10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 30, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-7872

BREEZE-EASTERN CORPORATION

(formerly TransTechnology Corporation)

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 95-4062211
(I.R.S. employer
identification no.)

700 Liberty Avenue
Union, New Jersey
(Address of principal executive offices)
07083
(Zip Code)

Registrant’s telephone number, including area code: (908) 686-4000

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 þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated file” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o                    Accelerated filer þ                    Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ

As of February 4, 2008, the total number of outstanding shares of registrant’s one class of common stock was 9,330,992.

INDEX

		Page No.
PART 1	Financial Information
Item 1.	Condensed Financial Statements (Unaudited)	3
	Condensed Statements of Consolidated Operations Three and Nine Month Periods Ended December 30, 2007 and December 31, 2006 (Unaudited)	4
	Condensed Consolidated Balance Sheets December 30, 2007 (Unaudited) and March 31, 2007	5
	Condensed Statements of Consolidated Cash Flows Nine Month Periods Ended December 30, 2007 and December 31, 2006 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7 — 18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18 — 29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	29
PART II.	Other Information
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29-30
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	30
SIGNATURES		30
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32
EX-10.1: WAIVER UNDER AMENDED AND RESTATED CREDIT AGREEMENT
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION

2

PART I. FINANCIAL INFORMATION

Item 1. CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

The following unaudited, condensed Statements of Consolidated Operations, Consolidated Balance Sheets, and Statements of Consolidated Cash Flows are of Breeze-Eastern Corporation, formerly TransTechnology Corporation, and its consolidated subsidiaries (collectively, the “Company”). These reports reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods reflected therein. The results reflected in the unaudited, condensed Statement of Consolidated Operations for the periods ended December 30, 2007, are not necessarily indicative of the results to be expected for the entire fiscal year. The following unaudited, condensed Consolidated Financial Statements should be read in conjunction with the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this report, as well as the audited financial statements and related notes thereto contained in the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 31, 2007.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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BREEZE-EASTERN CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(In Thousands of Dollars, Except Share and Per Share Data)

	Three Months Ended				Nine Months Ended
	December 30, 2007		December 31, 2006		December 30, 2007		December 31, 2006
Net sales	$	18,061	$	18,894	$	51,556	$	52,818
Cost of sales		9,919		10,079		29,763		29,404
Gross profit		8,142		8,815		21,793		23,414
General, administrative and selling expenses		4,714		5,050		14,069		14,385
Interest expense		846		1,000		2,670		3,286
Other expense — net		38		62		107		141
Loss on extinguishment of debt		—		—		—		1,331
Income before income taxes		2,544		2,703		4,947		4,271
Income tax provision		1,018		1,081		1,979		1,708
Net income	$	1,526	$	1,622	$	2,968	$	2,563
Earnings per share:
Basic:
Net income per share:	$	0.16	$	0.17	$	0.32	$	0.28
Diluted:
Net income per share:	$	0.16	$	0.17	$	0.32	$	0.27
Weighted — average basic shares outstanding		9,327,000		9,275,000		9,308,000		9,252,000
Weighted — average diluted shares outstanding		9,404,000		9,383,000		9,395,000		9,353,000

See notes to consolidated financial statements.

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BREEZE-EASTERN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share Data)

