set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of capital stock; (iv) to the extent not already deducted from total assets, reserves for depreciation, depletion, obsolescence or amortization of Properties and all other reserves or appropriations of retained earnings that, in accordance with such generally accepted accounting principles, should be established in connection with the business conducted by the relevant corporation; and (v) any revaluation or other write-up in book value of assets subsequent to July 31, 1992. 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 Company 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 No. 87 and any prepaid pension asset which arises from amounts funded by the Company in accordance with Internal Revenue Service regulations (but not in excess of the minimum amounts required to be contributed thereunder) 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). "CONSOLIDATED TOTAL DEBT" shall mean, at any time, Debt of the Company and the Subsidiaries at such time minus Non-Recourse Debt of the Company and the Subsidiaries at such time, determined on a consolidated basis. "CREDIT AGREEMENT" shall mean the Credit Agreement, dated as of April 26, 1989, among the Company and the lenders party thereto and the agent thereunder, as such Credit Agreement may be amended or supplemented from time to time. A-47 "DEBT" shall mean, without duplication, (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments (as such term is defined in Article 9 of the Uniform Commercial Code as from time to time in effect in the State of New York), (iii) obligations to pay the deferred purchase price of Property or services (excluding advances, deposits or partial or progress payments, unpaid wages and related employee obligations and excluding trade payables), (iv) obligations as lessee under Capitalized Lease Obligations, (v) obligations under Guaranties of indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, (vi) obligations under Title IV of ERISA for each Plan and Multiemployer Plan, in respect of unfunded accrued liabilities for such plans, if any, as of the first day of the plan year as shown in the annual actuarial report most recently delivered to the obligor in respect of such obligations by the actuary for each such Plan and Multiemployer Plan, and (vii) in the case of any Consolidated Subsidiary, all preferred stock of such Consolidated Subsidiary held by Persons other than the Company or a wholly-owned Consolidated Subsidiary, such preferred stock to be valued at the aggregate liquidation preference thereof. "DEBT RATIO" shall mean, at any time, the ratio of Adjusted Consolidated Debt to Adjusted Consolidated Tangible Net Worth. "DEFAULT" shall mean any event or condition that, with notice or the passage of time, or both, would become an Event of Default. "DE MINIMUS PAYMENTS" shall mean, with respect to any Debt of the Company or any Subsidiary (other than Debt governed or evidenced by the Notes, the 9.35% Senior Notes due January 29, 2000, the Credit Agreement, any Acceptable Replacement Credit Facility, the 1994 Senior Notes, the 1994 Subordinated Notes or the Existing Subordinated Notes of either Series), payments, prepayments, defeasances and redemptions (in each case, other than Originally Scheduled Payments) in respect of any such Debt aggregating not more than Five Hundred Thousand Dollars ($500,000) in any Fiscal Year. "DESIGNATED EVENT" shall mean the occurrence of any one or more of the following after the Closing Date: (i) the direct or indirect acquisition by any person (as such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act), or related A-48 persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act), of (i) beneficial ownership of issued and outstanding shares of Voting Stock of the Company the result of which acquisition is that such person or such group possesses in excess of fifty percent (50%) of the combined voting power of all then issued and outstanding Voting Stock of the Company or (ii) within any period of three-hundred sixty-five (365) consecutive days, all or substantially all of the assets of the Company; or (ii) following the election or removal of directors, a majority of the Company's board of directors consists of individuals who were not members of the Company's board of directors two years before such election or removal, unless the election of each director who was not a director at the beginning of such two-year period has been approved in advance by directors representing at least a majority of the directors then in office who were directors at the beginning of the two-year period; or (iii) the consolidation with, or merger into, any Person by the Company in a transaction in which more than thirty percent (30%) by number of votes of the Voting Stock of the Company is exchanged (the calculation of which shall be made by dividing the number of votes attributable to the Voting Stock so exchanged by the aggregate number of votes attributable to the Voting Stock immediately prior to such transaction); or (iv) (a) any transaction or series of transactions (whether related or unrelated) in which the Company repurchases or otherwise retires in the aggregate, within any period of three hundred sixty-five (365) consecutive days, thirty percent (30%) or more (by number) of the Company's outstanding common stock (the calculation of which shall be made by dividing the number of shares outstanding immediately after giving effect to each such repurchase or retirement, other than any such shares owned by a Subsidiary, by the highest number of shares outstanding at any time during the period of three hundred sixty-five (365) consecutive days ending on (and including) the date of such repurchase or retirement (adjusting in each case for stock splits, stock dividends and other similar transactions, excluding in each case shares held in treasury, and assuming in each case that all securities then convertible into, or representing then effective rights to purchase, common stock have been exercised at such time), or (b) any Distribution made by the Company the Fair Market Value of which, together with the aggregate Fair Market Value of all other Distributions made by the Company during the period of three hundred sixty-five (365) days ending on (and including) the date of such Distribution (each Distribution being valued on the date it is made), equals or exceeds thirty percent (30%) of the Fair Market Value the Company's outstanding common stock (determined at the commencement of such period); in each case if as a result of such event or events Consolidated Total Debt shall, at any time during the period beginning on the date of such transaction (or the date of the A-49 completion of such series of transactions, as the case may be) and ending three hundred sixty-five (365) days thereafter, equal or exceed seventy- five percent (75%) of the sum of Consolidated Total Debt plus Consolidated Tangible Net Worth at such time. "DISTRIBUTION" shall mean: (i) dividends or other distributions on or in respect of the capital stock of the Company or any Subsidiary (except distributions solely in such stock or in Rights, as such term is defined in the Rights Agreement and except to the extent made to the Company or any Wholly-Owned Subsidiary); (ii) the repurchase, purchase, redemption or acquisition of capital stock of the Company or any Subsidiary, or of warrants, rights or other options to purchase such stock (except when solely in exchange for such stock and except to the extent made from the Company or a Wholly-Owned Subsidiary) unless made, contemporaneously, from the net proceeds of a sale of such stock; and (iii) all payments in respect of Subordinated Debt (other than mandatory scheduled payments and prepayments), including optional or voluntary prepayments and including all payments made to acquire Subordinated Debt (except to the extent such payment is made to the Company or a Wholly-Owned Subsidiary). "EEC AFFILIATE" shall mean any corporation organized under the laws of any country which is a member nation of the European Economic Community (as used herein, the "EEC") as such organization is constituted on the Closing Date, that has the majority of its Property located in and makes the major portion of its sales to Persons located in the United States of America, Canada, or the EEC, and more than fifty percent (50%) of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned, directly or indirectly, by the Company. "EQUITY ISSUANCE ACQUISITIONS" shall mean the acquisition by the Company of Debt (including, without limitation, Notes, the 1994 Subordinated Notes, the Company's 9.35% Senior Notes due January 29, 2000 or the Company's 7% Convertible Subordinated Debentures due 2012), or any portion thereof, for consideration consisting solely of common stock of the Company and in connection with tenders of such Debt by the holders thereof in payment of the exercise or purchase price of any rights, warrants or options to acquire such common stock, or upon conversion of such Debt into such common stock. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" shall mean any corporation or trade or business that (i) is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the IRC) as the Company, or A-50 (ii) is under common control (within the meaning of Section 414(c) of the IRC) with the Company. "ESOP" shall mean the Salaried Employees Stock Ownership Plan, effective August 1, 1983, as amended from time to time. "EVENT OF DEFAULT" shall mean any of the events specified in paragraph 7A hereof. "EXCEPTED PROPERTY" shall have the meaning set forth in paragraph 6P of this Agreement. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "EXISTING SUBORDINATED NOTES" shall mean and include: (i) the Company's 9.25% Subordinated Debentures due 2017; and (ii) the Company's 7% Convertible Subordinated Debentures due 2012; and the Existing Subordinated Notes of each such series (but not the Existing Subordinated Notes of the other series) shall be referred to collectively as a "SERIES" of Existing Subordinated Notes. "FAIR MARKET VALUE" shall mean at any time with respect to any Property, the sale value of such Property that would be realized in an arm's-length sale at such time between an informed and willing buyer, and an informed and willing seller, under no compulsion to buy or sell, respectively. "FINANCIAL COVENANT" shall mean any covenant, agreement or provision (including, without limitation, the definitions applicable thereto) of or applicable to the Company or any Consolidated Subsidiary contained in any agreement governing, or instrument evidencing, any Debt (or commitment to lend), other than Debt or a commitment to lend among the Company and one or more Consolidated Subsidiaries, of the Company or any Consolidated Subsidiary in an aggregate principal amount greater than $5,000,000, which covenant, agreement or provision: (i) requires the Company or any Consolidated Subsidiary to maintain specified financial amounts or ratios or to meet other financial tests; (ii) restricts the ability of the Company or any Consolidated Subsidiary to: (a) make Distributions, investments, capital expenditures or operating expenditures of any kind; (b) incur, create or maintain any Debt (or other obligations) or Liens; A-51 (c) merge, consolidate or acquire or be acquired by any Person; (d) sell, lease, transfer or dispose of any Property (other than restrictions imposed solely upon collateral, and not upon Property of the Company or any Consolidated Subsidiary generally, by holders of Liens thereon which are permitted by this Agreement; or (e) issue or sell any capital stock of any kind; (iii) is similar to any provision in paragraph 6 of this Agreement; or (iv) provides that a default or event of default shall occur, or that the Company or any Consolidated Subsidiary shall be required to prepay, redeem or otherwise acquire for value any Debt or security as a result of its failure to comply with any provision similar to any of those set forth in any of the foregoing clauses (i), (ii) or (iii). "FIRST AMENDMENT" shall mean the Amendment Agreement, entered into as of June 30, 1993, between the Company and the holders of Notes named therein. "FIRST AMENDMENT DATE" shall mean the "Effective Date," as such term is defined in the First Amendment. "FISCAL YEAR" shall mean any fiscal year of the Company ending on July 31 . "FISCAL QUARTER NET WORTH INCREASE AMOUNTS" shall mean for any fiscal quarter of the Company, the greater of (i) Zero Dollars ($0) and (ii) fifty percent (50%) of Adjusted Consolidated Net Income for such fiscal quarter. "FUJI" shall mean The FUJI Bank, Limited. "GROSS OPERATING INCOME" shall mean for any period, sales minus costs and expenses (other than depreciation and amortization), in each case, as reflected as a line item on the consolidated statements of earnings and cash flows of the Company and the Consolidated Subsidiaries for such period. "GUARANTIES" shall mean, with respect to any Person (the "Guarantor"), any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of the Guarantor guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person (the "Primary Obligor") in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Guarantor: (i) to purchase such indebtedness or obligation or any Property constituting security therefor; A-52 (ii) to loan, advance or supply funds, make any capital contribution or purchase Property from any Person (a) for the purpose of payment of such indebtedness or obligation, or (b) to maintain working capital or other balance sheet condition or any income statement condition of the Primary Obligor or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; or (iii) to lease Property or to purchase Securities or other Property or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of the Primary Obligor to make payment of the indebtedness or obligation or, in the case of any such lease, under terms providing that the obligation to make payments thereunder is absolute and unconditional under conditions not customarily found in commercial leases then in general use; (iv) to contract or agree to purchase any Property or services if such contract or agreement requires that payment for such Property or services (a) shall be made regardless of whether delivery of such Property or services is ever made or tendered or (b) shall be subordinated to any indebtedness (of the purchaser or user of such Property or the Person entitled to the benefit of such services) owed or to be owed to any Person; or (v) otherwise to assure the owner of the indebtedness or obligation of the Primary Obligor against loss in respect thereof. "IDB FINANCING" shall mean any industrial development bond or similar financing in which a state or other governmental authority incurs Debt to construct, improve or acquire (or, in the case of the San Marcos Bonds, to refinance the construction, improvement or acquisition of) fixed assets for use primarily by the Company or a Subsidiary under a lease or similar arrangement of at least five years' duration and in connection with which the Company or such Subsidiary is obligated (directly or indirectly), under such lease or other arrangement, to make payments to such state or other governmental authority which are used to service such Debt. "INSTITUTIONAL INVESTOR" shall mean (i) any original purchaser of any of the Notes, (ii) the subsidiaries and affiliates of any such purchaser and nominees controlled by any such purchaser, and (iii) any insurance company, pension fund, mutual fund, investment company, bank, savings bank, savings and loan association, investment banking company, trust company, finance or credit company, any portfolio or any A-53 investment fund managed by any of the foregoing, and any other institutional investor, and any nominee of the foregoing controlled by any such Person, provided that in each case such Person has assets of at least Five Hundred Million Dollars ($500,000,000). "INTERCOMPANY DEBT" shall mean Debt owed by the Company or any Subsidiary to the Company or any Subsidiary. "IRC" shall mean the Internal Revenue Code of 1986, as amended from time to time. "LEASE TRANSACTION" shall mean a transaction (including, without limitation, a transaction with respect to qualified leased Property meeting the requirements of Section 168(f)(8) of the IRC) pursuant to which the Company or any Subsidiary makes an investment (as a lessor as contemplated by said Section 168(f)(8) or on an equity basis with the meaning of Section 4(1) of Revenue Procedure 75-21, 1975-1 C.B. 715, as amended or supplemented), in all or part of the purchase price of Property, which Property, concurrently with the purchase thereof, is leased under a Capitalized Lease Obligation by the Company or such Subsidiary (acting directly or through either or both of a trust or partnership and with or without other investors) to a lessee, provided that such investment is made in part for the purpose of saving or deferring Federal income tax liability and that the Company or such Subsidiary incurs no obligation, and creates no Lien in connection with such transaction except that: (i) the Company or such Subsidiary, directly or indirectly (a) may borrow part of the funds necessary to pay the purchase price of such Property (and any related leases, contract rights, general intangibles or accounts), and (b) may secure such borrowings by Liens provided that such Liens do not extend to or cover any Property other than Property referred to in subclause (a) above and do not secure any obligations other than those incurred in connection with such purchase and lease transaction, and (ii) the Company or such Subsidiary may incur other obligations in connection with such transaction (and the Company may guarantee any such obligation of a Subsidiary) provided that such obligations and guarantee (a) constitute Non-Recourse Debt, (b) are incidental and necessary to effect such transaction, and (c) are of the type frequently incurred by lessors or equity investors in connection with the business of leasing Property. A-54 "LETTER OF CREDIT PREPAYMENT EVENT" shall mean either: (i) the redemption, reacquisition or repurchase of any San Marcos Bonds (other than in connection with a Permitted IDB Acquisition); or (ii) any deposit, after November 30, 1994, of cash collateral to secure reimbursement obligations of the Company relating to the San Marcos Bonds or any letter of credit relating thereto; in either case, solely as result of and in response to the failure of the bank which has issued any letter of credit relating to the San Marcos Bonds to extend or renew such outstanding letter of credit; provided, however, that prior to effecting such redemption, reacquisition, repurchase or cash collateralization the Company shall have used its best efforts to retain such letter of credit. The Company covenants, in connection with any Letter of Credit Prepayment Event described in clause (i) above, to actively seek to remarket the redeemed, reacquired or repurchased San Marcos Bonds or, to the extent necessary, to modify the structure of such IDB Financing to the extent necessary to permit a long-term reissuance of the repurchased San Marcos Bonds, and, in connection with any Letter of Credit Prepayment Event described in clause (ii) above, to continue to seek to obtain an unsecured letter of credit not requiring such cash collateralization. "LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing (but excluding negative pledge clauses in agreements related to the borrowing of money), any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction (but excluding informational filings made in respect of leases)) or any other type of preferential arrangement for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of an obligation. "MAXIMUM PENSION CONTRIBUTION" shall mean, for any fiscal year of the Company, a contribution to any or all Plans or Multiemployer Plans not exceeding the greater of: (i) the sum of: (a) the amount set forth in the chart below under the heading "Base Contribution" for such fiscal year; plus (b) the lesser of: (I) the amount set forth in the chart below under the heading "Maximum Additional Contribution" for such fiscal year; and (II) the amount, if positive, by which cash provided by operating activities of the Company and the Subsidiaries (calculated in a manner consistent with the preparation of the A-55 projections contained in the Company's February 28, 1994, financial plan, as provided to the Purchasers) for such fiscal year exceeds the amount set forth in the chart below under the heading "Projected Cash Flow" for such fiscal year, so long as, but only so long as, for a period of not less than thirty (30) days prior to and thirty (30) days following each date on which any contribution made by the Company and the Subsidiary would cause the aggregate amount of contributions during such fiscal year to exceed the "Base Contribution" set forth in the chart below for such fiscal year, the amount of Debt outstanding under the Credit Agreement (or any replacement, renewal or refinancing thereof) is Zero Dollars ($0); and (ii) the minimum contribution permitted during such fiscal year pursuant to ERISA, the IRC and the rules and regulations under ERISA and the IRC. A contribution to a Plan or Multiemployer Plan permitted by clause (b) of this definition may be made within a period of ninety (90) days immediately following the end of such fiscal year.
MAXIMUM PROJECTED ADDITIONAL CASH FISCAL YEAR BASE CONTRIBUTION CONTRIBUTION PROVIDED BY OPERATIONS =================================================================== 1994 $17,000,000 $ 0 $36,700,000 1995 $36,000,000 $ 3,200,000 $15,600,000 1996 $37,000,000 $ 6,900,000 $46,100,000 1997 $30,000,000 $10,500,000 $64,900,000 1998 $23,000,000 $18,200,000 $53,400,000 ===================================================================
"MOODY'S" means Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA) in respect of which the Company or any ERISA Affiliate is an "employer" (as such term is defined in Section 3 of ERISA). "MULTIPLE EMPLOYER PLAN" shall mean any employee benefit plan within the meaning of Section 3(3) of ERISA other than a Multiemployer Plan, subject to Title IV of ERISA, to which the Company or any ERISA Affiliate and an employer (as such term is defined in Section 3 of ERISA) other than an ERISA Affiliate or the Company contribute. A-56 "NET AFTER-TAX CASH BASIS" shall mean at any time in respect of any investment made in connection with a Lease Transaction, the initial amount of such investment made by the Company or any Subsidiary in such Lease Transaction, less (i) the net aggregate amount (on a cash basis) received by or distributed to the Company or such Subsidiary, on or prior to such time, after payment and deduction of all expenses (including but not limited to insurance and trustee's fees and after payment of interest and principal on any loan incurred in such Lease Transaction) to the extent all such expenses are related to and incurred in connection with such Lease Transaction, and, (ii) the net aggregate amount (on a cash basis), on account of reductions in the Company's quarterly estimated tax payments to the United States and to the State of California, on or prior to such time, as such shall be adjusted at year-end to reflect the actual tax benefits obtained on account of reduced taxes payable by virtue of such Lease Transaction. In computing quarterly estimated tax payments, the Company shall take into consideration, on a consolidated basis, the full taxable year's anticipated benefits of the Lease Transaction, including allowable depreciation and interest, expenses, deductions, investment and other tax credits, and net rental income. "NET RENTALS" shall mean, with respect to any period, all fixed payments that the lessee is required to make during such period by the terms of any lease having an original term of one year or more, but shall not include amounts required to be paid in respect of maintenance, repairs, income taxes, property taxes, insurance, assessments or other similar charges or additional rentals (in excess of fixed minimums) based upon a percentage of gross receipts. "NON-EMPLOYEE DIRECTORS STOCK-OPTION PLANS" shall mean the Company's 1988 Non-Employee Directors Stock-Option Plan and any other comparable future plan. "NON-RECOURSE DEBT" shall mean, as to any Person, in connection with a Lease Transaction, all indebtedness and other obligations of such Person (i) incurred in connection with such Lease Transaction and (ii) of the type described in clause (i) of the definition of Lease Transaction; provided, that the obligations of such Person to repay borrowed money shall be expressly limited as to recourse solely to (A) the property subject to such Lease Transaction (including the proceeds of such property) and (B) the amounts payable by or on behalf of the lessee under or in connection with such Lease Transaction. "NOTEHOLDER ACCEPTANCE" shall have the meaning set forth in paragraph 5I(ii) of this Agreement. "NOTEHOLDER SHARE" shall mean, in respect of any holder of Notes and any Ratable Prepayment Amount, such holder's ratable share of such Ratable Prepayment Amount, such ratable share being determined by reference to the outstanding principal amount of Notes held by such holder as a percentage of the outstanding principal amount of all Notes. A-57 "NOTICE OF SALE" shall have the meaning specified in clause (ii) of paragraph 4.E hereof. "OFFER PERIOD" shall have the meaning set forth in paragraph 5I(ii) of this Agreement. "OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the Company by its President, one of its Vice Presidents, its Chief Financial Officer, its Controller, its Secretary or its Treasurer. "ORIGINALLY SCHEDULED PAYMENTS" shall mean and include: (i) payment of any Debt at scheduled maturity; (ii) with respect to any Debt, originally scheduled prepayments, originally scheduled redemptions, originally scheduled sinking fund payments or originally scheduled reductions in maximum commitments thereof; and (iii) payments in respect of any revolving credit agreement, including, without limitation, the Credit Agreement, which do not result in a permanent reduction of the original commitment thereunder. As used in the preceding sentence, "original" or "originally scheduled" means the maturity, payments, prepayments, or reductions in commitment established as of the Third Amendment Date, or, if later, at the time of execution of the relevant credit facility but does not include any payments, prepayments or reductions in commitment which result from the occurrence of any contingency, even if the provision requiring such payment, prepayment or reduction as a result of such contingency was originally contained in the agreements governing such Debt, and even if the occurrence of such contingency was foreseeable, at the time of the execution of the documentation of such issue of Debt. "PERMITTED EXISTING SUBORDINATED DEBT ACQUISITIONS" shall mean, with respect to either Series of Existing Subordinated Notes, the purchase or acquisition by the Company or any Subsidiary of Existing Subordinated Notes of such Series in anticipation of satisfying an Originally Scheduled Payment thereof; provided, however, that all of the following conditions are met: (i) no Existing Subordinated Notes may be acquired more than three hundred sixty-four (364) days prior to the date of any such Originally Scheduled Payment thereof; (ii) the Company or any Subsidiary, more than one hundred eighty (180) days, but not more than three hundred sixty-four (364) days, prior to the date of the next succeeding Originally Scheduled Payment thereof, may acquire no more than fifty percent (50%) of the aggregate principal amount of Existing Subordinated Notes of such Series required to be prepaid or redeemed on the date of the next succeeding Originally Scheduled Payment; A-58 (iii) the Company or any Subsidiary, not more than one hundred eighty (180) days prior to the date of the next succeeding Originally Scheduled Payment thereof, may acquire an aggregate principal amount of Existing Subordinated Notes of such Series not exceeding (together with any Existing Subordinated Notes of such Series acquired more than one hundred eighty (180) days, but not more than three hundred sixty- four (364) days, prior to the date of the next succeeding Originally Scheduled Payment thereof) one hundred percent (100%) of the aggregate principal amount of Existing Subordinated Notes of such Series required to be prepaid or redeemed on the date of the next succeeding Originally Scheduled Payment; (iv) at the time of such acquisition: (a) no Default or Event of Default shall be continuing; (b) the Company shall not reasonably foresee the occurrence of any Default or Event of Default at any time prior to the date of the next succeeding Originally Scheduled Payment thereof; (c) the Debt Ratio would not exceed 2.50:1.00; and (d) the Company could incur $1.00 of additional Debt; (v) the purchase price paid by the Company and the Subsidiaries in respect of such acquisition of Existing Subordinated Notes shall be less than one hundred percent (100%) of the principal amount of Existing Subordinated Notes so acquired; and (vi) the Company, on the date of each Originally Scheduled Payment in respect of the Existing Subordinated Notes, shall actually apply, in accordance with the provisions of such Existing Subordinated Notes, all Existing Subordinated Notes of such Series acquired by the Company and the Subsidiaries to the prepayment or redemption of such Existing Subordinated Notes required to be prepaid or redeemed on such date. "PERMITTED IDB ACQUISITIONS" shall mean: (i) prepayments or repurchases of San Marcos Bonds upon tender by the holders thereof after May 10, 1994 in accordance with the terms of the indenture governing the San Marcos Bonds; provided, however, that San Marcos Bonds in an aggregate principal amount of Sixteen Million Five Hundred Thousand Dollars ($16,500,000) shall have been issued, outstanding and held and owned by Persons other than the Company, any Subsidiary or any Affiliate on May 10, 1994 (whether or not subsequently repurchased by the Company); and provided, further, that the Company shall be actively seeking to either remarket the San Marcos Bonds that were so prepaid or repurchased pursuant to the provisions of the IDB Financing of the Company's San Marcos, Texas facility or, to the extent necessary in connection with any termination of any outstanding A-59 letter of credit relating to such facility, to modify the structure of such IDB Financing to the extent necessary to permit a long-term reissuance of the repurchased San Marcos Bonds; and (ii) the redemption in full on or before June 1, 1994 of all the San Marcos Bonds, but solely as result of and in response to the failure of FUJI to extend or renew its outstanding letter of credit relating to the IDB Financing of the Company's San Marcos, Texas facility; provided, however, that: (a) prior to effecting such redemption, the Company shall have used its best efforts to retain such letter of credit by offering to deposit cash collateral to secure its obligations to FUJI under the Reimbursement Agreement, dated as of May 1, 1990, with the Company relating to such IDB Financing; (b) following the making of such redemption, the Company shall use its best efforts to obtain a replacement unsecured letter of credit to issue replacement unsecured San Marcos Bonds, and shall thereafter use its best efforts to market or sell such San Marcos Bonds. "PERMITTED INVESTMENTS" means any of the following, to the extent owned by the Company free and clear of all Liens (except such Liens as are permitted by the terms of this Agreement): (i) marketable direct obligations issued or unconditionally guaranteed by the United States government or issued by an agency or instrumentality thereof and backed by the full faith and credit of the United States, in each case maturing within one year after the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 180 days after the date of acquisition thereof and, at the time of acquisition, having a rating of A or higher from either S&P or Moody's (or, if at any time neither S&P nor Moody's shall be rating such obligations, then one of the three highest ratings from another nationally recognized rating service reasonably acceptable to the Required Holders) and not listed in the Credit Watch published by S&P; (iii) commercial paper (other than commercial paper issued by the Company or any Affiliate or Consolidated Subsidiary) maturing no more than 180 days after the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or Moody's (or, if at any time neither S&P nor Moody's shall be rating such obligations, then the highest rating from other nationally recognized rating services reasonably acceptable to the Required Holders); (iv) domestic and Eurodollar certificates of deposit or time deposits, bankers' acceptances or bank notes maturing within one year after the date of A-60 acquisition thereof issued by any commercial bank organized under the laws of the United States or any state thereof or the District of Columbia having a rating of A or higher from S&P or Moody's; (v) money market funds having an average portfolio maturity, at the time of acquisition thereof, of not more than 180 days, which money market funds either: (a) have a rating from a nationally recognized rating service reasonably acceptable to the Required Holders which is equivalent to a rating of either AAAm-G or AAAm from S&P or a rating of Prime-1 from Moody's; or (b) are required to invest at least 95% of their assets in instruments described in other clauses of this definition; (vi) repurchase obligations with a term of not more than 30 days for instruments described in clauses (i) and (ii) of this definition; (vii) investments made in connection with the Citibank, N.A., overnight Nassau Sweep Account; and (viii) repurchase obligations having Kidder, Peabody & Co., Inc., or any other investment bank organized under the laws of any state of the United States and approved by the Required Holders as the counterparty, with a term of not more than 45 days for whole loans secured by commercial or residential real estate mortgages. "PERMITTED PREFERRED DIVIDEND" shall mean dividends in respect of any Permitted Preferred Stock in an aggregate amount not to exceed in any period of 365 days (or 366 days in any year in which there is a February 29th) the product of (i) the lesser of: (a) an amount equal to 100 basis points in excess of the yield on the U.S. Treasury security with a constant maturity of 30 years on the date of issuance of the Permitted Preferred Stock; and (b) 10% per annum, times (ii) the aggregate cash consideration paid to the Company in consideration of the issuance of the Permitted Preferred Stock. "PERMITTED PREFERRED STOCK" shall mean any issue of preferred stock of the Company which is not required to be redeemed, repurchased or otherwise acquired or A-61 retired, in whole or in part, for value by the Company, upon the occurrence of any contingency or otherwise, prior to July 1, 2003. "PERSON" shall mean an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. "PLAN" shall mean at any time any "employee pension benefit plan" (as such term is defined in Section 3 of ERISA) maintained by the Company or any ERISA Affiliate for employees of the Company or such ERISA Affiliate, excluding any Multiemployer Plan, but including, without limitation, any Multiple Employer Plan. "PREPAYMENT EVENT" shall mean any Letter of Credit Prepayment Event, any mandatory or optional defeasance, prepayment or repurchase, in whole or in part, of any issue of Debt (other than Debt owing solely to the Company or any Wholly-Owned Subsidiary), or reduction in commitment in any credit facility, of the Company or any Subsidiary, or any event which occurs that gives rise to an obligation of the Company or any Subsidiary to make any such defeasance, prepayment, repurchase or reduction, in each case, other than: (i) Originally Scheduled Payments; (ii) Permitted Existing Subordinated Debt Acquisitions; (iii) Permitted IDB Acquisitions; (iv) Equity Issuance Acquisitions; and (v) De Minimus Payments. In connection with any Debt described in clause (vi) of the definition of "Debt," payments in respect of contributions of amounts not exceeding, during any fiscal year of the Company, the Maximum Pension Contribution for such fiscal year to any Plan or Multiemployer Plan shall not give rise to a Prepayment Event, but a Prepayment Event will result from the payment or contribution to any such Plan or Multiemployer Plan of any amount in excess of the Maximum Pension Contribution during any fiscal year. "PREPAYMENT OFFER" shall have the meaning set forth in paragraph 5I(i) of this Agreement. "PREPAYMENT PORTION" shall have the meaning set forth in paragraph 5I(iii) of this Agreement. "PROPERTY" shall mean any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "PURCHASE MONEY MORTGAGES" shall mean a Lien held by any Person (whether or not the seller of such assets) on tangible assets (other than assets acquired to replace, A-62 repair, upgrade or alter assets owned by the Company or any Subsidiary on the Closing Date) acquired, improved or constructed by the Company or any Subsidiary after the Closing Date, which Lien secures all or a portion of the related purchase price or improvement or construction costs of such assets (or Debt incurred to pay such purchase price or costs), or any Lien existing on any tangible assets of any corporation at the time it becomes a Subsidiary, and extensions (as to time), renewals and replacements of any such Lien or the Debt secured thereby, provided that, in each such case such Lien does not extend to any other asset of the Company or any Subsidiary; provided, further, that any Lien on acquired Property, or on Property of a corporation at the time it becomes a Subsidiary, was not created in contemplation of such acquisition or such corporation becoming a Subsidiary, as the case may be. "PURCHASERS" shall have the meaning specified in the introductory paragraph of this Agreement. "RATABLE PREPAYMENT AMOUNT" shall mean, in respect of the Notes: (i) in connection with any Letter of Credit Prepayment Event, an amount equal to the product of: (a) the aggregate principal amount of San Marcos Bonds redeemed, reacquired or repurchased, or with respect to which cash collateral has been deposited to secure reimbursement obligations of the Company relating to the San Marcos Bonds or any letter of credit relating thereto, as the case may be, by the Company; times (b) the quotient of: (I) the aggregate amount of Notes then outstanding; divided by (II) the aggregate amount of the Notes and the 9.35% Senior Notes due January 29, 2000 of the Company then outstanding; and (ii) with respect to each other Prepayment Event, a principal amount of the Notes equal to the product of: (a) the highest percentage of any issue of Debt being prepaid, or as to which any offer to prepay shall apply, as a result of the occurrence of such Prepayment Event, multiplied by (b) the outstanding principal amount of the Notes. "REQUIRED HOLDERS" shall mean at any time the holder or holders of at least sixty-six and two-thirds percent (66 2/3%) of the aggregate principal amount of the Notes A-63 outstanding at such time, provided that Notes owned by the Company, any Subsidiary or any Affiliate at such time shall be deemed not to be outstanding for purposes of determining such percentage. "RESPONSIBLE OFFICER" shall mean the chief executive officer, chief operating officer, chief financial officer or chief accounting officer of the Company or any other officer of the Company involved principally in its financial administration or its controllership function. "RESTRICTED STOCK PLANS" shall mean the 1969, 1970, 1972, 1974 and 1984 Restricted Stock Plans of the Company and any other comparable future plan. "RIGHT TO PUT" shall have the meaning specified in clause (i) of paragraph 4.E hereof. "RIGHTS AGREEMENT" shall mean the Rights Agreement dated as of August 15, 1986, between the Company and The First National Bank of Chicago, as in effect on December 21, 1992. "S&P" means Standard & Poor's Corporation. "SAN MARCOS BONDS" shall mean bonds originally issued in connection with the IDB Financing of Company's San Marcos, Texas facility or replacement bonds issued on substantially the same terms as the originally issued bonds. "SECOND AMENDMENT" shall mean the Second Amendment Agreement entered into as of September 24, 1993, between the Company and the holder of Notes named therein. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SECURITY" shall have the meaning specified in Section 2(1) of the Securities Act. "SENIOR DEBT" shall mean all Debt of Subsidiaries, all Debt of the Company secured by any Lien and all other Debt ranking senior to or pari passu with the Notes with respect to distributions of the Company's Property in any bankruptcy proceeding. "SENIOR OFFICER" shall mean with respect to any corporation each of the Chairman, President, any Vice-President, the Chief Financial Officer, the Secretary, and the Treasurer of such corporation. "SIGNIFICANT HOLDER" shall mean (i) each Purchaser, so long as such Purchaser shall hold (or be committed under this Agreement to purchase) any Note, or (ii) any other holder of at least five percent (5%) of the aggregate principal amount of the Notes from time to time outstanding. "STOCK INCENTIVE PLANS" shall mean the 1989 Stock Incentive Plan of the Company and any other future comparable plan. A-64 "STOCK OPTION PLANS" shall mean the 1972, 1973, 1974, 1982 and 1984 Stock Option Plans of the Company and any other future comparable plan. "SUBSIDIARY" shall mean any corporation organized under the laws of any state of the United States of America, Canada, or any province of Canada, that has the majority of its Property located in and makes the major portion of its sales to Persons located in the United States of America or Canada, and more than fifty percent (50%) of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned, directly or indirectly, by the Company. "THIRD AMENDMENT" shall mean the Third Amendment Agreement entered into as of May 10, 1994, between the Company and the holder of Notes named therein. "THIRD AMENDMENT DATE" shall mean the "Effective Date," as such term is defined in the Third Amendment. "TRADE RECEIVABLES AGREEMENT" shall mean (i) the Amended and Restated Trade Receivables Purchase and Sale Agreement dated as of January 26, 1990 and as amended thereafter among the Company, Corporate Asset Funding Company, Inc., Citibank, N.A. and Citicorp North America, Inc., individually and as agent, (ii) the Amended and Restated Trade Receivables Purchase and Sale Agreement dated as of January 26, 1990 and as amended thereafter among the Company, Citibank, N.A. and Citicorp North America, Inc., individually and as agent, and (iii) other agreements for the sale of receivables, or other amounts payable to the Company on account of any pre-production costs, by the Company or any Subsidiary, with recourse to the Company or such Subsidiary no greater than as set forth in the agreement referred to in clause (i) of this definition, provided that in no event shall (a) the Company or any Subsidiary sell Property (or subject Property to any Liens) under any such agreements other than Property of the type that may be sold under any such agreements in accordance with the terms of any such agreements as in effect on the Closing Date, and in no event shall such sales be made unless they are sales of interests in accounts and general intangibles as such terms are defined by the Uniform Commercial Code as in effect in New York, (b) at any time the aggregate amount of claims (whether or not asserted at such time) against any one or more of the Company or the Subsidiaries, or assets of any of them, arising out of such agreements (but only that portion of such claims that represents principal) exceed the greater of, A-65 (I) thirty-five percent (35%) of Adjusted Consolidated Tangible Net Worth, or (II) Sixty Million Dollars ($60,000,000), and (c) for any period of ten consecutive Business Days, the aggregate amount of claims (whether or not asserted at such time) against any one or more of the Company or the Subsidiaries, or assets of any of them, arising out of such agreements (but only that portion of such claims that represents principal) exceed ninety-one percent (91%) of the aggregate face amount of the receivables and general intangibles with respect to which the Company may or has sold interests under any such agreements and which receivables and general intangibles are outstanding at such time. "TRANSFEREE" shall mean any direct or indirect transferee of all or any part of any Note purchased by any Purchaser under this Agreement. "VOTING STOCK" shall mean, with respect to any corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "WARRANT AGREEMENT" shall mean that certain Warrant Agreement entered into among the Company and holders of the Notes and certain other Debt of the Company on or after the Amendment Date in compliance with the provisions of paragraph 7A of the Amendment. "WARRANTS" shall mean warrants to purchase shares of the common stock of the Company issued pursuant to the Warrant Agreement. "WHOLLY-OWNED SUBSIDIARY" shall mean any Subsidiary one hundred percent (100%) of the capital stock of which (other than directors' qualifying shares) is held of record and beneficially owned by the Company or any other Wholly-Owned Subsidiary. 11. MISCELLANEOUS. 11A. NOTE PAYMENTS. The Company agrees that, so long as any Purchaser shall hold any Note, it will make payments of principal of, interest on, and Agreed Put Consideration and any Yield-Maintenance Amount payable with respect to, such Note, by wire transfer of immediately available funds for credit (not later than 12:00 noon, New York City time, on the date due) to such Purchaser's account or accounts as specified in the Purchaser Schedule attached hereto, or such other account or accounts in the United States as such Purchaser may designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. Each Purchaser agrees that, before disposing of any Note, such Purchaser will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid. The Company agrees A-66 to afford the benefits of this paragraph 11A to any Transferee which shall have made the same agreement as each Purchaser has made in this paragraph 11A. 11B. EXPENSES. The Company agrees, whether or not the transactions contemplated hereby shall be consummated, to pay, and save each Purchaser and any Transferee harmless against liability for the payment of, all out-of-pocket expenses arising in connection with such transactions, including (i) all document production and duplication charges and the fees and expenses of any special counsel engaged by such Purchaser or such Transferee in connection with this Agreement, the transactions contemplated hereby and any subsequent proposed modification of, or proposed consent under, this Agreement, whether or not such proposed modification shall be effected or proposed consent granted, and (ii) the costs and expenses, including attorneys' fees, incurred by such Purchaser or such Transferee in enforcing (or determining whether or how to enforce) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the transactions contemplated hereby or by reason of such Purchaser's or such Transferee's having acquired any Note, including without limitation costs and expenses incurred in any bankruptcy case. The obligations of the Company under this paragraph 11B shall survive the transfer of any Note or portion thereof or interest therein by any Purchaser or any Transferee and the payment of any Note. 11C. CONSENT TO AMENDMENTS. This Agreement and the Notes may be amended, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holders except that, without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to this Agreement shall change the maturity of any Note, or change the principal of, or the rate or time of payment of interest on or any Agreed Put Consideration or Yield-Maintenance Amount payable with respect to any Note, or affect the time, amount or allocation of any prepayments, or change the proportion of the principal amount of the Notes required with respect to any consent, amendment, waiver or declaration. With respect to waivers or consents to amendments to or concerning the provisions of paragraph 5I hereof, the provisions of such paragraph and (except as set forth in this sentence) the definitions used therein (as used therein) may not be waived, amended or supplemented without the consent of each holder of Notes, but waivers concerning the occurrence of any Prepayment Event, and waivers and consents to amendments or supplements to the definition of Prepayment Event, may be given by the Required Holders. Each holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this paragraph 11C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights A-67 of any holder of such Note. As used herein and in the Notes, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The Notes are issuable as registered notes without coupons in denominations of at least One Million Dollars ($1,000,000), except as may be necessary to reflect any principal amount not evenly divisible by One Million Dollars ($1,000,000). The Company shall keep at its principal office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of the Transferee or Transferees, provided that any such Transferee or Transferees are Institutional Investors. At the option of the holder of any Note, such Note may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes which the holder making the exchange is entitled to receive. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder of such Note or such holder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holder's unsecured indemnity agreement, or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. 11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of, interest on and any Yield-Maintenance Amount payable with respect to such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in such Note to any Institutional Investor on such terms and conditions as may be determined by such holder in its sole and absolute discretion, provided that any such participation shall be in a principal amount of at least One Hundred Thousand Dollars ($100,000). 11F. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements contained in the Company's Quarterly Report on Form 10-Q for fiscal quarter ended May 2, 1993. If any change in accounting principles from those used in the preparation of such financial statements hereafter occasioned by the promulgation of rules and regulations by or required by the Financial Accounting Standards Board, the Cost Accounting Standards Board or the Securities and Exchange Commission (or successors thereto or agencies with similar functions) result in a material change A-68 in the accounting principles used to prepare the financial statements contained in the Company's Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q, the Company and the holders of Notes agree, upon notification of such change by the Company to the holders of Notes or by a holder of Notes to the Company, to enter into negotiations in order to amend paragraph 6 and the Financial Covenants incorporated by reference herein, as applicable, so as to equitably reflect such change with the desired result that the criteria for evaluating the Company's financial condition shall be the same after such change as if such change had not been made. 11G. DIRECTLY OR INDIRECTLY. Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person, including actions taken by or on behalf of any partnership in which such Person is a general partner. 11H. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Notes, the transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of any Purchaser or any Transferee. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between the Purchasers and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 11I. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this Agreement contained by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not. 11J. DISCLOSURE TO OTHER PERSONS. Each Purchaser agrees to use its best efforts to hold in confidence and not to disclose any Confidential Information, provided, that any Purchaser will be free, after notice to the Company, to correct any false or misleading information that may become public concerning its relationship to the Company and the Subsidiaries or to the transactions contemplated by this Agreement. Notwithstanding the foregoing, the Company acknowledges that the holder of any Note may deliver copies of any financial statements and other documents delivered to such holder, and disclose any other information disclosed to such holder (including, without limitation, Confidential Information), by or on behalf of the Company or any Subsidiary in connection with or pursuant to this Agreement, to (i) such holder's directors, officers, employees, agents and professional consultants, (ii) any other holder of any Note, (iii) any Institutional Investor to which such holder sells or offers to sell such Note or any part thereof, provided that such Institutional Investor signs a written agreement to comply with the confidentiality provisions of this Agreement, regardless of whether or not such offeree purchases any Notes, and provided further that no such A-69 agreement shall be required so long as such Institutional Investor is furnished only with information that is not Confidential Information, (iv) any Institutional Investor to which such holder sells or offers to sell a participation in all or any part of such Note, provided that such Institutional Investor signs a written agreement to comply with the confidentiality provisions of this Agreement, regardless of whether or not such offeree purchases any Notes, and provided further that no such agreement shall be required so long as such Institutional Investor is furnished only with information that is not Confidential Information, (v) any federal or state regulatory authority having jurisdiction over such holder, (vi) the National Association of Insurance Commissioners or any similar organization or (vii) any other Person to which such delivery or disclosure may be necessary, (a) in compliance with any law, rule, regulation or order applicable to such holder, (b) in response to any subpoena or other legal process, or (c) in connection with any litigation to which such holder is a party. 11K. NOTICES. All written communications provided for hereunder shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) and (i) if to any Purchaser, addressed to such Purchaser at the address specified for such communications in the Purchaser Schedule attached hereto, or at such other address as such Purchaser shall have specified to the Company in writing, (ii) if to any other holder of any Note, addressed to such other holder at such address as such other holder shall have specified to the Company in writing or, if any such other holder shall not have so specified an address to the Company, then addressed to such other holder in care of the last holder of such Note which shall have so specified an address to the Company, and (iii) if to the Company, addressed to it at: Rohr, Inc. Foot of H Street Chula Vista, CA 92012 Attention: Treasurer copy to: General Counsel or at such other address as the Company shall have specified to the holder of each Note in writing; provided, however, that any such communication to the Company may also, A-70 at the option of the holder of any Note, be delivered by any other means either to the Company at its address specified above or to any officer of the Company. 11L. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day. If the date for any payment is extended to the next succeeding Business Day by reason of the preceding sentence, the period of such extension shall be included in the computation of the interest payable on such Business Day. 11M. SATISFACTION REQUIREMENT. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to any Purchaser or to the Required Holders, the determination of such satisfaction shall be made by such Purchaser or the Required Holders, as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. 11N. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK. 11O. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11P. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 11Q. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. 11R. SEVERALTY OF OBLIGATIONS. The sales of Notes to the Purchasers are to be several sales, and the obligations of the Purchasers under this Agreement are several obligations. Except as provided in paragraph 3F, no failure by any Purchaser to perform its obligations under this Agreement shall relieve any other Purchaser or the Company of any of its obligations hereunder, and no Purchaser shall be responsible for the obligations of, or any action taken or omitted by, any other Purchaser hereunder. A-71 If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterparts of this letter and return the same to the Company, whereupon this letter shall become a binding agreement among the Company and the Purchasers. Very truly yours, ROHR, INC. By__________________________________________ Name: Title: The foregoing Agreement is hereby accepted as of the date first above written. [PURCHASER] By_________________________________________ Name: Title: A-72 EXHIBIT B1 FORM OF OPINION OF GIBSON, DUNN & CRUTCHER [Closing Date] To the Persons Listed on Annex 1 hereto Re: Rohr, Inc. Ladies and Gentlemen: Reference is made to the Third Amendment Agreement dated as of May 10, 1994 (the "Third Amendment") among Rohr, Inc., a Delaware corporation (the "Company"), and each of the Persons listed on Annex 1 hereto (the "Holders"), which Third Amendment, among other things, amends that certain Note Agreement (the "Original Note Agreement"), dated as of December 21, 1992 between the Company and each of the Holders, as previously amended by that certain Amendment Agreement dated June 30, 1993 (the "First Amendment") and that certain Second Amendment Agreement dated as of September 24, 1993 (the "Second Amendment," and, collectively, the "Existing Note Agreement," and, as amended and restated by the Third Amendment, the "Amended Note Agreement"). The capitalized terms used herein and not defined herein have the meanings assigned to them by or pursuant to the terms of the Third Amendment. The Third Amendment, the Amended Note Agreement and the Company's 9.33% Notes due December 15, 2002 (as amended by the First Amendment, the "Notes") are hereinafter referred to collectively as the "Amendment Documents." We have acted as special counsel to the Company in connection with the transactions contemplated by the Third Amendment. This opinion is delivered to you pursuant to paragraph 4B(i) of the Third Amendment. In acting as such counsel, we have examined: (a) the Third Amendment, together with the Amended and Restated Note Agreement set forth as Exhibit A thereto; (b) conformed copies of the Original Note Agreement, the First Amendment and the Second Amendment; (c) a copy of the form of the Notes; (d) a certified copy of the certificate of incorporation and bylaws of the Company as in effect on the date hereof; (e) the opinion of Hebb & Gitlin, special counsel to the Holders, dated the date hereof; and A-73 (f) originals, or copies certified or otherwise identified to our satisfaction, of such other documents, records, instruments and certificates as we have deemed necessary or appropriate to enable us to render this opinion. In rendering our opinion, we have assumed with your permission the following: (a) the authenticity of all documents submitted to us as originals; (b) the conformity of any documents submitted to us as copies to their respective originals; (c) the accuracy of all reports and certificates received from public officials; (d)(i) each Holder has all requisite power and authority to execute and deliver the Third Amendment and to perform its obligations under the Amended Note Agreement (and at all relevant times had the requisite power and authority to execute and deliver the Original Note Agreement, the First Amendment and the Second Amendment and to perform its obligations under the Existing Note Agreement); (ii) the execution and delivery of the Third Amendment by such Holder and performance of the obligations of such Holder under the Amended Note Agreement have been duly authorized by all necessary action (and the execution and delivery of the Original Note Agreement, the First Amendment and the Second Amendment by such Holder and the performance of the obligations of such Holder pursuant to the Amended Note Agreement were at all relevant times duly authorized by all necessary action); (iii) the Third Amendment has been executed and delivered by duly authorized officers of such Holder (and the Original Note Agreement, the First Amendment and the Second Amendment were executed and delivered by duly authorized officers of such Holder); and (iv) the Third Amendment and the Amended Note Agreement are legal, valid and binding obligations of such Holder, enforceable against it in accordance with their respective terms; (e) the Company is a corporation duly incorporated, validity existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business and own its Property; (f) the Company has the requisite corporate power and authority to execute and deliver the Third Amendment and to perform its obligations set forth in the Amended Note Agreement (and the Company had at all relevant times the requisite corporate power and authority to execute and deliver the Original Note Agreement, the First Amendment and the Second Amendment and to perform its obligations under the Existing Note Agreement); (g) the Third Amendment and the Amended Note Agreement have been duly authorized by all necessary corporate action on the part of the Company and the Third Amendment has been executed and delivered by duly authorized officers of the Company A-74 (and the Existing Note Agreement was at all relevant times duly authorized by all necessary corporate action on the part of the Company and the Original Note Agreement, the First Amendment, the Second Amendment were executed and delivered by duly authorized officers of the Company); (h) all parties to the Third Amendment have filed all required franchise tax returns, if any, and paid all required taxes, if any, under the California Revenue & Taxation Code (see White Dragon Productions, Inc. ---------------------------------- v. Performance Guarantees, Inc., 196 Cal. App. 3d 163, 24 Cal. Rptr. 745 ------------------------------- (1987); Damato v. Slevin, 214 Cal. App. 3d 668, 262 Cal. Rptr. 879 (1989); ---------------- California Revenue and Taxation Code Section 23301 et seq.); ------ (i) there are no agreements or understandings between or among the Company, any Holder or third parties which would expand, modify or otherwise affect the terms of the Third Amendment or the Amended Note Agreement or the respective rights or obligations of the parties thereunder and each of the foregoing documents correctly and completely sets forth the intent of all parties thereto (see Trident Center v. Connecticut General --- ------------------------------------- Life Insurance Company, 847 F.2d 564 (9th Cir. 1989)); ---------------------- (j) Each Holder holds its Note, as amended, for its own account and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended; and (k) Each Holder is an "incorporated admitted insurer" within the meaning of Section 1100.1 of the California Insurance Code. In rendering our opinion, we have relied, as to certain factual matters, on warranties and representations contained in the Third Amendment, certificates of officers of the Company or certificates obtained from public officials. Based on the foregoing and in reliance thereon, and subject to the assumptions, exceptions, qualifications and limitations set forth herein, we are of the opinion that: 1. Each of the Third Amendment, the Amended Note Agreement and the Notes constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 2. The execution and delivery of the Third Amendment by the Company, the repayment of Debt by the Company pursuant to the Third Amendment and Amended Note Agreement and the consummation of the transactions which are contemplated by the Third Amendment to be consummated by the Company on the Effective Date do not violate the certificate of incorporation or bylaws of the Company or any statute, rule or regulation of the State of California or the Untied States of America applicable to the Company which is generally applicable to transactions in the nature of those contemplated by the Third Amendment and the Amended Note Agreement, or the Delaware General Corporation Law. A-75 3. No consents, approvals or authorizations of any governmental authorities of the State of California or the United States of America are required by law to be obtained on the part of the Company in connection with the execution and delivery of the Third Amendment or the performance of the Amended Note Agreement, except such consents, approvals or authorizations that have been obtained on or prior to the date hereof. The foregoing opinions are subject to the following exceptions, qualifications and limitations: A. Our opinion is based upon the laws of the State of California, the State of Delaware (with respect to corporate law) and the United States of America. We have relied upon the opinion of Hebb & Gitlin with respect to all matters governed by New York law. We have not examined the question of what law would govern the interpretation or enforcement of the Third Amendment, the Amended Note Agreement and the Notes and our opinion is based on the assumption that the internal laws of the State of California and the laws of the United States of America would govern the provisions of such agreements and instruments and the transactions contemplated thereby. However, we note that if any such agreement or instrument is not, in fact, enforceable under the laws of New York, such agreement or instrument may not be enforced by a California court under applicable conflict-of-law principles. B. This opinion is limited to the effect of the present state of the laws of the State of California, the United States of America and, to the limited extent set forth above, the State of Delaware and the facts as they presently exist. We assume no obligation to revise or supplement this opinion in the event of future changes in such laws or the interpretations thereof or such facts. C. Our opinions, and our assumptions and qualifications relating to enforceability of agreements or instruments against parties other than the Company, are subject to (i) the effect of any bankruptcy, insolvency, reorganization, moratorium, arrangement or similar laws affecting the enforcement of creditors' rights generally (including, without limitation, the effect of statutory or other laws regarding fraudulent transfers or preferential transfers) and (ii) general principles of equity, including without limitation concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance, injunctive relief or other equitable remedies, regardless of whether enforceability is considered in a proceeding in equity or at law. D. We express no opinion with respect to the legality, validity, binding nature or enforceability of any provision of the Amendment Documents to the effect that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to any other right or remedy, that the election of some particular remedy does not preclude recourse to one or more others or that failure to exercise or delay in exercising rights or remedies will not operate as a waiver of any such right or remedy. E. We express no opinion as to the legality, validity, binding nature or enforceability (i) of any provision of the Amendment Documents insofar as it provides for the payment or A-76 reimbursement of costs and expenses or for claims, losses or liabilities in excess of a reasonable amount determined by any court or other tribunal or (ii) regarding any Holder's ability to collect attorneys' fees and costs in an action involving the Amendment Documents and the Amended Note Agreement if the Holder is not the prevailing party in such action (we call your attention to the effect of Section 1717 of the California Civil Code, which provides that, where a contract permits one party thereto to recover attorneys' fees, the prevailing party in any action to enforce any provision of the contract shall be entitled to recover its reasonable attorneys' fees). F. We express no opinion as to the legality, validity, binding nature or enforceability of (i) any waiver of rights existing, or duties owed, that is broadly or vaguely stated or does not describe the right or duty purportedly waived with reasonable specificity, (ii) any waivers or consents (whether or not characterized as a waiver or consent in the Amendment Documents relating to the rights of the Company or duties owing to it existing as a matter of law, including, without limitation, waivers of the benefits of statutory or constitutional provisions, to the extent such waivers or consents may be found by a California court to be against public policy or which are ineffective pursuant to California statutes and judicial decisions or (iii) provisions in the Amendment Documents that may be construed as imposing penalties, forfeitures, late payment charges or an increase in the interest rate upon delinquency in payment or the occurrence of default. G. We express no opinion as to any provision of the Amendment Documents requiring written amendments or waivers of such documents insofar as it suggests that oral or other modifications, amendments or waivers could not be effectively agreed upon by the parties or that the doctrine of promissory estoppel might not apply. H. We express no opinion as to the applicability or effect of each Holder's compliance with any state or federal laws applicable to the transactions contemplated by the Amendment Documents because of the nature of its business. This opinion is rendered to the Holders in connection with the Third Amendment and the Amended Note Agreement and may not be relied upon by any person other than the Holders or by the Holders in any other context, without our written consent, which consent will not be unreasonably withheld, provided that the Holders may provide this opinion (i) to regulatory authorities should they so request or in connection with their normal examinations, (ii) to the independent auditors and attorneys of the Holders, (iii) pursuant to order or legal process of any court or governmental agency or (iv) in connection with any legal action to which the Holder is a party arising out of the transactions contemplated by the Amendment Documents. This opinion may not be quoted without the prior written consent of this Firm. Very truly yours, Gibson, Dunn & Crutcher A-77 ANNEX 1 ADDRESSEES The Prudential Insurance Company of America Principal Mutual Life Insurance Company Massachusetts Mutual Life Insurance Company A-78 EXHIBIT B2 FORM OF OPINION OF RICHARD MADSEN, ESQ. [LETTERHEAD OF RICHARD MADSEN, ESQ.] [Closing Date] To the Persons Listed on Annex 1 hereto Re: Third Amendment Agreement, dated as of May 10, 1994 Ladies and Gentlemen: Reference is made to the Third Amendment Agreement dated as of May 10, 1994 (the "Third Amendment") among Rohr, Inc., a Delaware corporation (the "Company"), and each of the Persons listed on Annex 1 hereto (the "Holders"), which Third Amendment, among other things, amends that certain Note Agreement (the "Original Note Agreement"), dated as of December 21, 1992, between the Company and each of the Holders, as previously amended by that certain Amendment Agreement dated June 30, 1993 (the "First Amendment") and that certain Second Amendment Agreement dated as of September 24, 1993 (the "Second Amendment," and, collectively, the "Existing Note Agreement," and, as amended and restated by the Third Amendment, the "Amended Note Agreement"). The capitalized terms used herein and not defined herein have the meanings assigned to them by or pursuant to the terms of the Third Amendment. The Third Amendment, the Amended Note Agreement and the Company's 9.33% Notes due December 15, 2002 (as amended by the First Amendment, the "Notes") are hereinafter referred to collectively as the "Amendment Documents." I am the General Counsel of the Company and have acted in such capacity in connection with the transactions contemplated by the Third Amendment. This opinion is delivered to you pursuant to paragraph 4B(ii) of the Third Amendment. In acting as such counsel, I have examined: (a) the Third Amendment, together with the Amended and Restated Note Agreement set forth as Exhibit A thereto; (b) conformed copies of the Original Note Agreement, the First Amendment and the Second Amendment; (c) a copy of the form of the Notes; (d) the certificates delivered to the Holders pursuant to paragraph 4C of the Third Amendment; A-79 (e) the amendment described in paragraph 4I of the Third Amendment; (f) the Seventh Amendment to the Credit Agreement, dated of even date herewith; (g) a certified copy of the restated certificate of incorporation of the Company, and a copy of the bylaws of the Company, each as in effect on the date hereof (the "Charter" and the "Bylaws", respectively); and (h) a long-form good standing certificate from the state of Delaware for the Company and foreign good standing certificates or similar certificates for the Company from each of the states set forth on Annex 2 hereto. I have also examined (or at my direction, a lawyer on my staff has examined and reported to me concerning) originals, or copies certified or otherwise identified to my (or his or her) satisfaction, of such other records of the Company, documents, agreements, instruments and certificates of public officials as I have deemed necessary or appropriate to enable me to render this opinion. In rendering my opinion, I have assumed the following: (a) the authenticity of all documents submitted to me as originals; (b) the conformity of any documents submitted to me as copies to their respective originals; and (c) the accuracy of all reports and certificates received from public officials. In rendering my opinion, I have relied as to matters of fact, to the extent I deem necessary and proper, on warranties and representations as to factual matters contained in the Third Amendment. Without making any investigation thereof, I have no actual knowledge of any material inaccuracies in any of the facts contained in the Third Amendment. Based on the foregoing, I am of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business and own its Property. 2. The Company has duly qualified and is in good standing as a foreign corporation in the States of California, Maryland, Arkansas, Alabama and Texas. 3. To the best of my knowledge after reasonable inquiry, there is no default or existing condition which, with the passage of time or notice, or both, would result in a default by the Company or any Subsidiary under any contract, lease or commitment known to me to which any one or more of the Company or any Subsidiary is a party or by which their respective Properties may be bound, except where such default would not have a material adverse effect A-80 on the ability of the Company to perform its obligations set forth in each of the Amendment Documents. 4. Except as set forth in Annex 2 to the Third Amendment, to the best of my knowledge after due inquiry, there is no judgment, order, action, suit, proceeding, inquiry or investigation, at law or in equity, before any court or governmental authority, arbitration board or tribunal, pending or threatened against the Company, except for any such judgment, order, action, suit, proceeding, inquiry, or investigation that is not reasonably likely to have a material adverse effect on the ability of the Company to perform its obligations under the Amendment Documents. 5. The Company has the requisite corporate power and authority to execute and deliver the Third Amendment and to perform its obligations set forth in each of the Amendment Documents. 6. The Third Amendment has been duly authorized by all necessary corporate action on the part of the Company and has been executed and delivered by a duly authorized officer of the Company. 7. The execution and delivery of the Third Amendment by the Company, the repayment of the Debt of the Company governed and evidenced by the Amendment Documents and the consummation of the transactions which are contemplated by the Third Amendment to be consummated by the Company on the Effective Date: (a) do not violate: (i) the Charter or the Bylaws; or (ii) any statute, rule or regulation of the State of California or the United States of America applicable to the Company which is generally applicable to transactions of the nature of those contemplated by the Third Amendment, or the Delaware General Corporation Law; (b) to the best of my knowledge after reasonable inquiry, will not conflict with, result in a breach of, or constitute a default under, any indenture, mortgage, deed of trust, bank loan, credit agreement or similar agreement of which I have knowledge to which the Company or any of its Subsidiaries is a party or by which it or any of them or its or any of their Property may be bound; and (c) to the best of my knowledge after reasonable inquiry, do not result in or require the creation of any Lien or encumbrance upon or with respect to any of the Company's Property or the Property of any Subsidiary. 8. No consents, approvals or authorizations of any governmental authorities of the State of California, the State of Delaware or the United States of America are required by law to be obtained on the part of the Company in connection with the execution and delivery of the Third Amendment, except such consents, approvals or authorizations that have been obtained on or prior to the date hereof. A-81 I render no opinion herein as to matters involving the laws of any jurisdiction other than the State of California and the United States of America and, to the limited extent discussed below, the laws of the State of Delaware. I am generally familiar with the Delaware General Corporation Law and, for the limited purpose of my opinions in paragraphs 1, 5, 6, 7(a) and 8 and limited solely to the Delaware General Corporation Law, I have expressed my opinions regarding the effect of the Delaware General Corporation Law and did not feel it necessary to obtain the opinion of Delaware counsel. This opinion is limited to the effect of the present state of the laws of the States of California and, for the limited purpose referred to above, Delaware, and of the United States of America and to the facts bearing upon this opinion as they presently exist. I assume no obligation to revise or supplement this opinion in the event of future changes in such laws or the interpretations thereof or in such facts. This opinion is rendered to the Holders in connection with the Third Amendment and may not be relied upon by any person other than the Holders and their successors and assigns or by the Holders in any other context, without our written consent, which consent will not be unreasonably withheld, provided that the Holders may provide this opinion (i) to regulatory authorities should they so request or in connection with their normal examinations, (ii) to the independent auditors and attorneys of the Holders, (iii) pursuant to order or legal process of any court or governmental agency or (iv) in connection with any legal action to which the Holder is a party arising out of the transactions contemplated by the Amendment Documents. This opinion may not be quoted without my prior written consent. Sincerely, R. W. Madsen General Counsel and Secretary A-82 ANNEX 1 ADDRESSEES The Prudential Insurance Company of America Principal Mutual Life Insurance Company Massachusetts Mutual Life Insurance Company A-83 ANNEX 2 FOREIGN QUALIFICATIONS Alabama Arkansas California Maryland Texas A-84 EXHIBIT B3 FORM OF OPINION OF HEBB & GITLIN [LETTERHEAD OF HEBB & GITLIN] [Closing Date] To the Persons Listed on Annex 1 hereto Re: Rohr, Inc. ---------- Ladies and Gentlemen: Reference is made to the Third Amendment Agreement (the "Third Amendment"), dated as of May 10, 1994, among Rohr, Inc. (the "Company"), a Delaware corporation, and each of the Persons listed on Annex 1 hereto (the "Holders"), which Third Amendment, among other things, amends that certain Note Agreement (the "Original Note Agreement"), dated as of December 21, 1992, between the Company and each of the Purchasers identified on Annex 1 thereto, as said Note Agreement has been previously amended by that certain Amendment Agreement (the "First Amendment") dated June 30, 1993 and that certain Second Amendment Agreement (the "Second Amendment"), dated September 24, 1993 (collectively, the "Existing Note Agreement," and, as amended and restated by the Third Amendment, the "Amended Note Agreement"). The capitalized terms used herein and not defined herein have the meanings assigned to them by or pursuant to the terms of the Third Amendment. The Third Amendment, the Amended Note Agreement and the Company's 9.33% Notes due December 15, 2002 (as amended by the First Amendment, the "Notes") are hereinafter referred to collectively as the "Amendment Documents." We have acted as special counsel to the Holders in connection with the transactions contemplated by the Third Amendment. This opinion is delivered to you pursuant to paragraph 4B(iii) of the Third Amendment. In acting as such counsel, we have examined: (a) the Third Amendment, together with the Amended and Restated Note Agreement set forth as Exhibit A thereto; (b) conformed copies of the Original Note Agreement, the First Amendment and the Second Amendment; (c) a copy of the form of the Notes; (d) a certificate of officers of the Company, substantially in the form attached to the Third Amendment as Exhibit C; A-85 (e) a certificate of the Secretary of the Company, substantially in the form attached to the Third Amendment as Exhibit D; (f) copies of the certificate of incorporation (the "Certificate of Incorporation") and bylaws (the "Bylaws") of the Company, as attached to a certificate of the Secretary of the Company, dated July 9, 1993 and delivered to the holders in connection with the transactions contemplated by the First Amendment; (g) the opinion of Gibson, Dunn & Crutcher, special counsel to the Company, dated the date hereof; (h) the opinion of Richard Madsen, Esq., general counsel to the Company, dated the date hereof; and (i) originals, or copies certified or otherwise identified to our satisfaction, of such other documents, records, instruments and certificates of public officials as we have deemed necessary or appropriate to enable us to render this opinion. In rendering our opinion, we have relied, to the extent we deem necessary and proper, on: (a) warranties and representations as to factual matters contained in the Third Amendment and the Amended Note Agreement; and (b) said opinions of Gibson, Dunn & Crutcher and Richard Madsen, Esq., with respect to all questions governed by California law, Delaware corporate law and with respect to all questions concerning the due incorporation, valid existence, corporate power and authority, good standing of, and the authorization, execution and delivery of instruments by, the Company (except that we have made an independent examination of the Certificate of Incorporation and the Bylaws, and of the aforementioned certificates of officers of the Company); based on such investigation as we have deemed appropriate, said opinion is satisfactory in form and content to us and in our opinion the Holders and we are justified in relying thereon. As to such opinions and the matters therein upon which we are relying, we incorporate herein the assumptions and qualifications to such opinions set forth therein. In rendering our opinion, we have assumed the following: (a) the authenticity of all documents submitted to us as originals; (b) the conformity of any documents submitted to us as copies to their respective originals; (c) the authenticity of all signatures other than those of officers and directors of the Company executing the Third Amendment and the documents and instruments executed pursuant to the terms thereof; (d) the legal capacity of all natural persons; A-86 (e) the accuracy of all reports and certificates received from public officials; and (f) as to corporations other than the Company, the corporate power and authority to execute and deliver, and the due authorization of, all documents, instruments and agreements contemplated by the Third Amendment. Based on the foregoing, we are of the following opinions: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the state of Delaware. 2. The Company has the requisite corporate power and authority to execute and deliver the Third Amendment and to perform its obligations set forth in each of the Amendment Documents. 3. The Third Amendment has been duly authorized by all necessary corporate action on the part of the Company and has been executed and delivered by duly authorized officers of the Company. Each of the Third Amendment and the Amended Note Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 4. The execution and delivery of the Third Amendment by the Company and the performance by the Company of its obligations under the Amendment Documents will not conflict with, result in a breach of any provision of, constitute a default under, or result in the creation or imposition of any Lien upon any of its Property pursuant to, the Certificate of Incorporation or Bylaws of the Company. All opinions herein contained with respect to the enforceability of documents and instruments are qualified to the extent that: (a) the availability of equitable remedies, including without limitation, specific enforcement and injunctive relief, is subject to the discretion of the court before which any proceedings therefor may be brought; and (b) the enforceability of certain terms provided in the Third Amendment and the Amendment Documents may be limited by: (i) applicable bankruptcy, reorganization, arrangement, insolvency, moratorium or similar laws affecting the enforcement of creditors' rights generally as at the time in effect; (ii) general principles of equity and the discretion of a court in granting equitable remedies (whether enforceability is considered in a proceeding at law or in equity); and (iii) common law or statutory requirements with respect to commercial reasonableness. A-87 One or more members of this firm are admitted to the Bar in the State of New York. We express no opinion as to the law of any jurisdiction other than the law of such state and United States federal law. Gibson, Dunn & Crutcher and Richard Madsen, Esq., may rely on this opinion with respect to matters governed by the laws of the State of New York for the sole purpose of rendering their opinions to be rendered pursuant to paragraph 4B(i) and paragraph 4B(ii) of the Third Amendment. Subsequent holders of the Notes may rely on this opinion as if it were addressed to them. Very truly yours, A-88 ANNEX 1 ADDRESSEES THE PRUDENTIAL INSURANCE COMPANY OF AMERICA Prudential Specialized Finance Group Four Gateway Center, 9th Floor Newark, NJ 07102-4069 PRINCIPAL MUTUAL LIFE INSURANCE COMPANY 711 High Street Des Moines, IA 50392 MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY 1295 State Street Springfield, MA 01111 A-89 EXHIBIT C FORM OF OFFICERS' CERTIFICATE CERTIFICATE OF OFFICERS OF ROHR, INC. We, L.A. Chapman, and R.W. Madsen, each hereby certify that we are, respectively, the Senior Vice President and Chief Financial Officer, and the Vice President, General Counsel and Secretary of ROHR, INC., a Delaware corporation (the "Company"), and that, as such, we are authorized to execute and deliver this Certificate in the name and on behalf of the Company, and that: 1. This certificate is being delivered pursuant to paragraph 4C of the Third Amendment Agreement (the "Third Amendment"), dated as of May 10, 1994, between the Company and the holders of the Company's 9.33% Senior Notes due December 15, 2002 listed on Annex 1 thereto (collectively, the "Purchasers"). The terms used in this certificate and not defined herein shall have the respective meanings ascribed to them in the Third Amendment. 2. The warranties and representations contained in paragraph 5 of the Third Amendment are true in all material respects on the date hereof with the same effect as though made on and as of the date hereof. 3. The Company has performed and complied with all agreements and conditions contained in the Third Amendment that are required to be performed or complied with by the Company before or at the date hereof, and no unwaived Default or Event of Default exists on the date hereof. 4. R. W. Madsen is on and as of the date hereof, and at all times subsequent to March 31, 1994 has been, the duly elected, qualified and acting Secretary of the Company, and the signature appearing on the Certificate of Secretary dated the date hereof and delivered to the Purchasers contemporaneously herewith is his genuine signature. IN WITNESS WHEREOF, we have executed this Certificate in the name and on behalf of the Company on ___________ ____, 1994 ROHR, INC. By: -------------------------------------- Name: By: --------------------------------------- Name: A-90 EXHIBIT D FORM OF SECRETARY'S CERTIFICATE CERTIFICATE OF SECRETARY OF ROHR, INC. I, R. W. Madsen, hereby certify that: I am the duly elected, qualified and acting Secretary of ROHR, INC., a Delaware corporation (the "Company"), and that, as such, I have access to its corporate records and am familiar with the matters herein certified, and I am authorized to execute and deliver this Certificate in the name and on behalf of the Company, and that: 1. This certificate is being delivered pursuant to paragraph 4C of the Third Amendment Agreement (the "Third Amendment"), dated as of May 10, 1994, between the Company and the holders of the Company's 9.33% Senior Notes due December 15, 2002 listed on Annex 1 thereto (collectively, the "Purchasers"). The terms used in this certificate and not defined herein shall have the respective meanings ascribed to them in the Third Amendment. 2. Attached hereto as Attachment A is a true and correct copy of resolutions, and the preamble thereto, adopted by the Board of Directors of the Company on March 31 and April 1, 1994, and such resolutions and preamble set forth in Attachment A hereto were duly adopted by said Board of Directors and are in full force and effect on and as of the date hereof, not having been amended, altered or repealed, and such resolutions are filed with the records of the Board of Directors. 3. The Third Amendment was executed and delivered by the Company pursuant to and in accordance with the resolutions set forth in Attachment A hereto. 4. The bylaws of the Company were last amended by the Board of Directors of the Company on, and have been in full effect in said form at all times from and after January 7, 1993 to and including the date hereof, without modification or amendment in any respect. 5. Each of the following named persons is on and as of the date hereof, and at all times subsequent to January 7, 1993, has been a duly elected, qualified and acting officer of the Company holding the office or offices set forth below opposite his name (except for Mr. Chapman, who became an officer of the Company on May 1, 1994):
Name Office Signature Vice President, /s/ General Counsel and Secretary Assistant Secretary /s/ Vice President and /s/ Treasurer
A-91 6. The signature appearing opposite the name of each such person set forth above is his or her genuine signature. 7. Attached hereto as Attachment B is a long-form good standing certificate in respect of the Company from the State of Delaware, which certificate (i) lists all corporate documents filed with the Secretary of State of Delaware on or prior to the date hereof in respect of the Company, (ii) bears the certification of the Secretary of State of Delaware, and (iii) is true, correct and complete. 8. There have been no amendments or supplements to or restatements of the Certificate of Incorporation of the Company since December 13, 1991. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of the Company on ______ __, 1994. [Closing Date] ROHR, INC. Secretary A-92 ATTACHMENT A RESOLUTIONS OF THE BOARD OF DIRECTORS Intentionally Omitted A-93 ATTACHMENT B GOOD STANDING CERTIFICATE AND CHARTER DOCUMENTS Intentionally Omitted A-94 EX-10.2.23 4 23RD AM. TO RETIREMENT PL EXHIBIT 10.2.23 ROHR, INC. SUPPLEMENTAL RETIREMENT PLAN TWENTY-THIRD AMENDMENT Pursuant to Article 6, this amendment to the Supplemental Retirement Plan is hereby adopted. 1. Pursuant to provisions of Section 1.02, the following persons are declared to be eligible to be Participants in the Plan and eligible for a benefit herender, as provided below: The calculation of their benefits would be based only on actual service to date of actual retirement, and all early retirement reductions under Section 3.02 (as applicable) shall apply. (a) Claude LeBrun, who shall be deemed to remain eligible as a Participant under the Plan after the date he is removed from general eligibility as a Participant hereunder (but for the application of these special provisions) until April 1, 1995. (b) Sandy Madera, who will also be deemed to remain eligible as a Participant under the Plan until April 1, 1996. (c) Alek Mikolajczak, who will also be deemed to remain eligible as a Participant under the Plan until July 31, 1994. (d) Jack Ferguson, who also will be deemed to remain eligible as a Participant under the Plan until the first day of the calendar month following his reaching the age of 65. (e) Pat Schlesinger, who will also be deemed to be eligible even though he did not reach age 60 as of the date of his retirement. 2. In all other respects, the Plan is hereby ratified and confirmed. IN WITNESS WHEREOF, Rohr, Inc., has caused its duly authorized officers to execute this Amendment on the 23 day of September 1993. ROHR, INC. By: /s/ R. W. Madsen ----------------------------------- R. W. Madsen Vice President, General Counsel and Secretary EX-10.2.24 5 24TH AM. TO RETIREMENT PL EXHIBIT 10.2.24 ROHR, INC. SUPPLEMENTAL RETIREMENT PLAN TWENTY-FOURTH AMENDMENT Pursuant to Article 6, this amendment to the Supplemental Retirement Plan is hereby adopted. 1. Pursuant to provisions of Section 1.02, the following persons are declared to be eligible to be Participants in the Plan and eligible for a benefit herender, as provided below: The calculation of their benefits would be based only on actual service to date of actual retirement, and all early retirement reductions under Section 3.02 (as applicable) shall apply. (a) Ron Heitman, who shall be deemed to remain eligible as a Participant under the Plan after the date he is removed from general eligibility as a Participant hereunder (but for the application of these special provisions) until April 1, 1995, and who will also be deemed eligible to retire on or before such date even though he is not then aged 60. (b) John Walsh, who will be deemed to be eligible to retire even though he does not reach age 60 as of the date of his retirement and, upon his retirement on December 1, 1995, the early retirement actuarial reduction will be calculated as if he were then age 60. (c) Ann Davis-McNeil, who will also be deemed eligible to retire even though she does not reach age 60 as of the date of her retirement, and upon her retirement on February 28, 1994, the early retirement actuarial reduction will be calculated as if she were then age 60. (d) Uwe Bockenhauer, who shall be deemed to remain eligible as a Participant under the Plan after the date he is removed from general eligibility as a Participant hereunder (but for the application of these special provisions) until March 1, 1997, and who will also be deemed eligible to retire on or before such date even though he is not then aged 60. 2. A new Section 8.13 is hereby added, to read in full as follows: "8.13 Robert Daly ----------- a. The normal retirement benefit for which Mr. Daly is entitled under the Plan shall be established as provided at Paragraph 3.01 of the Plan; provided, however, that "two percent" for each Year of Credited Service in such paragraph shall be deleted and the percentage "three percent" shall be substituted. Page 1 b. All other Benefits provided in the Plan, including Early Retirement, Disability Retirement and Survivor Benefits, shall be as set forth in the Plan, also based upon the above-described normal retirement benefit." 3. In all other respects, the Plan is hereby ratified and confirmed. IN WITNESS WHEREOF, Rohr, Inc., has caused its duly authorized officers to execute this Amendment on the 3rd day of December 1993. ROHR, INC. By: R. W. Madsen ---------------------------------- R. W. Madsen Vice President, General Counsel and Secretary Page 2 EX-10.2.25 6 25TH AM. TO RETIREMENT PL EXHIBIT 10.2.25 ROHR, INC. SUPPLEMENTAL RETIREMENT PLAN TWENTY-FIFTH AMENDMENT Pursuant to Article 6, this amendment to the Supplemental Retirement Plan is hereby adopted. 1. The following person is declared to be eligible to be a Participant in the Plan and eligible for a benefit hereunder, as provided below: David Canedo will be deemed to be eligible to retire on December 1, 2000, and upon his retirement, the early retirement actuarial reduction will not be applied, as he will be deemed as if he then had 30 years of credited service. 2. In all other respects, the Plan is hereby ratified and confirmed. IN WITNESS WHEREOF, Rohr, Inc., has caused its duly authorized officers to execute this Amendment on the 5th day of May 1994. ROHR, INC. By: R. W. Madsen --------------------------------- R. W. Madsen Vice President, General Counsel and Secretary Page 1 EX-10.2.26 7 26TH AM. TO RETIREMENT PL EXHIBIT 10.2.26 ROHR, INC. SUPPLEMENTAL RETIREMENT PLAN TWENTY-SIXTH AMENDMENT Pursuant to Article 6, this amendment to the Supplemental Retirement Plan is hereby adopted. 1. A new Section 8.14 is hereby added, to read in full as follows: 8.14 David A. Ramsay --------------- (a) The normal retirement benefit for which Mr. Ramsay is entitled under the Plan shall be established as provided at Paragraph 3.01 of the Plan; provided, however, that Mr. Ramsay will be credited with two years of Credited Service for each year, up to a maximum of eleven years, that he remains an Employee. All other Benefits provided in the Plan, including Early Retirement, Disability Retirement and Survivor Benefits, shall be as set forth in the Plan, also based upon the above-described normal retirement benefit. 2. In all other respects, the Plan is hereby ratified and confirmed. IN WITNESS WHEREOF, Rohr, Inc., has caused its duly authorized officers to execute this Amendment on the 3rd day of June 1994. ROHR, INC. By: R. W. Madsen ---------------------------------- R. W. Madsen Vice President, General Counsel and Secretary EX-10.2.27 8 27TH AM. TO RETIREMENT PL EXHIBIT 10.2.27 ROHR, INC. SUPPLEMENTAL RETIREMENT PLAN TWENTY-SEVENTH AMENDMENT Pursuant to Article 6, this amendment to the Supplemental Retirement Plan is hereby adopted. 1. Pursuant to provisions of Section 1.07, the following persons are declared to be eligible to be Participants in the Plan and eligible for a benefit herender, as provided below: The calculation of their benefits would be based only on actual service to date of actual retirement, and, except as provided below, all early retirement reductions under Section 3.02 (as applicable) shall apply. (a) Tony Derczo, who shall be deemed to remain eligible as a Participant under the Plan after the date he is removed from general eligibility as a Participant hereunder (but for the application of these special provisions) until May 1, 1995, and who will also be deemed eligible to retire on or before such date even though he is not then aged 60. (b) Don Mayo, who will be deemed to be eligible to retire on April 1, 1995, and upon his retirement, the early retirement actuarial reduction will not apply but his benefit will be calculated on the basis of the Years of Credited Service earned by Mr. Mayo as of his retirement date. (c) Nick Bucur, who will be deemed eligible to retire on July 1, 1995, even though he does not reach age 60 as of the date of his retirement, and upon his retirement, the early retirement actuarial reduction will not apply and his benefit will be calculated as if he had 30 years of service upon such retirement. In addition, Mr. Bucur's surviving spouse benefit under Section 3.06(a) and (b) shall be $6,000 per month during her lifetime. (d) Gary Ramsdell, who shall be deemed to remain eligible as a Participant under the Plan after the date he is removed from general eligibility as a Participant hereunder (but for the application of these special provisions) until June 30, 1997. 1 2. In all other respects, the Plan is hereby ratified and confirmed. IN WITNESS WHEREOF, Rohr, Inc., has caused its duly authorized officers to execute this Amendment on the 19th day of August 1994. ROHR, INC. By: R. W. Madsen ---------------------------------- R. W. Madsen Vice President, General Counsel and Secretary 2 EX-10.12 9 CHAPMAN AGREEMENT EXHIBIT 10.12 April 12, 1994 Mr. Laurence Chapman 2672 Gloucester Drive Upper St. Clair, PA 15241 Dear Laurence: We are very eager to have you join us in the position of Senior Vice President and Chief Financial Officer. This letter sets forth the key elements of the position, and it is my sincere hope that your response to it will be positive. SALARY AND BONUS - - ---------------- As Senior Vice President and Chief Financial Officer, your starting salary would be $228,000 per year, and you would be reporting to me. You will receive a merit review on August 1, 1994. The position carries a forty percent (40%) of base salary as the annual target bonus opportunity under our Management Incentive Program (MIP), which as you know pays on the basis of cash generated and average net assets. Your first full year eligibility to participate in this program will be effective with the start of our fiscal year 1995 on August 1, 1994. However, you will receive $22,800 bonus on September 15, 1994, for fiscal 1994. The bonus opportunity for fiscal 1995 and on is significantly leveraged up and down, depending upon Company performance, but you will receive a guaranteed bonus of a minimum of $68,400 for fiscal 1995 or a greater amount, depending on Company and personal performance in accordance with the provisions of the MIP. After that, of course, you would remain eligible to receive any award earned in accordance with the provisions of the MIP. All incentive compensation (both bonus and stock) elements are subject to Board of Directors' discretionary approval and do not represent entitlements. You would also be eligible for all benefits described on the enclosed Summary of Executive Benefits, although for vacation, you would receive four weeks instead of what is there shown. Letter to Laurence Chapman September 2, 1994 Page 2 RESTRICTED STOCK PLAN - - --------------------- It would be the intention of the Board of Directors to provide a Restricted Stock Grant of 20,000 shares of common stock at a price of $1 per share. This Grant would vest over the next five years at the rate of 20% per year. NON-QUALIFIED STOCK OPTION PLAN - - ------------------------------- Rohr has a Non-Qualified Stock Option Plan and, under it, you would be provided with an initial grant of Non-Qualified Stock of 50,000 shares at fair market value. The option price of shares would be at the market value on the day that such shares are formally granted. The Board believes that any such option should have long-term value because of Rohr's current low market price. This initial grant would vest over five years at a rate of 20% per year. CHANGE OF CONTROL PROVISION - - --------------------------- As is the case with our other senior executives, we would provide a Severance Compensation Agreement whereby you would be covered in the event of a Change of Control of Rohr. In addition, under circumstances stated below, you would recover an additional $250,000. SERP - - ---- We would be prepared to amend our current Supplemental Executive Retirement Plan (SERP) to provide you with credited service at the rate of two years for each year employed by Rohr for the first 13 years of employment. After that, you would earn a year of service for each year employed. An explanation of this Plan and also the funded Salaried Retirement Plan is included in the Summary of Executive Benefits enclosed. Your rights to a pension under the SERP would vest as you earned credited service, so that if your employment terminates for whatever reason, you will be entitled to a pension based on the years of credited service earned to the date of such termination. ONE-TIME STARTING BONUS - - ----------------------- The Board's offer would also include a one-time starting bonus of $114,000, payable one-half on May 1, 1994, and the balance on November 1, 1994. OTHER ONE-TIME BENEFITS - - ----------------------- A. In order to compensate you for the loss of your Westinghouse options, we would make the following arrangements: Letter to Laurence Chapman September 2, 1994 Page 3 * Rohr will pay, on May 1, 1997, the amount of $13,270 for each one- eighth of a point that the highest closing price of Westinghouse common stock between November 1, 1996, and April 30, 1997, exceeds the closing price of Westinghouse common stock on May 1, 1994. This amount, however, will not exceed $250,000. * If there is a change in control of Rohr prior to November 1, 1996, you will receive $250,000 forthwith, in lieu of other sums payable to you under the heading "Other One-Time Benefits." * If Westinghouse is merged or substantially all of its assets are sold to a third party before November 1, 1996, the $13,270 per one-eighth of a point shall be measured between May 1, 1994, and the closing price on the last day Westinghouse common stock is publicly traded. This alternate calculation is also limited to $250,000, and whatever sum is due hereunder will be payable on May 1, 1997. TERMINATION - - ----------- * In the event you are terminated without cause before the third anniversary of your starting date, Rohr will pay you a lump sum of $228,000 within 30 days thereafter. For these purposes, a "cause" is defined as either of the following occurrences: (a) Conviction, by a court of competent and final jurisdiction, of a felony or any crime involving moral turpitude committed at any time while an employee of the Company; provided, however, this shall not include any criminal liability imposed upon the employee by virtue of the fact that he is an officer of the Company without any significant, direct personal involvement by the employee in the criminal act; or (b) Commission of any act of fraud or deceit upon, or otherwise materially evidencing bad faith toward, the Company while an employee of the Company. * If you voluntarily leave Rohr, for any reason other than disability or death, then all unvested Restricted stock and options will terminate. In case of involuntary termination, however caused, the vesting of the Restricted Stock and options will continue each year until fully vested. Letter to Laurence Chapman September 2, 1994 Page 4 RELOCATION EXPENSES - - ------------------- The Company will pay for your complete household move and transportation costs of all household and personal effects excluding any unusual items such as airplanes, boats, etc. We will also pay for the expenses related to the in- transit expenses to San Diego for you and your family. While you seek permanent housing arrangements, Rohr will pay for your reasonable temporary housing expenses for up to 180 days. Storage costs for your personal household effects will be paid for 180 days. HOME SALE INCENTIVE - - ------------------- The first option is one in which you would be responsible for selling your home and your second home yourself and we would reimburse you for the cost of the realtor's commission, escrow fees and any prepayment penalty. We would also give you a home sale incentive payment of $75,000 in the aggregate for both homes. Under this option, the reimbursements and $75,000 payment would be subject to the applicable federal and state taxes. The second option is one in which you would be responsible for finding a purchaser for your home and also a buyer for your secondary residence but Prudential Relocation Management would handle those transactions. In this case, also, the home sale incentive still would be $75,000 but, because of Prudential's handling of the transaction, the reimbursements noted above are not taxable, but the $75,000 payment would be. Regardless of your choice of options related to the sale of your current homes, if you purchase a principal residence in San Diego, you will be reimbursed for the reasonable and customary closing fees for the area. This reimbursement is available even if you decide to retain your home in Upper St. Clair for some period of time. These fees include such items as title insurance, mortgage preparation fees, recording fees, fees for obtaining the mortgage and reasonable attorney or escrow fees. As you know, there are certain income tax consequences associated with your move. Under Federal Tax Law, any amount paid to you directly or indirectly by the Company will be included in your W-2 Form as gross income. You will be able to deduct certain of these reimbursable expenses for both federal and state tax purposes. However, certain of these reimbursed expenses will not be deductible and will increase your taxable income in the year of your move. I have enclosed a Rohr Employment Application and Conditional Offer of Employment which are required as part of our routine employment Letter to Laurence Chapman September 2, 1994 Page 5 administration. These would need to be completed and returned as soon as possible to David Ramsay. We also require a pre-employment physical exam that includes a drug screen. This can be arranged with a physician in your local area. David Ramsay can coordinate this issue. Laurence, I believe that you will be a very key addition to Rohr's top management team. You have much to contribute to the Company's success and I think that you will personally find both challenge and opportunity here. Please call me directly with your response. I look forward to hearing from you soon. Sincerely, R. H. Rau President and Chief Executive Officer Enclosures EXECUTIVE BENEFITS Company-paid life Insurance and AD&D 3 X annual salary - - ------------------------------------- Optional Group Universal Life Employee choice - - ----------------------------- Paid sick leave 3 months - - --------------- Company-paid 24-hour accident insurance $100,000 - - --------------------------------------- Company-paid estate planning Legal expenses reimbursed - - ----------------------------- Vacation Service Days - - -------- ------- ---- 1 year 15* 5 years 20 15 years 25 *Days are accrued monthly Long-Term Disability Insurance 66.70% of monthly salary up to - - ------------------------------ $10,000 maximum (employee and company split premium cost) Medical/Dental No employee monthly premium - - -------------- currently for PacifiCare HMO; other alternatives available 401(k) Company matches 25% of first 5% of - - ------ pay, contributed in Rohr stock** Retirement Plan 1.5% per year of service X final - - --------------- average pay less 50% of estimated Social Security Benefits Supplemental Retirement Plan .5% per year of service - - ---------------------------- Holidays 11 - 13 per year - - -------- ** Match suspended for executives in FY93. 4/94 EX-10.17.1 10 FIRST AM. POOLING AGRMNT EXHIBIT 10.17.1 FIRST AMENDMENT TO POOLING AND SERVICING AGREEMENT This First Amendment (the "Amendment"), dated as of October 7, 1993, by and between RI Receivables, Inc., a Delaware corporation ("Transferor"), Rohr, Inc., a Delaware corporation ("Rohr"), and Bankers Trust Company, a New York State banking corporation as Trustee (the "Trustee"), amends that certain Pooling and Servicing Agreement (the "Agreement") dated as of December 23, 1992 among the Transferor, Rohr and the Trustee. Capitalized terms used in this Amendment and not defined herein shall have the respective meaning ascribed to them in the Agreement. The parties hereto agree as follows: 1. Amendment to Agreement. The Agreement is amended, effective as of the ---------------------- date hereof, as follows: (a) The definition of "Cure Period" contained in Section 1.01 of the ----------- Agreement is amended by adding the following to the end of the last sentence thereof: unless (A) the Transferor shall have provided written notice to the Trustee and to each Investor Certificateholder that it intends to deposit Cure Funds into the Reserve Fund which will increase the aggregate amount of Cure Funds held in the Reserve Fund to more than 20% of the Invested Amount, and (B) no Investor Certificateholder shall have provided written notice of objection to such deposit or deposits to the Transferor and the Trustee on or prior to 3:00 p.m. (New York City time) on the second Business Day after the day such Investor Certificateholder received the written notice from the Transferor. (b) The second paragraph of Section 4.03 of the Agreement is amended to read as follows: In the case of Cure Funds held in the Reserve Fund from time to time, the Trustee shall release all or a portion of such Cure 1 Funds to the Transferor on any Business Day specified by the Transferor if, but only if, the Transferor shall deliver to the Trustee a written request for such release, substantially in the form of Exhibit G hereto, at least two Business Days prior to such specified Business Day and on such specified Business Day the Trustee shall not have received written notice that any Partial Amortization Period or Amortization Period shall have commenced and be continuing or would commence after giving effect to such release. (c) A new Exhibit G is added to the Agreement, to read in the form of Exhibit G to this Amendment. 2. Waiver of Requirement to Reduce Invested Amount. The Trustee and the ----------------------------------------------- undersigned Investor Certificateholders hereby agree that Rohr, as Servicer, need not deposit any portion of the Collections received from August 2, 1993 through August 16, 1993 to the Trustee's Account for payment to the Investor Certificateholders to reduce the Invested Amount. 3. Waiver of Requirement to Provide Notice of Amendment. The Trustee ---------------------------------------------------- need not furnish written notification of the substance of this Amendment to the Investor Certificateholders pursuant to Section 13.01(c) of the Agreement. 4. Effectiveness. This First Amendment shall become effective as of the ------------- date on which it has been executed by each of Rohr, Transferor and Trustee, and has received the consent of the Investor Certificateholders: The Prudential Insurance Company of America, John Hancock Mutual Life Insurance Company and John Hancock Variable Life Insurance Company. 5. Costs and Expenses. Rohr agrees to pay on demand all costs and ------------------ expenses of the Trustee and the Investor Certificateholders in connection with the preparation, execution and delivery of this First Amendment. 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 2 7. Counterparts. This Amendment may be executed in one or more ------------ counterparts and by different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original and all of which when taken together shall constitute the same instrument. IN WITNESS WHEREOF, the Transferor, Rohr and the Trustee have caused this Amendment to be duly executed by their respective officers as of the day and year first above written. RI RECEIVABLES, INC. By: /s/ R. M. Miller -------------------------------- Name: R. M. Miller -------------------------------- Title: President and Treasurer -------------------------------- ROHR, INC. By: /s/ R. W. Madsen -------------------------------- Name: R. W. Madsen -------------------------------- Title: Vice President -------------------------------- BANKERS TRUST COMPANY, Trustee By: /s/ Elizabeth Robinson -------------------------------- Name: Elizabeth Robinson -------------------------------- Title: Assistant Treasurer -------------------------------- 3 The undersigned, constituting all of the Investor Certificateholders, hereby consent to the foregoing Amendment. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ Kevin Lalor -------------------------------- Name: Kevin Lalor -------------------------------- Title: Vice President -------------------------------- JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By: -------------------------------- Name: -------------------------------- Title: -------------------------------- JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY By: -------------------------------- Name: -------------------------------- Title: -------------------------------- 4 EX-10.17.2 11 SECOND AM. POOLING AGRMNT EXHIBIT 10.17.2 SECOND AMENDMENT TO POOLING AND SERVICING AGREEMENT This Second Amendment (the "Amendment"), dated as of April 25, 1994, by and between RI Receivables, Inc., a Delaware corporation ("Transferor"), Rohr, Inc., a Delaware corporation ("Rohr"), and Bankers Trust Company, a New York State banking corporation as Trustee (the "Trustee"), amends that certain Pooling and Servicing Agreement (the "Agreement") dated as of December 23, 1992 among the Transferor, Rohr and the Trustee. Capitalized terms used in this Amendment and not defined herein shall have the respective meaning ascribed to them in the Agreement. The parties hereto agree as follows: 1. Amendment to Agreement. The Agreement is amended, effective as of the ---------------------- date hereof, as follows: (a) The definition of "Cure Funds" contained in Section 1.01 of the ---------- Agreement is amended to read as follows: "'Cure Funds' shall mean amounts deposited to the Reserve Fund ---------- pursuant to the definition of 'Cure Period' or the second proviso of the first sentence of Section 4.04(a). In addition, amounts held in the Concentration Account pursuant to the second proviso of the first sentence of Section 4.04(a) shall be deemed, for purposes of this Agreement, to be Cure Funds held in the Reserve Fund." (b) The definition of "Cure Period" contained in Section 1.01 of the ----------- Agreement is amended to read as follows: "'Cure Period' shall mean the period (i) beginning on the day on which ----------- a Partial Amortization Period would otherwise commence, if the Transferor shall have notified the Servicer and the Trustee in writing on such day that, until the end of the Cure Period, the Servicer shall (on such day and continuing on each day thereafter on which it receives any amount of Collections either allocated to the Transferor Interest or allocated to the Investor Interest and to be paid to the 1 Transferor for reinvestment pursuant to Section 4.04(a)) deposit all such amounts of Collections to the Reserve Fund on the day collected, and (ii) continuing until either: (a) the percentage that is the Transferor Percentage equals at least 2% and the Net Receivable Balance equals at --- least 120% of the excess of the Invested Amount over the Cure Funds held in the Reserve Fund at such time; or (b) the Servicer shall have failed at any time to deposit to the Reserve Fund an amount of Collections which the Servicer is obligated to deposit to the Reserve Fund pursuant to clause (i) above in connection with such Cure Period, at which time a Partial Amortization Period would commence as set forth in the definition of the term 'Partial Amortization Period' contained in this Section 1.01. Notwithstanding the foregoing, if the Servicer deposits any amount of Cure Funds into the Reserve Fund, or holds any amount in the Concentration Account pursuant to the second proviso of the first sentence of Section 4.04(a), and if such amount, together with the aggregate amount of all other Cure Funds held in the Reserve Fund at such time, would exceed 20% of the Invested Amount, the Transferor shall promptly provide written notice to the Trustee and each Investor Certificateholder that the aggregate amount of all Cure Funds exceeds 20% of the Invested Amount. If any Investor Certificateholder objects to the aggregate amount of Cure Funds exceeding 20% of the Invested Amount, and provides written notice of such objection to the Transferor and the Trustee on or prior to 3:00 p.m. (New York City time) on the second Business Day after the day such Investor Certificateholder received the written notice from the Transferor, then a Partial Amortization Period shall commence as of the date of the deposit." (c) The definition of "Partial Amortization Period" contained in Section --------------------------- 1.01 of the Agreement is amended to read as follows: "'Partial Amortization Period' shall mean, unless the Amortization --------------------------- Period shall have commenced prior thereto, either (a) the period beginning on the third Business Day following the Business Day on which the Transferor shall request the commencement of such period and the reduction during such period of the Invested Amount by a specified amount pursuant to Sections 4.04(b) and 5.01(b), in a writing furnished by the Transferor to the Trustee (provided that the amount by which the Invested Amount is to be -------- reduced as a result of the commencement of such period, as so specified in such writing, must be in 2 increments of $5,000,000) and continuing each day thereafter until the Invested Amount shall have been reduced by such specified amount pursuant to Section 4.04(b) and 5.01(b); (b) the period beginning on the day on which either (i) the percentage that is the Transferor Percentage falls below 2%, and continuing each day thereafter until the percentage that is the Transferor Percentage shall have increased to at least 2%, or (ii) the Net Receivables Balance falls below 120% of the excess of the Invested Amount over the Cure Funds held in the Reserve Fund at such time, and continuing each day thereafter until the Net Receivables Balance shall be equal to or greater than 120% of the excess of the Invested Amount over the Cure Funds held in the Reserve Fund at such time; or (c) the period beginning on the Business Day on which an Investor Certificateholder shall have objected, in accordance with the definition of 'Cure Period', to the Cure Funds exceeding 20% of the Invested Amount, and continuing each day thereafter until (1) the Invested Amount shall have decreased by an amount equal to the sum of all deposits to the Reserve Fund since the date of the Transferor notice which preceded the Investor Certificateholder's objection and any amount of Investor Collections then held in the Concentration Account pursuant to the second proviso of the first sentence of Section 4.04(a), (2) the percentage that is the Transferor Percentage is equal to at least 2%, and (3) the Net Receivables Balance is equal to at least 120% of the excess of the Invested Amount over the Cure Funds held in the Reserve Fund at such time; provided, however, that upon the commencement of -------- ------- a Partial Amortization Period the Transferor shall pay to the Trustee for the account of the Investor Certificateholders the estimated Market Make Whole Premium with respect to such period in accordance with the provisions of Section 4.05. With respect to any Partial Amortization Period described in subsection (c) hereof, the Transferor will cause the Trustee to pay from the Reserve Fund to the Paying Agent, for distribution to the Investor Certificateholders, an amount equal to the sum of all deposits to the Reserve Fund since the date of the Transferor notice which preceded the Investor Certificateholder's objection and any amount of Investor Collections then held in the Concentration Account pursuant to the second proviso of the first sentence of Section 4.04(a). The payment of such amount shall be in addition to any amounts payable pursuant to Section 5.01(b) hereof. 3 (d) The second paragraph of Section 4.03 of the Agreement is amended to read as follows: "In the case of Cure Funds held in the Reserve Fund from time to time, the Trustee shall release all or a portion of such Cure Funds to the Transferor as soon as reasonably practicable (but in no event later than one Business Day after the delivery of a written request therefor) if, but only if, the Transferor shall have delivered to the Trustee a written request for such release substantially in the form of Exhibit G hereto and no Partial Amortization Period or Amortization Period shall have commenced and be continuing or would commence after giving effect to such release; provided however, the Trustee shall not release any such funds during the -------- ------- two day period that Investor Certificateholders may object to certain deposits into the Reserve Fund in accordance with the last sentence of the definition of 'Cure Period.'" (e) The proviso in the first sentence of Section 4.04(a) is amended to read as follows: "provided however, in no event shall the recomputation of the Floating -------- ------- Allocation Percentage or the deposit of Investor Collections to the Transferor's Account reduce either (i) the Transferor Percentage below 2% or (ii) the Net Receivables Balance below 120% of the excess of the Invested Amount over the Cure Funds held in the Reserve Fund, in each case after taking into account the proposed deposit to the Transferor's Account on that day; and provided further, that any -------- ------- amounts not deposited to the Transferor's Account because of the limitation set forth in the first proviso hereto shall be (x) deposited as Cure Funds in the Reserve Fund or (y) held in the Concentration Account for no more than one Business Day and then deposited (A) as Cure Funds in the Reserve Fund or (B) in the Transferor Account for reinvestment for the benefit of the Investor Certificateholders, if and only if, after giving effect to such transfer to the Transferor Account, the percentage that is the Transferor Percentage shall be at least 2% and the Net Receivables Balance shall be equal to or greater than 120% of the excess of the Invested Amount over the Cure Funds held in the Reserve Fund at such time." 4 (f) The words "Section 9.01(a) or (h)" in Section 4.05 are amended to read "Section 9.01(a), (h) or (l)". (g) Section 9.01 is amended by adding immediately after subsection (k) thereto a new subsection (l) as follows: "(l) if, at any time, for any reason other than Receivables becoming Defaulted Receivables or Disputed Receivables, either (1) the Net Receivables Balance falls below 120% of the excess of the Invested Amount over the Cure Funds held in the Reserve Fund at such time, or (2) the Transferor Percentage is less than 2%, and in either such case, a Cure Period is not then in effect or applicable." (h) A new Exhibit G is added to the Agreement, to read in the form of Exhibit G to this Amendment. 2. Waiver of Requirement to Provide Notice of Amendment. The Trustee ---------------------------------------------------- need not furnish written notification of the substance of this Amendment to the Investor Certificateholders pursuant to Section 13.01(c) of the Agreement. 3. Effectiveness. This Second Amendment shall become effective as of the ------------- date on which it has been executed by each of Rohr, Transferor and Trustee, and has received the consent of Holders of Investor Certificates evidencing more than 50% of the Invested Amount. 4. Costs and Expenses. Rohr agrees to pay on demand all costs and ------------------ expenses of the Trustee and the Investor Certificateholders in connection with the preparation, execution and delivery of this Second Amendment. 5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 5 6. Counterparts. This Amendment may be executed in one or more ------------ counterparts and by different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original and all of which when taken together shall constitute the same instrument. 6 IN WITNESS WHEREOF, the Transferor, Rohr and the Trustee have caused this Amendment to be duly executed by their respective officers as of the day and year first above written. RI RECEIVABLES, INC. By: /s/ R. M. Miller -------------------------------- Name: R. M. Miller -------------------------------- Title: President and Treasurer -------------------------------- ROHR, INC. By: /s/ R. W. Madsen -------------------------------- Name: R. W. Madsen -------------------------------- Title: Vice President -------------------------------- BANKERS TRUST COMPANY, Trustee By: /s/ Elizabeth Robinson -------------------------------- Name: Elizabeth Robinson -------------------------------- Title: Assistant Treasurer -------------------------------- 7 The undersigned, constituting all of the Investor Certificateholders, hereby consent to the foregoing Amendment. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ Kevin Lalor -------------------------------- Name: Kevin Lalor -------------------------------- Title: Vice President -------------------------------- JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By: -------------------------------- Name: -------------------------------- Title: -------------------------------- JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY By: -------------------------------- Name: -------------------------------- Title: ` -------------------------------- - 8 EX-11.1 12 CALCULATION PRIMARY EXHIBIT 11.1 ROHR, INC. AND SUBSIDIARIES --------------------------- CALCULATION OF PRIMARY NET INCOME PER SHARE OF COMMON STOCK ----------------------------------------------------------- (in thousands except per share data)
Year Ended July 31, ------------------------------------------------------ 1994 1993 1992 1991 1990 ------- ---------- -------- --------- -------- Net Income (loss) from continuing operations before cumulative effect of accounting changes $ 4,669 $ (24,257) $ 996 $28,566 $ (442) Income (loss) from discontinued operations, net of taxes 2,258 (6,324) 459 1,951 481 Cumulative effect of accounting changes, net of taxes - (223,950) - - - ------- --------- ------- ------- ------- Net income (loss) applicable to primary earnings per common share $ 6,927 (254,531) $ 1,455 $30,517 $ 39 ======= ========= ======= ======= ======= Common stock and common stock equivalents: Average shares of common stock outstanding during the year 18,017 17,908 17,647 17,502 17,752 Net effect of common stock equivalents (principally stock options and rights) 45 1 63 23 35 ------- --------- ------- ------- ------- Total common stock and common stock and equivalents 18,062 17,909 17,710 17,525 17,787 ======= ========= ======= ======= ======= Net income (loss) per average share of common stock: Net income (loss) from continuing operations before cumulative effect of accounting changes $ 0.26 $ (1.35) $ 0.05 $ 1.63 $ (0.02) Income (loss) from discontinued operations, net of taxes 0.12 (0.36) 0.03 0.11 0.02 Cumulative effect of accounting changes - net of taxes (12.50) ------- --------- ------- ------- ------- Primary net income (loss) per share $ 0.38 $ (14.21) $ 0.08 $ 1.74 $ 0.00 ======= ========= ======= ======= =======
EX-11.2 13 CALCULATION DILUTED EXHIBIT 11.2 ROHR, INC. AND SUBSIDIARIES --------------------------- CALCULATION OF FULLY DILUTED NET INCOME PER SHARE OF COMMON STOCK ----------------------------------------------------------------- (in thousands except per share data)
Year Ended July 31, ----------------------------------------------------- 1994 1993 1992 1991 1990 -------- ---------- ------- -------- -------- Net Income (loss) from continuing operations before cumulative effect of accounting changes applicable to primary earnings per common share $ 4,669 $ (24,257) $ 996 $28,566 $ (442) Add back interest and issue expense on convertible debentures, net of tax adjustment 5,477 4,941 4,941 4,930 4,926 ------- --------- ------- ------- ------- Adjusted income (loss)from continuing operations before cumulative effect of accounting changes applicable to common stock on a fully diluted basis 10,146 (19,316) 5,937 33,496 4,484 Income (loss) from discontinued operations, net of taxes 2,258 (6,324) 459 1,951 481 Cumulative effect of accounting changes, net of taxes (223,950) ------- --------- ------- ------- ------- Net income (loss) applicable to fully diluted earnings per share $12,404 $(249,590) $ 6,396 $35,447 $ 4,965 ======= ========= ======= ======= ======= Average number of shares outstanding on a fully diluted basis: Shares used in calculating primary earnings per share 18,062 17,909 17,710 17,525 17,787 Unexercised options 4 2 Shares on conversion of 7% debentures 2,674 2,674 2,674 2,674 2,674 Shares on conversion of 7.75% debentures 1,157 Average number of shares outstanding on a fully diluted basis 21,893 20,583 20,388 20,201 20,461 ======= ========= ======= ======= ======= Fully diluted net income (loss) per common share before cumulative effect of accounting changes $ 0.47 $ (0.94) $ 0.29 $ 1.66 $ 0.22 Income (loss) from discontinued operations, net of taxes 0.10 (0.31) 0.02 0.09 0.02 Loss from cumulative effect of accounting changes, net of taxes (10.88) ------- --------- ------- ------- ------- Fully diluted net income (loss) per average common share $ 0.57 $ (12.13) $ 0.31 $ 1.75 $ 0.24 ======= ========= ======= ======= =======
Note: Fully diluted net income (loss) per average share is not presented in the - - ---- Company's Consolidated Statements of Operations as the effect of the assumed conversion of the Company's convertible debentures was anti- dilutive. EX-13 14 DOCS BY REFERENCE ROHR, INC. 1994 ANNUAL REPORT TABLE OF CONTENTS ROHR PROFILE.......................................................... A-1 SELECTED FINANCIAL DATA............................................... A-2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................. A-3 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................... A-18 ROHR PROFILE Incorporated in Delaware in 1969, Rohr, Inc., is the successor to an aerospace manufacturing company founded in San Diego in 1940 and is now headquartered in Chula Vista, California. The Company had approximately 4,900 full-time employees at the end of fiscal 1994 and is an Equal Opportunity Employer. Shareholder Information Rohr's common stock is traded principally on the following markets: -- New York Stock Exchange (RHR) -- Pacific Stock Exchange (RHR) -- The Stock Exchange, London The number of common shareholders of record on July 31, 1994 was 4,915. The Company's fiscal year is August 1 to July 31. 10-K Report Requests The Company will provide a copy of its most recent report to the Securities and Exchange Commission on Form 10-K (excluding the exhibits thereto) upon the written request of any beneficial owner of the Company's securities as of the record date for the Annual Meeting (October 7, 1994) without charge. Copies of the exhibits to Form 10-K are also available upon request and after payment of the cost of reproducing such exhibits. Such request should be addressed to Rohr, Inc., Attention: Shareholder Services, 850 Lagoon Drive, Chula Vista, CA 91910-4308. Transfer Agent and Registrar Rohr's common stock transfer agent and registrant is the First Chicago Trust Company of New York at: P.O. Box 2500, Jersey City, NJ 07303-2500 (Correspondence and address changes) P.O. Box 2506, Jersey City, NJ 07303-2506 (Certificate transfers) Telephone: (800) 446-2617. Communicating with Rohr Mailing Address and Parcel Deliveries: 850 Lagoon Drive Chula Vista, CA 91910-4308 Main Telephone: (619) 691-4111 Employment: (619) 691-4062 Investor Relations: (619) 691-3002 Purchasing: (619) 691-2331 Shareholder Services: (619) 691-2214 Telecopier: (619) 691-2905 Telex: 69-5038 Stock Price by Fiscal Quarter
1994 1993 - - ------------------------------------------------------------------------ High Low High Low - - ------------------------------------------------------------------------ First Quarter $ 8-3/4 $6-3/4 $12-7/8 $10-1/8 Second Quarter 11-1/2 7-1/8 13-1/8 9-1/4 Third Quarter 11-1/8 8 12-1/2 8-5/8 Fourth Quarter 11-5/8 8-1/4 10-1/4 6-1/2 - - ------------------------------------------------------------------------
A-1 SELECTED FINANCIAL DATA (in thousands except for per-share data, number of employees, percentages and ratios)
Year ended July 31, - - -------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 - - -------------------------------------------------------------------------------------------------------------------------- Results of Operations (1): Sales $ 918,141 $1,149,503 $1,251,502 $1,361,766 $1,067,770 Operating income (2) 51,389 8,562 44,801 97,353 30,810 Operating profit margin 5.6% 0.7% 3.6% 7.1% 2.9% Net income (loss) from continuing operations 4,669 (24,257) 996 28,566 (442) Income (loss) from discontinued operations - net of taxes 2,258 (6,324) 459 1,951 481 Cumulative effect through July 31, 1992 of accounting changes - net of taxes (3) - (223,950) - - - Net income (loss) $ 6,927 $ (254,531) $ 1,455 $ 30,517 $ 39 Net income (loss) per average share of common stock: Income (loss) from continuing operations $ 0.26 $ (1.35) $ 0.05 $ 1.63 $ (0.02) Income (loss) from discontinued operations 0.12 (0.36) 0.03 0.11 0.02 Cumulative effect through July 31, 1992, of accounting changes - net of taxes (3) - (12.50) - - - Net income (loss) $ 0.38 $ (14.21) $ 0.08 $ 1.74 $ 0.00 Proforma amounts from continuing operations (4) Income (loss) $ 4,669 $ (24,257) $ (35,314) $ (20,944) $ (58,410) Income (loss) per average share of common stock $ 0.26 $ (1.35) $ (1.99) $ (1.20) $ (3.28) Cash dividends per share of common stock - - - - - - - -------------------------------------------------------------------------------------------------------------------------- Financial Position at July 31: Total assets $1,056,847 $1,017,786 $1,363,958 $1,411,498 $1,329,308 Indebtedness 588,990 531,608 572,594 636,070 551,227 Net financings (5) 537,567 601,669 656,472 730,512 645,709 Shareholders' equity 146,909 182,243 448,866 441,401 413,713 Debt-to-equity ratio 4.01:1 2.92:1 1.28:1 1.44:1 1.33:1 Return on average equity 4.2% - 0.3% 7.1% - Book value per common share 8.14 10.13 25.17 25.23 23.42 Number of full-time employees at year end 4,900 6,500 9,200 11,200 11,500 Backlog - firm 1,200,000 1,400,000 1,900,000 2,200,000 2,500,000 Backlog - anticipated 2,500,000 2,600,000 2,300,000 2,800,000 2,600,000 - - --------------------------------------------------------------------------------------------------------------------------
(1) Results of Operations through fiscal 1993 have been restated to separately reflect discontinued operations. (2) Fiscal year 1993 and 1992 include special provisions as more fully discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations. (3) 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, and adopted the provisions of SFAS Nos. 106 and 109. See Note 2 of the Notes to the Consolidated Financial Statements. (4) Assumes the changes in the application of accounting principles for long- term programs and contracts are applied retroactively. (5) Net financings include indebtedness plus the receivables sales program, which is reflected as a reduction to accounts receivable, and two sale- leaseback transactions, accounted for as operating leases, reduced by cash, cash equivalents, and short-term investments. See Notes 3 and 7 of the Notes to the Consolidated Financial Statements. A-2 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, 1994. Years prior to 1994 have been restated for the effect of the sale of the business jet line of business as a discontinued operation. 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, and the substantial provisions taken in the third quarters of both fiscal 1992 and 1993. On certain long-term programs under which spares are sold 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 orders and is predicated upon contractual arrangements with customers and market forecasts. 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. Historically, spares have been sold at higher prices than production units. This inclusion of anticipated orders for production units and spares in the program quantity generally increases margins in the early program years and decreases margins in the later program years compared to the margins that would be reported under other methods of accounting. 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. See "Notes to Consolidated Financial Statements--Note 1b." Industry Outlook 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) lags behind changes in the general economy. A-3 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 2.3%, respectively. This was the first year in the history of the industry that world airline passenger traffic had decreased. Aircraft deliveries by the commercial aircraft manufacturing industry 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. Offsetting factors include the potentially large aircraft replacement market fueled by noise legislation and aging fleets. In 1993, United States scheduled airlines achieved approximately $1 billion of operating profit. In addition, world airline passenger traffic grew by 8.2% in 1992 and 3.5% in 1993. Industry analysts have predicted, consistent with long-term historical patterns, that worldwide airline passenger traffic will grow on the average approximately 5% to 6% per year over the long-term. Factors favoring long-term passenger traffic growth include the improving economic outlook, pricing pressures from low-cost carriers and the potential expansion of air travel in emerging markets. Company Outlook As a result of the slow-down in the commercial aerospace industry and reductions in the Company's military and space programs, the Company's revenues from continuing operations have decreased approximately 33% from a high in fiscal 1991 to fiscal 1994. In response to these conditions, management has taken aggressive actions to reduce costs, increase competitiveness, improve earnings, and maximize cash flow. 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 approximately 4,900 at July 31, 1994. The Company has improved the ratio of indirect employees to direct employees from 1:2.0 at July 31, 1993, to 1:2.8 at July 31, 1994. A-4 To reduce excess capacity and to increase overall production efficiencies through higher utilization of its remaining facilities, the Company sold its Auburn, Washington plant and 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 prior five fiscal years to $5.8 million in fiscal 1994. Expenditures over the next four years are expected to average under $20 million per year. The Company has experienced pressures from customers to reduce prices. In response, the Company, on certain programs, has incorporated or is in process of incorporating design changes, allowing for a more cost effective manufacture of certain products and is exerting pressure on its own suppliers to reduce prices. 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 prior years. Results of Operations Discontinued Operations In the fourth quarter of fiscal 1994 the Company sold and commenced the transfer of its business jet line of business which is accounted for as a discontinued operation in accordance with Accounting Principles Board Opinion No. 30. The purchase agreement requires the Company, over the next several months, to manufacture and deliver certain components and transfer program engineering and tooling. The statements of operations for prior fiscal years have been restated to account for the business jet line of business as a discontinued operation. This business generated approximately $40.3 million, $25.6 million and $28.2 million of revenue respectively in fiscal 1994, fiscal 1993 and fiscal 1992. See "Notes to Consolidated Financial Statements--Note 11." Fiscal 1994 compared to Fiscal 1993 Sales from continuing operations declined 20% from $1,149.5 million in fiscal year 1993 to $918.1 million for fiscal 1994, due primarily to reduced deliveries. Commercial sales aggregated 86% and government sales 14% in both fiscal 1994 and fiscal 1993. The Company reported operating income of $59.3 million, an operating margin of 6.5% for fiscal year 1994, excluding the impact from unusual items. Including the effect of the unusual items of $7.9 million, operating income was $51.4 million, a margin of 5.6%. The unusual items were the write-off of unamortized pension past service costs related to the reduction of employment levels, net of a gain on the sale of the Company's Auburn, Washington facility. Operating results in fiscal 1994 benefited from the Company's downsizing, related reductions in overhead expenses and improved program results. During fiscal 1993, the A-5 Company reported operating income of $8.6 million after the effect of a $25.0 million net provision for asset and liability valuations and other costs related to the planned consolidation activity. In addition, fiscal 1993 results were adversely impacted by losses on tooling and design efforts and cost problems related to certain programs. Net interest expense was $46.8 million for the year ended July 31, 1994, compared to $47.9 million for fiscal 1993. The new financings described in "Liquidity and Capital Resources" will increase interest expense in fiscal year 1995. Net income from continuing operations for fiscal 1994 was $4.7 million or 26 cents per share compared to a net loss from continuing operations of $24.3 million or $1.35 per share in fiscal 1993. The net impact of the unusual items described above was to reduce net income for fiscal 1994 by $4.8 million or 27 cents per share. The increase in federal income tax rates resulting from the Omnibus Budget Reconciliation Act, implemented in August 1993, increased net income in fiscal 1994 by $2.8 million or 16 cents per share and increased the deferred tax asset. Additional Items The Company is still experiencing softness in orders by airlines for spare components, which caused the Company to revise its spare delivery forecast on certain programs. 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 level of spares supplies needed to keep an airline's entire fleet in operation. Also, improved product quality appears to have reduced spares requirements. The Company expects the percentage of Company revenues attributable to government sales to decline in future years. The production for the Titan rocket motor casing program, which accounted for 4% of revenues in fiscal 1994, is expected to decline substantially in fiscal 1995 and may end. The Company's military sales are primarily associated with older programs which are being phased out of production. The Company expects to complete its production of the C-130 program in 1996. The Company reached an agreement with International Aero Engines on the V2500 program for Airbus A319, A320, and A321 aircraft under which the Company will continue to manufacture key program components and provide total system support. Retention of this program under mutually agreeable contractual terms was a key objective of the Company. A-6 During fiscal 1994, the Company and the U.S. Air Force settled various contract disputes. Contemporaneously with this settlement the Company and the United States Attorney for the Central District of California settled the previously reported civil and criminal investigations. These settlements were in line with reserves previously provided. The Company has determined not to sell its overhaul and repair business and now intends to retain the business as part of its total product support services. Fiscal 1993 Compared with Fiscal 1992 Sales from continuing operations declined from $1,251.5 million in fiscal 1992 to $1,149.5 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 delivery rate reductions. 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 86% and government sales 14% in both fiscal 1993 and fiscal 1992. 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 period expenses. General and administrative expenditures in 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. The Company's operating income from continuing operations was $8.6 million for fiscal 1993 compared to operating income of $44.8 million for fiscal 1992. Fiscal 1993 operating income was negatively impacted by $36.3 million due to the change in application of accounting principles relating to long-term programs and contracts. 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 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 level of spares supplies sufficient to keep an airline's entire fleet in operation. Also, improved product quality appears to have reduced spares requirements. In addition, fiscal 1993 results A-7 reflect increased costs associated with assembly labor performance on 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. 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. 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 delay 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 included interest expense 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. Effective August 1, 1992, the Company changed certain elements of its application of accounting principles relating to long-term programs and contracts and general and administrative expenses; adopted SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other than Pensions;" and adopted SFAS No. 109, "Accounting for Income Taxes." The combined effect of adopting the new accounting changes for fiscal year 1993 was a charge to net income of $24.6 million ($1.37 per average common share). The effect on continuing operations was $22.4 million ($1.25 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. A-8 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 above, 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. Liquidity and Capital Resources The Company significantly improved its liquidity in fiscal 1994 and believes that it has sufficient resources to meet its needs. At July 31, 1994, the Company had $133.6 million of cash, cash equivalents and short-term investments in addition to a $110 million revolving credit agreement. There were no amounts outstanding under this agreement at July 31, 1994. However the total availability is reduced by any letters of credit issued under the agreement; at July 31, 1994, a $16.9 million letter of credit was outstanding. For fiscal year 1994, cash provided by operating activities totaled $80.5 million compared with $81.1 million for fiscal 1993. Cash provided by operating activities for fiscal 1994 included significant settlements associated with the restructuring of certain contracts, several one time payments for non- recurring tasks and proceeds from the sale of the business jet line of business. In fiscal 1993, cash provided by operating activities included one-time receipts by the Company for design and tooling efforts and similar non-recurring tasks. Also contributing to the positive cash flow in both fiscal 1994 and 1993 were cost reduction efforts, improved productivity and increased utilization of assets partly arising from programs to shorten lead times allowing the Company to respond more timely to changing customer requirements. Cash provided by operations is subject to significant variations from period to period. In the fourth quarter of fiscal 1994, the Company completed its public offering of $100 million of 11.625% Senior Notes due May 2003, and the concurrent public offering of $57.5 million of 7.75% Convertible Subordinated Notes due May 2004. Both series of notes are general unsecured obligations of the Company paying interest semiannually commencing November 1994, and do not have sinking fund requirements. The convertible subordinated notes are convertible at the option of the holder at any time prior to maturity into shares of the Company's common stock at a conversion price of $10.35 per share. A-9 Upon the issuance of the notes, the Company used $64 million of the proceeds to repay all borrowings under its revolving credit agreement. Also, effective upon the issue date of these new notes, the Company amended the revolving credit agreement, extending the credit commitment through April 1997. The revised commitment is initially for $110 million and is reduced by $10 million every six months beginning October 1995 until it reaches $80 million. This amendment, as well as amendments to other of the Company's principal financing agreements, revised the existing financial covenant levels and removed the requirement that the Company issue $100 million of subordinated debt on or prior to August 1, 1994. The Company's total financings (balance sheet debt plus off-balance sheet financings) aggregated $671.1 million at July 31, 1994, an increase of $27.2 million from July 31, 1993. Balance sheet debt increased $57.4 million from $531.6 million on July 31, 1993 to $589.0 million on July 31, 1994. During fiscal 1994, the Company repaid its $35 million medium term note, made the annual $12.5 million principal payment on its 9.35% senior notes and repaid the $50 million bank debt outstanding at July 31, 1993. At July 31, 1994, the Company had $133.6 million of cash, cash equivalents and short term investments compared to $42.2 million at July 31, 1993. The Company is a party to a $60.0 million accounts receivable facility, an off-balance sheet financing, under which it sells receivables from specified customers on an on-going basis. Due to the slowdown 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 elected to deposit 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 July 31, 1994, $26.5 million of cash collateral was on deposit. Subsequent to the end of the fiscal year, the Company applied $20 million of this cash on deposit to reduce the financing level to $40 million. The Company is also a party to certain equipment leases, treated as an off- balance sheet financing, 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 interest in the leased equipment by January, 1995, the equipment lessors may require the Company to prepay up to $10 million of its equipment lease obligation. Subsequent to the end of the fiscal year, the Company notified the equipment lessors of its intent to repurchase approximately $22 million of equipment to satisfy this requirement and release the security interest. A-10 The Company's existing debt level reflects the substantial investments made by the Company in the late 1980s and early 1990s in the design, development, tooling, certification and other start-up costs associated with new aircraft 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. Airframe and engine manufacturers are 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, 1994, the reported underfunded status (excess of accrued benefit obligations over plan assets) of the Company's defined benefit plans increased by $68.6 million from July 31, 1993 to a total of $124.1 million. This increase in the underfunded status resulted primarily from a reduction in the discount rate used to calculate the present value of future pension plan liabilities for financial reporting purposes. The Company reduced its discount rate to 7.5 % for its fiscal year 1994 valuation from the 8.5% used for its 1993 valuation. This increase in the underfunded pension liabilities resulted in a charge to shareholders' equity in fiscal 1994 of $42.6 million and a $29.3 million increase to the Company's deferred tax asset account. The Company's required minimum annual contribution to its defined benefit plans is determined in accordance with IRS regulations. Due to the underfunded status of the plans, these regulations required the Company to increase its annual cash contributions to the pension plans. These regulations are designed to substantially eliminate pension plan underfunding within five years based on the current funded status of the plans. During fiscal 1994, the Company's contributions to its defined benefit plans aggregated $17.0 million and subsequent to year end the Company made a contribution of $36.0 million in fiscal 1995. This increased level of contributions is expected to continue until the funded status of the plans improves. The Company expects to have sufficient liquidity to make these increased contributions. See Note 9 of the Notes to Consolidated Financial Statements. The Company's net inventory decreased to $363.2 million at July 31, 1994 from $439.7 million at July 31, 1993. Production inventory declined reflecting 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. Capital expenditures for property, plant and equipment totaled $5.8 million for fiscal year 1994, down from $27.5 million for fiscal year 1993. Capital expenditures in fiscal year 1993 were higher than fiscal year 1994, due to expenditures for new office and manufacturing facilities. In addition, the Company substantially curtailed capital expenditures for fiscal year 1994 in line with other cost A-11 cutting efforts. 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 $1.2 billion at July 31, 1994 compared to $1.4 billion at July 31, 1993. Approximately $0.7 billion of the $1.2 billion backlog is scheduled to be delivered in fiscal year 1995. (Sales during any period 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 $2.5 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. 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. Subsequently, the State of California was found liable and an allocation of its responsibility was made. 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. 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. Expenditures by the Company for cleanup of this site during fiscal 1994 were approximately $0.8 million and are expected to be approximately A-12 $0.6 million during fiscal 1995. From inception to July 31, 1994, the Company has expended approximately $3.3 million on cleanup costs for this site. Applicable law provides for continuing liability for future remedial work beyond existing agreements and consent decrees. 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. The Company is also involved in several other proceedings and investigations related to waste disposal sites and other environmental matters. 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. However, preliminary estimates of cleanup costs for the Rio Bravo, Chatham Brothers and Casmalia waste disposal sites were 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 $0.5 million for the Rio Bravo site, $0 for the Chatham Brothers site (based on the Company's belief that it never used that site), and $1.8 million for the Casmalia site. The Company does not yet know about the ability of all of the other waste generators using the Casmalia and Rio Bravo sites to fund their allocable share, and the Company could be found jointly and 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. During the year ended July 31, 1994, 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 $6.1 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 1995 as in fiscal 1994, which the Company anticipates, costs for these elements in fiscal year 1995 should be comparable to the current rate of expenditure for fiscal 1994. Based upon presently available information, the Company believes it has sufficient reserves and 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. A-13 Income Taxes In fiscal 1993, the Company adopted, 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, deductible temporary differences, and net operating losses (NOLs). 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, 1994 tax rates, the Company's deductible temporary differences, tax credit carryforwards and NOLs result in a deferred tax asset of $133.5 million, consisting of $112.9 million for federal tax purposes and $20.6 million for state tax purposes. Based on tax rates in effect on July 31, 1994, the Company must generate approximately $339 million of future taxable income (net of $142 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 2009 for full realization of the net deferred tax asset. The Company believes it will be able to generate, on average, at least $38 million in pretax income for each of the next nine 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 pretax income would be $33.4 million in excess of reported fiscal 1994 pretax income of $4.6 million from continuing operations. 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. Management expects that a sufficient level of taxable income will result in years subsequent to fiscal 1994 and prior to the expiration of the NOLs to realize the deferred tax asset recorded at July 31, 1994. 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: A-14 . 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. . 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 canceled. The Company has been downsizing and 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 A-15 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 in excess of $100 million. 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 ---------------------------------------------- 1995-99 2000-04 2005-09 2010 & Beyond -------- -------- -------- ------------- (Dollar amounts in millions) NOLs $ 0 $ 79 $ 61 $ 0 Tax credits 0 21 3 0 Future deductible temporary differences 0 0 0 317 ------ ------ ------ ---- Total $ 0 $ 100 $ 64 $317 ====== ====== ====== ====
Future deductible temporary differences begin to reverse in fiscal 1995. 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. 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 and certain other matters. The Company filed a protest with the Appeals Office of the IRS and, in 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 of these remaining issues will not have a material adverse effect on the Company and its financial position. A-16 Reconciliation of the Company's income (loss) before taxes for financial statement purposes to U.S. taxable income for the years ended July 31, 1994, 1993 and 1992 is as follows (in thousands):
YEAR ENDED JULY 31, 1994 1993 1992 --------- --------- --------- Income (loss) before taxes from continuing operations $ 4,553 $(39,321) $(18,572) Income (loss) before taxes from discontinued operations 3,777 (10,250) 757 -------- -------- -------- Income (loss) before taxes 8,330 (49,571) (17,815) Non-U.S. income (1,160) (3,181) (5,493) Add (subtract) permanent differences 1,187 (1,464) (1,872) State taxes (11) (259) (151) Temporary differences: Inventories 37,895 (12,222) (66,706) Employee benefits (1,878) (10,386) (9,253) Depreciation (19,333) 13,766 19,187 Leveraged leasing 6,193 5,128 21,253 Deferred gain on sale/leaseback (1,177) 21,906 Other items - net (4,861) (3,887) (1,421) -------- -------- -------- U.S. taxable income (loss) $ 25,185 $(40,170) $(62,271) ======== ======== ========
A-17 CONSOLIDATED BALANCE SHEETS (in thousands)
July 31, - - ------------------------------------------------------------------------------------ 1994 1993 - - ------------------------------------------------------------------------------------ Assets Cash and cash equivalents $ 115,996 $ 42,186 Short-term investments 17,568 - Accounts receivable 93,143 94,140 Inventories: Work-in-process 444,076 560,139 Raw materials, purchased parts and supplies 23,441 32,575 Less customers' progress payments and advances (104,321) (152,976) - - ------------------------------------------------------------------------------------ Inventories - net 363,196 439,738 Deferred tax asset 36,353 13,654 Prepaid expenses and other current assets 18,493 16,861 - - ------------------------------------------------------------------------------------ Total Current Assets 644,749 606,579 Property, Plant and Equipment - Net 222,063 239,045 Investment in Leases 37,145 38,233 Deferred Tax Asset 97,135 89,348 Other Assets 55,755 44,581 - - ------------------------------------------------------------------------------------ $1,056,847 $1,017,786 ==================================================================================== Liabilities and Shareholders' Equity Trade accounts and other payables $ 129,674 $ 166,916 Salaries, wages and benefits 37,100 38,623 Taxes on income 2,343 - Current portion of long-term debt 14,952 50,719 - - ----------------------------------------------------------------------------------- Total Current Liabilities 184,069 256,258 Long-Term Debt 574,038 480,889 Pension and Post-Retirement Obligations - Long-Term 125,004 63,040 Other Obligations 26,827 35,356 Commitments and Contingencies (Note 8) - - Shareholders' Equity: Preferred stock, $1 par value per share, 10 million shares authorized, none issued - - Common stock, $1 par value per share, authorized 50,000,000 shares; issued and outstanding 18,041,680 and 17,995,866 shares, respectively 18,042 17,996 Additional paid-in capital 102,598 102,312 Retained earnings 82,168 75,241 Minimum pension liability adjustment (55,899) (13,306) - - ------------------------------------------------------------------------------------ Total Shareholders' Equity 146,909 182,243 - - ------------------------------------------------------------------------------------ $1,056,847 $1,017,786 ====================================================================================
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. A-18 CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except for per-share data)
Year ended July 31, - - -------------------------------------------------------------------------------------- 1994 1993 1992 - - -------------------------------------------------------------------------------------- Sales $918,141 $1,149,503 $1,251,502 Costs and Expenses 830,474 1,097,141 1,196,534 General and Administrative Period Expenses (Notes 2 & 4) 28,352 43,800 10,167 Unusual Items (Note 9) 7,926 - - - - -------------------------------------------------------------------------------------- Operating Income 51,389 8,562 44,801 Interest - Net 46,836 47,883 63,373 - - -------------------------------------------------------------------------------------- Income (Loss) From Continuing Operations Before Taxes On Income 4,553 (39,321) (18,572) Taxes (Benefit) on Income (116) (15,064) (19,568) - - -------------------------------------------------------------------------------------- Income (Loss) From Continuing Operations 4,669 (24,257) 996 Income (Loss) from Discontinued Operations - Net of Taxes 2,258 (6,324) 459 Cumulative Effect Through July 31, 1992, of Accounting Changes - Net of Taxes (Note 2) - (223,950) - - - -------------------------------------------------------------------------------------- Net Income (Loss) $6,927 $(254,531) $ 1,455 ====================================================================================== Net Income (Loss) Per Average Share of Common Stock: Income (Loss) From Continuing Operations $ 0.26 $ (1.35) $ 0.05 Income (Loss) From Discontinued Operations 0.12 (0.36) 0.03 Cumulative Effect Through July 31, 1992, of Accounting Changes (Note 2) - (12.50) - - - -------------------------------------------------------------------------------------- Net Income (Loss) $ 0.38 $ (14.21) $ 0.08 ====================================================================================== Pro Forma Amounts from Continuing Operations Assuming the Changes in the Application of Accounting Principles for Long-Term Programs and Contracts are Applied Retroactively: Net Income (Loss) $4,669 $ (24,257) $(35,314) Net Income (Loss) per Average Share of Common Stock $ 0.26 $ (1.35) $ (1.99) ======================================================================================
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. A-19 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands)
- - ---------------------------------------------------------------------------------------------------------------- Common Stock Additional Minimum 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 (Note 9) (13,306) - - ---------------------------------------------------------------------------------------------------------------- Balance at July 31, 1993 17,996 102,312 75,241 (13,306) Stock plans activity 46 286 Net Income 6,927 Minimum pension liability adjustment (Note 9) (42,593) - - ---------------------------------------------------------------------------------------------------------------- Balance at July 31, 1994 $18,042 $102,598 $82,168 $(55,899) - - ----------------------------------------------------------------------------------------------------------------
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. A-20 CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents (in thousands)
Year ended July 31, - - ----------------------------------------------------------------------------------------------------------------- 1994 1993 1992 - - ----------------------------------------------------------------------------------------------------------------- Operating Activities: Net income (loss) $ 6,927 $(254,531) $ 1,455 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 22,538 25,578 27,855 Cumulative effect of accounting changes - net of taxes - 223,950 - Changes due to (increase) decrease in operating assets: Accounts receivable 27,500 84,013 53,174 Inventories - net 71,497 34,447 5,990 Prepaid expenses and other assets (1,459) 4,514 10,910 Changes due to increase (decrease) in operating liabilities: Trade accounts and other payables (49,429) (17,478) 27,362 Taxes on income and deferred taxes 1,176 (29,432) (20,816) Other 1,783 9,996 4,412 - - ----------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 80,533 81,057 110,342 - - ----------------------------------------------------------------------------------------------------------------- Investing Activities: Purchase of short-term investments (17,568) - - Proceeds from sale-leaseback transactions - 52,247 - Purchase of property, plant and equipment (5,784) (27,536) (62,933) Net advances on discontinued operations 5,045 - - Other, including investment in leases (907) (1,180) 21,789 - - ----------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (19,214) 23,531 (41,144) - - ----------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds from 9.33% senior notes - 62,000 - Net proceeds from 11.625% senior notes 95,690 - - Net proceeds from 7.75% convertible subordinated notes 55,515 - - Annual principal payment of 9.35% senior notes (12,500) (12,500) - Repayment of medium-term notes (35,000) (10,000) (5,000) Net short-term borrowings (repayments) - (20,000) (57,000) Long-term borrowings under revolving credit agreement 115,000 90,000 300,000 Repayment of borrowings under revolving credit agreement (165,000) (120,000) (290,000) Repayment of other long-term borrowings (2,618) (36,387) (11,890) Proceeds (repayment) from cash values in insurance policies (9,907) 9,907 - Reduction in sales of receivable equivalents - (45,000) (15,000) Cash collateral for receivable sales program (26,503) - - Stock contributions to employee benefit plans - 741 5,314 Other (2,186) (2,285) (58) - - ----------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 12,491 (83,524) (73,634) - - ----------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents 73,810 21,064 (4,436) Cash and Cash Equivalents, Beginning of Year 42,186 21,122 25,558 - - ----------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents, End of Year $ 115,996 $ 42,186 $ 21,122 - - ----------------------------------------------------------------------------------------------------------------- Supplemental Cash Flow Information: Cash Paid During the Year for: Interest, net of amount capitalized $ 41,622 $ 47,758 $ 53,936 Income taxes 174 9,802 2,243 Non-Cash Investing and Financing Activities: Sale of receivables - 60,000 - Repurchase of receivable or inventory equivalents - (105,000) - - - -----------------------------------------------------------------------------------------------------------------
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements. A-21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies This summary of significant accounting policies reflects the accounting policies in effect as of August 1, 1992. See Note 2 for changes in accounting policies which became effective August 1, 1992. 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. Prior years' statements of operations have been restated to reflect the business jet line of business as a discontinued operation. In addition, 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 in that revisions of estimated profits on contracts are included in earnings by the Company under the reallocation method rather than the cumulative catch-up method. 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 fiscal year 1994 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 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 A-22 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 and overruns of program preproduction costs 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 and may include estimates of recoveries on claims asserted against the customer for changes in specification. 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 A-23 improvements. Program accounting also requires estimates of the market for a program and the spares expected to be ordered. 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 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. A-24 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. 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. 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 A-25 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 Equivalents For purpose of the statement of cash flows, the Company considers all investments and highly liquid debt instruments with a maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost which approximates market. j. Short-Term Investments Short-term investments are highly liquid investments with a maturity of 91 days to one-year and generally issued by the U.S. Treasury, federal agencies, municipalities, banks and major corporations. Short-term investments are stated at cost which approximates market. k. 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 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, in fiscal 1993, 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. A-26 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 are now expensed. These costs included 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, 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 program changes generally reduced 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 from continuing operations before the cumulative effect of the changes in accounting principles by $22.4 million ($1.25 per average common share), net of income tax benefits of $13.9 million. In accordance with Accounting Principles Board Opinion No. 20, "Accounting Changes", pro forma amounts from continuing operations are shown for net income (loss) and net income (loss) per average share of common stock for all 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 and pre-production inventory decreased from $258.4 million at July 31, 1992 to $181.0 million at July 31, 1993. A-27 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 $2.7 million. The effect of the change on the year ended July 31, 1993 was not material. d. Income Taxes The Company also adopted, effective August 1, 1992, SFAS No. 109, "Accounting for Income Taxes". See Note 6. The cumulative effect of this change for periods through July 31, 1992 was not material by itself. However, under this standard, the Company recorded a substantial deferred tax asset as a result of the other changes in accounting principles and certain other charges recorded in the year ended July 31, 1993. e. Effect of Changes The cumulative effect of the changes as of August 1, 1992 and the effect of the changes on net loss before the cumulative effect of the changes in accounting principles on the year ended July 31, 1993 were as follows ($ in millions except per share data):
Cumulative Effect Effect on the Year at 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 (1) -------- ----------------- -------- ----------------- 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) ======= ======= ====== ======
(1) Effect on continuing operations was a loss of $22.4 million or $1.25 per share, net of income tax benefits of $13.9 million. A-28 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. Note 3 - Accounts Receivable Accounts receivable, which relate primarily to long-term programs and contracts, consist of the following (in thousands):
July 31, - - --------------------------------------------------------------- 1994 1993 - - --------------------------------------------------------------- Amount billed $67,487 $40,628 Recoverable costs and accrued profit on units delivered but not billed 10,351 13,436 Recoverable costs and accrued profit on progress completed but not billed 871 810 Unrecovered costs and estimated profit subject to future negotiations 14,434 39,266 - - --------------------------------------------------------------- $93,143 $94,140 ===============================================================
"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. "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 July 31, 1994 are estimated recoveries on constructive change claims related to government imposed redefined acceptance criteria on the Grumman F-14 and the Boeing E3/E6 programs. During fiscal year 1994, the claims on the Boeing KC-135 and Lockheed C-5 production programs, which in addition to the claims above were included in the 1993 balance, were settled. Management believes that amounts A-29 reflected in the financial statements are reasonable estimates of the ultimate settlements. The resolution of these items may take several years. The Company is party to a $60 million accounts receivable facility under which it sells receivables through a subsidiary to a trust on an ongoing basis. The investors' interests in the trust, net of the cash collateral discussed below, are reported as a reduction to accounts receivable. The Company's subsidiary holds the remaining interest in the trust which fluctuates in value depending upon the amount of receivables owned by the trust from time to time. Due to the slowdown 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. As a result, the Company has elected to deposit cash collateral from time to time as required to support the facility. At July 31, 1994, the Company had cash collateral on deposit totaling $26.5 million. The cost associated with the sale of receivables under the current facility is 7.57% per year. These costs, and those of the predecessor facility, all of which have been reflected as a reduction in sales values, were $4.5 million, $5.3 million, and $7.0 million in fiscal 1994, 1993, and 1992 respectively. Sales The Company's 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 July 31, --------------------------------------------------------------- 1994 1993 1992 --------------------------------------------------------------- International Aero Engines 16% 9% 8% General Electric 15 14 12 Pratt & Whitney 14 17 15 Rolls-Royce 10 8 7 CFM International 9 8 2 Boeing 9 11 13 McDonnell Douglas 7 11 18 Lockheed 6 3 3 U.S. Government 3 2 2 Airbus Industrie 3 6 9 Grumman 1 - 1 Other 7 11 10 ---------------------------------------------------------------
Total sales to the U.S. Government (including direct sales and indirect sales through prime contractors) accounted for 14% of sales from continuing operations in each of the three years ended July 31, 1994. A-30 Commercial products sold by the Company to jet engine manufacturers are ultimately installed on aircraft produced by the major commercial airframe manufacturers, Airbus Industrie, Boeing and McDonnell Douglas. Sales to foreign customers accounted for 24%, 26% and 22% of total sales for fiscal 1994, 1993 and 1992, respectively. Of the total sales, 22%, 23% and 19% were to Europe for fiscal 1994, 1993 and 1992, respectively. A-31 Note 4 - Inventories Work-in-process inventories, which relate primarily to long-term contracts and programs, are summarized as follows (in thousands, except quantities):
Aircraft Order Status (1) Company Order Status ------------------------------- ----------------------------------------------- As of 6/30/94 As of 7/31/94 (2) Firm(3) Delivered Unfilled Unfilled Program Unfilled Fiscal Year Program to Airlines Orders Options Quantity Delivered Orders Complete(6) - - --------------------------------------------------------------------------------------------------------------------------- A340 nacelle (4) (5) 33 94 85 121 55 25 1997 PW4000 nacelle for the A300/A310 and MD-11 (4) 217 43 72 422 260 30 2001 MD-90 (4) (5) 0 67 82 401 4 25 2006 V2500 nacelle for the A319/A320/A321 (4) (5) 160 105 198 284 181 45 1998 CF6-80C nacelle for the 747/767, MD-11 and A300/A310 (5) 580 235 325 763 612 124 1997 CFM56-5 nacelle for the A319/A320/A321 (5) 312 171 141 462 322 113 1999 MD-11 (4) (5) 119 53 92 200 131 29 1998 Others - - ----------------------------------------------------------------------------------------------------------------------- Balance at July 31, 1994 ======================================================================================================================== Balance at July 31, 1993 ========================================================================================================================
Work-in-Process Inventory -------------------------------------------------------- Pre- Excess Program Production Production Over Average Total - - ----------------------------------------------------------------------------------------------- A340 nacelle (4) (5) $ 14,583 $ 65,094 $10,376 $ 90,053 PW4000 nacelle for the A300/A310 and MD-11 (4) 26,330 13,678 20,946 60,954 MD-90 (4) (5) 1,932 84,911 10,977 97,820 V2500 nacelle for the A319/A320/A321 (4) (5) 15,607 7,839 0 23,446 CF6-80C nacelle for the 747/767, MD-11 and A300/A310 (5) 25,223 2,411 20,908 48,542 CFM56-5 nacelle for the A319/A320/A321 (5) 24,672 6,968 5,771 37,411 MD-11 (4) (5) 8,037 0 0 8,037 Others 56,415 21,398 0 77,813 - - ----------------------------------------------------------------------------------------------- Balance at July 31, 1994 $172,799 $202,299 $68,978 $444,076 =============================================================================================== Balance at July 31, 1993 $303,786 $180,988 $75,365 $560,139 ===============================================================================================
(1) 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. (2) 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, 1994 were $86,465 on the A340, $319,715 on the PW4000, $283,744 on the MD90, $114,791 on the V2500, $178,568 on the CF6-80C, $227,190 on the CFM56-5, and $17,748 on the MD-11. Total spares value sold as of July 31, 1994 were $23,304 on the A340, $202,059 on the PW4000, $0 on the MD90, $70,065 on the V2500, $120,826 on the CF6-80C, $120,936 on the CFM56-5, and $14,366 on the MD-11. The Company does not have orders for all of these units at this time. (3) Represents the number of aircraft for which the Company has firm unfilled orders. (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. (5) Programs accounted for in accordance with the program method of accounting. (6) 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 will be delivered. The expected life of a program is often significantly longer and as additional orders are received, program quantity is increased and this date is extended. A-32 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, 1994 is $2.4 million on the A340, $95.9 million on the MD-90, and $6.0 million on the V2500. 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 July 31, 1994, $3 million of foreign exchange contracts were outstanding to purchase foreign currencies. A-33 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. The amount charged to inventories as incurred (prior to the accounting change, effective August 1, 1992), for general and administrative expenses was $42.8 million for the year ended July 31, 1992. Note 5 - Property, Plant and Equipment Property, plant and equipment consist of the following (in thousands):
July 31, - - -------------------------------------------------------------------------------- 1994 1993 - - -------------------------------------------------------------------------------- Land $ 25,234 $ 24,833 Buildings 208,635 188,643 Machinery and equipment 253,480 251,298 Construction in progress 12,688 31,678 - - -------------------------------------------------------------------------------- 500,037 496,452 Less accumulated depreciation and amortization (277,974) (257,407) - - -------------------------------------------------------------------------------- Property, plant and equipment - net $ 222,063 $ 239,045 ================================================================================
Included in the above categories are assets recorded under capitalized leases totaling $50,584 and $50,541 at July 31, 1994 and 1993, respectively. Note 6 - Taxes on Income The provision (benefit) for taxes on income is comprised of the following (in thousands):
Liability Method Deferred Method --------------------- --------------- July 31, July 31, - - ------------------------------------------------------------------- 1994 1993 1992 - - ------------------------------------------------------------------- Currently Payable: Federal income taxes $ 1,320 $ 400 $ 3,500 Foreign income taxes 400 1,000 1,700 State income taxes 1,200 - 2,300 Deferred: Federal income taxes (3,660) (12,935) (23,257) State income taxes 624 (3,529) (3,811) - - ------------------------------------------------------------------- $ (116) $(15,064) $(19,568) ===================================================================
A-34 The deferred portion of the federal income tax provision (benefit) is comprised of the following (in thousands):
Deferred Method ---------------------- July 31, - - ----------------------------------------------------------------------------------------------------------- 1992 - - ----------------------------------------------------------------------------------------------------------- Contract profit and loss recognition $ (657) Employee benefits 5,900 Depreciation (8,400) California franchise tax 500 General and administrative expenses 2,300 Provision for estimated losses and expenses (19,800) Rate differences (1,100) Utilization of reserves previously provided for tax assessments (9,800) Offset of loss and credit carryforwards against deferred taxes (3,100) Utilization of loss and credit carryforwards 18,600 Leveraged leasing (7,900) Other items - net 200 - - ----------------------------------------------------------------------------------------------------------- $(23,257) ===========================================================================================================
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, - - ----------------------------------------------------------------------------------------------------------- 1994 1993 1992 - - ----------------------------------------------------------------------------------------------------------- Taxes (benefit) computed at the federal statutory tax rate $ 1,594 $(13,369) $ (6,314) Increase (reduction) resulting from: State income taxes, net of federal tax benefit 237 (2,176) (541) Leverage leasing (1,300) Effect of statutory rate increase (2,870) Tax-exempt income from Foreign Sales Corporation (680) (700) Rate differences (1,100) Non-deductible items 2,270 Utilization of reserves previously provided for tax assessments (860) (9,800) Other 193 481 187 - - ----------------------------------------------------------------------------------------------------------- $ (116) $(15,064) $(19,568) ===========================================================================================================
A-35 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 which reflect the tax effects of the Company's temporary differences, tax credit carryforwards and net operating loss carryforwards (NOLs) are listed below (in thousands):
July 31, - - ------------------------------------------------------------------- 1994 1993 - - ------------------------------------------------------------------- Current: Inventories $ 36,512 $ 11,557 Employee benefits 5,443 6,885 State taxes (5,602) (4,788) - - ------------------------------------------------------------------- Net deferred tax asset - current $ 36,353 $ 13,654 - - ------------------------------------------------------------------- Long-term: Depreciation $ 25,308 $ 31,872 Deferred gain on sale/leaseback 8,707 9,201 Minimum pension liability adjustment 37,578 8,259 Net operating loss carryforward 53,440 73,053 Tax credit carryforward 10,107 7,949 Investment in leases (39,393) (41,237) Other - net 1,388 251 - - ------------------------------------------------------------------- Net deferred tax asset - long-term $ 97,135 $ 89,348 - - -------------------------------------------------------------------
The Company has federal NOLs totaling approximately $140 million at July 31, 1994, which expire in the years 2003 through 2009, and tax credit carryforwards totaling $10.1 million which expire in the years 2003 through 2010. When tax effected at the rates in effect July 31, 1994, the net deductible temporary differences, tax credit carryforwards, and NOLs result in a deferred tax asset of $133.5 million, consisting of $112.9 million for federal tax purposes and $20.6 million for state tax purposes. Based on rates in effect July 31, 1994, approximately $339 million of future taxable income is required prior to expiration of the Company's NOLs and credits for full realization of the deferred tax asset. The Company believes that its future taxable income will be sufficient for full realization of the deferred tax asset. A-36 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, in 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. Based upon all the information available to it, the Company believes that the resolution of these matters will not have a material effect on the financial position or results of the Company. A-37 Note 7 - Indebtedness The maturity schedule of the Company's debt is summarized as follows (in thousands):
Scheduled Maturities ---------------------- Total at Fiscal Year Ended July 31, July 31, - - ------------------------------------------------------------------------------------------------------------------------------------ 1995 1996 1997 1998 1999 Thereafter 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------------------ Current portion of Long-Term Debt $14,952 $ $ $ $ $ $ 14,952 $ 50,719 Long-Term Debt: 11.625% Senior Notes 100,000 100,000 Revolving Credit 50,000 9.35% Senior Notes 12,500 12,500 12,500 12,500 12,500 62,500 75,000 9.33% Senior Notes 8,850 8,850 8,850 35,450 62,000 62,000 Other Debt 361 314 257 55 16,555 17,542 18,403 - - ------------------------------------------------------------------------------------------------------------------------------------ 12,861 21,664 21,607 21,405 164,505 242,042 205,403 Capital Leases 1,762 1,674 1,587 1,500 6,918 13,441 15,268 Less Imputed Interest (754) (672) (591) (510) (1,418) (3,945) (4,782) - - ------------------------------------------------------------------------------------------------------------------------------------ 1,008 1,002 996 990 5,500 9,496 10,486 Subordinated Debt: 7.75% Convertible Notes 57,500 57,500 9.25% Debentures 7,500 7,500 135,000 150,000 150,000 7.00% Convertible Debentures 5,750 109,250 115,000 115,000 - - ------------------------------------------------------------------------------------------------------------------------------------ 7,500 13,250 301,750 322,500 265,000 - - ------------------------------------------------------------------------------------------------------------------------------------ Long-Term Debt 13,869 22,666 30,103 35,645 471,755 574,038 480,889 - - ------------------------------------------------------------------------------------------------------------------------------------ Total Long-Term Debt $14,952 $13,869 $22,666 $30,103 $35,645 $471,755 $588,990 $531,608 ====================================================================================================================================
The fair value of the Company's long-term debt as of July 31, 1994 is estimated to be $525 million compared to the carrying value of $589 million reflected in the table above. This fair value was derived using quoted market prices on publicly traded debt and estimated market value of the privately held debt. The Company's total financings at July 31, 1994 included: indebtedness, shown in the table above; the accounts receivable facility in the net amount (after the deposit of cash collateral) of $33.5 million, which is reported as a reduction to accounts receivable (see Note 3); and two sale-leaseback transactions, accounted for as operating leases, totaling $48.6 million. The Company's total financings were $671.1 million and $643.9 million at July 31, 1994 and 1993, respectively. The Company's unsecured revolving credit agreement with a group of banks was amended in May, 1994 to increase the total commitment and extend the maturity. The revised commitment is initially for $110 million and is reduced by $10 million every six months beginning October, 1995 until it reaches $80 million. This credit facility matures in April, 1997. Up to $30 million of the commitment is available to support the issuance of letters of credit. At July 31, 1994, $16.9 million of the commitment was used to support an industrial development bond financing. No borrowings were outstanding on July 31, 1994. Borrowings under this credit agreement incur interest at an annual rate equal to one of the following at the Company's option: prime rate A-38 plus 0% to 2.25%; or London Interbank Offered Rate plus 0.75% to 3.25%; or a Domestic Money Market Bid Rate plus 0.875% to 3.375%; or competitive bid. In addition, 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 are based upon the Company's credit rating and the amount drawn under the credit agreement. During the fourth quarter of fiscal 1994, the Company completed its public offering of $100 million of 11.625% Senior Notes due May, 2003 and the concurrent offering of $57.5 million of 7.75% Convertible Subordinated Notes due May, 2004. The Company used $64 million of the net proceeds from these offerings to repay all amounts outstanding under the Company's revolving credit agreement. The remaining net proceeds will be used for general corporate purposes. Both series of notes are general unsecured obligations of the Company paying interest semi-annually commencing November, 1994 and do not have sinking fund requirements. The Convertible Subordinated Notes are convertible at the option of the holder at any time prior to maturity into shares of the Company's common stock at a conversion price of $10.35 per share. The Company's privately placed 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 privately placed 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. Principal prepayments may require 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 9.25% Subordinated Debentures due March, 2017 are subject to mandatory annual sinking fund payments of $7.5 million beginning March, 1998. The Company's 7.00% Convertible Subordinated Debentures due October, 2012 are convertible prior to maturity, unless previously redeemed at a conversion price of $43.00 per share, subject to adjustment under certain conditions. Both debentures are redeemable at the Company's option with premiums as are specified in the indenture under which the debentures were issued, provided, however, no redemption of the 9.25% debentures may be effected prior to March, 1997 directly or indirectly, from borrowed money having a cost of less than 9.25% per annum. In addition, several of the Company's principal financing agreements substantially restrict the Company's ability to acquire, prepay or redeem subordinated debt prior to its scheduled maturity. Several of the Company's principal financing agreements were amended in fiscal 1994 to modify financial covenant levels. The Company is required to maintain a Consolidated Tangible Net Worth (as defined) of $125 million plus 50% of positive consolidated net income from August 1, 1994; a ratio of Consolidated Net Income Available for Fixed Charges (as defined) to Fixed Charges (as defined) of 1.55 to 1 during fiscal year 1995, 1.90 to 1 during fiscal year 1996, and 2.00 to 1 thereafter; and a ratio of Debt to Consolidated Tangible Net Worth (as defined) of 5.00 to 1 during fiscal year 1995, 4.10 to 1 during fiscal year 1996, and 3.20 to 1 thereafter. Compliance with such ratios is certified monthly. The Company's principal financing agreements A-39 also contain other restrictions, including restrictions on new indebtedness, prepayments of indebtedness, amendments to debt agreements, liens, dividends, 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 July 31, 1994 are as follows (in thousands): -------------------------- 1995 $ 9,500 1996 7,500 1997 6,700 1998 5,700 1999 5,100 Thereafter 18,100 -------------------------- $52,600 ==========================
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 $13.1 million, $15.9 million and $15.3 million for fiscal 1994, 1993 and 1992, respectively. The Company is also a party to certain equipment leases treated as an off- balance sheet financing 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 interest in the leased equipment by January, 1995, the equipment lessors may require the Company to prepay up to $10 million of its equipment lease obligation. 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 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 A-40 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/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. This special master's finding is subject to a final decision and appeal. 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 found to be responsible. Notwithstanding, CERCLA liability is sometimes allocated among hazardous waste generators who used a waste disposal site based on the volume of hazardous waste they disposed at the site. The Company is the second largest generator of waste 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 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 itself in the Stringfellow 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 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 July 31, 1994 and 1993 are allowances aggregating $21.0 million and $49.8 million, respectively, for plant closure, other costs related to the planned downsizing process and various items of litigation. A-41 Note 9 - Employee Benefit Plans a. Pension Plan 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, - - ------------------------------------------------------------------------------- 1994 1993 1992 - - ------------------------------------------------------------------------------- Service cost $ 7,017 $ 12,250 $ 8,123 Interest cost on projected benefit obligation 36,686 34,601 32,260 Actual gain on plan assets (9,168) (29,379) (40,344) Net amortization and deferral (20,093) 1,605 13,356 - - ------------------------------------------------------------------------------- Pension expense $14,442 $19,077 $ 13,395 ===============================================================================
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. An amendment to the salaried employees' retirement plan accounted for approximately $3.6 million of additional pension expense in fiscal 1992. A-42 The following table summarizes the funded status of these plans and the amounts recognized in the Consolidated Balance Sheets (in thousands):
July 31, - - ------------------------------------------------------------------------------------- 1994 1993 - - ------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested $ 471,678 $413,460 Non-vested 22,702 18,483 - - ------------------------------------------------------------------------------------- Accumulated benefit obligation 494,380 431,943 Effect of projected future salary increases 6,023 10,145 - - ------------------------------------------------------------------------------------- Projected benefit obligation for service rendered to date 500,403 442,088 Plan assets at fair value, primarily stocks, bonds, other fixed income obligations and real estate 370,331 376,474 - - ------------------------------------------------------------------------------------- Plan assets less than projected benefit obligation (130,072) (65,614) Unrecognized net loss 111,288 46,140 Unrecognized net asset from initial application of SFAS No. 87 being recognized over plans' average remaining service life (15,822) (18,202) Unrecognized prior service cost 28,472 38,353 Additional minimum liability (119,132) (58,550) - - ------------------------------------------------------------------------------------- Pension liability recognized in the Consolidated Balance Sheets $(125,266) $(57,873) =====================================================================================
At July 31, 1994, 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 $55.9 million to shareholders' equity, net of tax benefits of $37.6 million, in accordance with SFAS No. 87, "Employers' Accounting for Pensions". The remaining portion of the additional minimum liability of $25.7 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 7.5 percent and 8.5 percent respectively for the years ended July 31, 1994 and 1993. 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 4.0 percent on current salaries through January 1, 1995, in accordance with plan terms. The expected long-term rate of return on plan assets was 9 percent for the periods presented. During fiscal 1994, the Company recognized a curtailment loss of $10.6 million for the write-off of unamortized pension past service costs relating to the downsizing of employment levels in line with current business conditions. This loss is reflected as an unusual item for the 1994 statement of operations net of a gain recognized on the sale of a facility. A-43 The Company also has certain defined contribution plans covering most employees. Expenses for these plans amounted to $1.7 million, $3.4 million and $6.7 million in fiscal 1994, 1993 and 1992, 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. 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 1994, 1993 and 1992, the Company paid post- retirement health care benefits totaling $1.7 million, $2.0 million and $2.9 million, respectively. The costs of health care benefits was provided largely under a self-insured plan, which was terminated 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 7.5 percent and 8.5 percent respectively for the years ended July 31, 1994 and 1993. 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% 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. A-44 Net periodic post-retirement benefit costs included the following components (in thousands):
Year ended July 31, - - ------------------------------------------------------------------------------------------- 1994 1993 - - ------------------------------------------------------------------------------------------- Service cost - benefits attributed to service during the period $ 168 $ 196 Interest cost on accumulated post-retirement benefit obligation 465 549 - - ------------------------------------------------------------------------------------------- Net periodic post-retirement benefit cost $ 633 $ 745 ===========================================================================================
The liability for post-retirement health care benefits included the following components (in thousands):
July 31, - - ------------------------------------------------------------------------------------------- 1994 1993 - - ------------------------------------------------------------------------------------------- Accumulated post-retirement benefit obligation: Retirees $2,671 $2,749 Fully eligible active plan participants 214 376 Other active plan participants 2,749 2,929 Unrecognized net loss (634) - - - ------------------------------------------------------------------------------------------- Liability for post-retirement health care benefits $5,000 $6,054 ===========================================================================================
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. Note 10 - Shareholders' Equity Under the terms of certain covenants in several of the Company's principal financing agreements, the Company may not pay cash dividends until after April 25, 1997. (See Note 7.) Thereafter, the Company's ability to pay cash dividends is restricted substantially. 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 A-45 grants under this plan, 248,431 and 371,281 stock options and other stock-based awards remained available for grant at July 31, 1994 and 1993, 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 1994, 36,000 restricted shares were purchased by grantees and 300 restricted shares were repurchased from grantees, in each case at a price of $1.00 per share . 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 and 59,000 shares remained available for grant at July 31, 1994 and 1993, 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. A-46 Under the various stock option plans, outstanding options for 2,037,769 and 1,671,947 shares of common stock were exercisable as of July 31, 1994 and 1993, respectively. Activity in these stock option plans for the three years ended July 31, 1994 is summarized as follows:
Options Option Price - - ------------------------------------------------------------------------------ Balance at August 1, 1991 1,331,420 $ 12.50 - $31.625 Granted 1,548,803 10.625 - 22.125 Relinquished (16,760) 16.50 - 31.625 Forfeited (33,600) 12.00 - 22.125 Exercised (34,000) 12.00 - 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) 16.50 - 31.625 Forfeited (254,134) 10.625 - 22.125 - - ------------------------------------------------------------------------------ Balance Outstanding at July 31, 1993 2,665,849 $ 8.875 - $31.625 Granted 109,000 8.375 - 10.250 Relinquished (18,655) 16.500 - 31.625 Forfeited (33,150) 10.625 - 22.125 - - ------------------------------------------------------------------------------ Balance Outstanding at July 31, 1994 2,723,044 $8.375 - $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. 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. A-47 Authorized, unissued shares of common stock were reserved for the following:
July 31, - - ------------------------------------------------------------------------------- 1994 1993 - - ------------------------------------------------------------------------------- Various stock plans 3,021,475 3,096,130 Conversion of subordinated debentures and notes 8,229,973 2,674,418 Warrants 600,000 600,000 - - ------------------------------------------------------------------------------- 11,851,448 6,370,548 ===============================================================================
Note 11 - Discontinued Operations In the fourth quarter of fiscal 1994, the Company sold and commenced the transfer of its business jet line of business. The purchase agreement requires the Company, over the next several months, to manufacture and deliver certain components and transfer program engineering and tooling for a total consideration of $32.5 million. The Company received an initial payment of $21.5 million, of which $8.5 million will be applied to future deliveries. The operating results of the business jet line of business are included in earnings from discontinued operations summarized as follows (in thousands):
Year Ended July 31, - - ------------------------------------------------------------------------------- 1994 1993 1992 - - ------------------------------------------------------------------------------- Net sales $40,286 $ 25,649 $28,154 Income (loss) before taxes 3,777 (10,250) 757 Taxes on income (benefit) 1,519 (3,926) 298 Net income (loss) 2,258 (6,324) 459 Net income (loss) per average share of common stock $ 0.12 $ (0.36) $ 0.03 ===============================================================================
A-48 Quarterly Results of Operations (Unaudited) (in thousands except for per-share data)
Year ended July 31, 1994 - - ------------------------------------------------------------------------------------------- 1st 2nd 3rd 4th - - ------------------------------------------------------------------------------------------- Sales $237,091 $234,800 $221,696 $224,554 Operating income before unusual items 16,567 14,048 14,099 14,601 Operating income after unusual items 16,567 14,048 6,173 14,601 Income (loss) from continuing operations before taxes 4,728 2,206 (4,868) 2,487 Income (loss) from continuing operations 5,761 1,341 (2,953) 520 Income from discontinued operations, net of taxes 302 331 266 1,359 Net Income (loss) $ 6,063 $ 1,672 $ (2,687) $ 1,879 Net income (loss) per average share of common stock: From continuing operations $ 0.32 $ 0.07 $ (0.16) $ 0.03 From discontinued operations 0.02 0.02 0.01 0.07 Net Income (loss) per average share of common stock $ 0.34 $ 0.09 $ (0.15) $ 0.10 ===========================================================================================
The first three quarters of fiscal 1994 have been restated to separately reflect discontinued operations. The third quarter includes unusual items aggregating $7.9 million, representing the write-off of unamortized pension past service costs related to the downsizing of employment levels in line with current business conditions, net of a gain on the sale of the Auburn, Washington facility, which was closed during the prior fiscal year. A-49
Year ended July 31, 1993 - - ---------------------------------------------------------------------------------------------- 1st 2nd 3rd 4th - - ---------------------------------------------------------------------------------------------- Sales $ 278,281 $336,037 $290,106 $245,079 Operating income (loss) 18,109 (3,838) (19,689) 13,980 Income (loss) from continuing operations before taxes 7,413 (15,912) (32,307) 1,485 Income (loss) from continuing operations 4,574 (9,818) (19,931) 918 Loss from discontinued operations, net of taxes (991) (2,280) (2,270) (783) Cumulative effect of accounting changes, net of taxes (223,950) Net Income (loss) $(220,367) $(12,098) $(22,201) $ 135 Net income (loss) per average share of common stock: From continuing operations $ 0.26 $ (0.55) $ (1.11) $ 0.05 From discontinued operations (0.06) (0.13) (0.13) (0.04) Effect of accounting changes (12.50) Net Income (loss) per average share of common stock $ (12.30) $ (0.68) $ (1.24) $ 0.01 - - ----------------------------------------------------------------------------------------------
Fiscal 1993 has been restated to separately reflect discontinued operations. The third quarter of fiscal 1993 includes the impact of net provisions of $25.0 million for restructuring and other costs as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations." A-50 Report by Management To the Shareholders and Board of Directors of Rohr Inc. The consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles. These statements necessarily include amounts based on judgments and estimates by the accounting process. The Company's operating and financial managers apply systems of internal accounting controls that are designed to provide reasonable, but not absolute, assurance that assets are safeguarded, that transactions are executed and recorded in accordance with management's established policies and procedures, and that accounting records are adequate for preparation of financial statements and other financial information. Management's judgment with respect to the relative cost and expected benefits of specific measures determines the design, monitoring and revision of internal accounting control systems. The Company has a staff of internal auditors to review accounting records, controls and practices on a planned, rotational basis and to determine compliance with corporate policies. The consolidated financial statements have been audited by Deloitte & Touche LLP, independent certified public accountants, appointed annually by the Board of Directors and ratified by the shareholders. Their responsibility is to audit the Company's financial statements in accordance with generally accepted auditing standards and to render an opinion that the statements presented are in conformity with generally accepted accounting principles. The members of the Audit Committee of the Board of Directors, none of whom are employees of the Company, review the activities of the internal auditors and independent certified public accountants to ascertain that each is properly discharging its responsibility. These groups have free access to the Audit Committee, and certain meetings with the independent certified public accountants are held without the presence of management. The Audit Committee held four meetings during fiscal 1994. L. A. Chapman R. H. Rau Senior Vice President and President and Chief Executive Officer Chief Financial Officer A.L. Majors Vice President and Controller (Chief Accounting Officer) September 12, 1994 A-51 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, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended July 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Rohr, Inc. and its subsidiaries as of July 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 1994, 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 L L P San Diego, California September 12, 1994 ================================================================================ A-52 EX-23 15 DELOITTE & TOUCHE CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements on Form S-3 (Nos. 33 - 53113, 33-12340, 33-13373 and 33-17536); Form S-8 (Nos. 2-75423, 2-83877, 33-14382, 33-29351, and 33-32839); and Form S-16 (Nos. 2-76538 and 2-76656) of Rohr, Inc., of our reports dated September 12, 1994, appearing and incorporated by reference in this Annual Report on Form 10-K of Rohr, Inc., for the year ended July 31, 1994. Deloitte & Touche L L P San Diego, California September 26, 1994 EX-27 16 ARTICLE 5, 07/31/94
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JUL-31-1994 JUL-31-1994 115,996 17,568 93,143 0 363,196 644,749 500,037 (277,974) 1,056,847 184,069 574,038 18,042 0 0 128,867 1,056,847 0 918,141 0 830,474 36,278 0 46,836 4,553 (116) 4,669 2,258 0 0 6,927 0.38 0.38
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