	(Unaudited)
ASSETS	December 30, 2007			March 31, 2007
CURRENT ASSETS:
Cash and cash equivalents	$	2,000		$	2,127
Accounts receivable (net of allowance for doubtful accounts of $77 at December 30, 2007 and $72 at March 31, 2007)		11,881			14,761
Inventories		22,261			20,517
Prepaid expenses and other current assets		592			369
Deferred income taxes		6,673			7,181
Total current assets		43,407			44,955
PROPERTY:
Property, plant and equipment		18,052			17,274
Less accumulated depreciation and amortization		13,398			12,495
Property , plant and equipment — net		4,654			4,779
OTHER ASSETS:
Deferred income taxes		19,447			20,808
Goodwill		402			402
Real estate held for sale		4,000			4,000
Other		6,266			5,527
Total other assets		30,115			30,737
TOTAL	$	78,176		$	80,471
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Revolving credit facility	$	4,072		$	3,289
Current portion of long-term debt		3,057			5,057
Accounts payable — trade		3,728			4,989
Accrued compensation		2,665			3,486
Accrued income taxes		100			447
Accrued interest		219			295
Other current liabilities		4,267			4,252
Total current liabilities		18,108			21,815
LONG-TERM DEBT PAYABLE TO BANKS		30,454			32,750
OTHER LONG-TERM LIABILITIES		9,475			9,007
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY
Preferred stock — authorized, 300,000 shares; none issued		—			—
Common stock — authorized, 14,700,000 shares of $.01 par value; issued, 9,738,982 at December 30, 2007 and 9,670,566 shares at March 31, 2007		97			97
Additional paid-in capital		92,842			92,111
Accumulated deficit		(66,053	)		(68,772	)
Accumulated other comprehensive loss		(48	)		(48	)
		26,838			23,388
Less treasury stock, at cost - 412,323 at December 30, 2007 and 395,135 shares at March 31, 2007		(6,699	)		(6,489	)
Total stockholders’ equity		20,139			16,899
TOTAL	$	78,176		$	80,471

See notes to consolidated financial statements.

5

BREEZE-EASTERN CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(In Thousands of Dollars)

	Nine months ended
	December 30, 2007			December 31, 2006
Cash flows from operating activities:
Net income	$	2,968		$	2,563
Adjustments to reconcile net income to net cash provided by operating activities:
Write off of unamortized loan fees		—			944
Depreciation and amortization		987			1,132
Noncash interest expense, net		79			75
Stock based compensation		463			230
Loss on disposal of fixed asset		—			1
Provision for losses on accounts receivable		10			4
Deferred taxes-net		1,869			1,709
Changes in assets and liabilities :
Decrease in accounts receivable and other receivables		2,870			2,687
Increase in inventories		(1,744	)		(2,194	)
Increase in other assets		(1,033	)		(175	)
Decrease in accounts payable		(1,377	)		(2,668	)
Decrease in accrued compensation		(821	)		(924	)
Decrease in income taxes payable		(77	)		(517	)
(Decrease) increase in other liabilities		(199	)		124
Net cash provided by operating activities		3,995			2,991
Cash flows from investing activities:
Capital expenditures		(672	)		(987	)
Decrease in restricted cash		4			499
Net cash used in investing activities		(668	)		(488	)
Cash flows from financing activities:
Payments on long-term debt		(4,296	)		(43,103	)
Proceeds from long-term debt and borrowings		—			40,000
Borrowings of other debt		782			2,599
Payment of debt issue costs		—			(419	)
Expenses related to the private placement of common stock		(5	)		—
Exercise of stock options		65			123
Net cash used in financing activities		(3,454	)		(800	)
(Decrease) increase in cash		(127	)		1,703
Cash at beginning of period		2,127			161
Cash at end of period	$	2,000		$	1,864
Supplemental information:
Interest payments	$	2,659		$	3,515
Income tax payments	$	189		$	517
Non-cash financing activity for stock option exercise	$	210		$	62
Non-cash investing activity for additions to property plant and equipment	$	122		$	34

See notes to consolidated financial statements.

6

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Earnings Per Share

The computation of basic earnings per share is based on the weighted-average number of common shares outstanding. The computation of diluted earnings per share assumes the foregoing and, in addition, the exercise of all dilutive stock options using the treasury stock method.

The components of the denominator for basic earnings per common share and diluted earnings per common share are reconciled as follows:

	Three Months Ended				Nine Months Ended
	December 30,		December 31,		December 30,		December 31,
	2007		2006		2007		2006
Basic Earnings per Common Share:
Weighted-average common stock outstanding for basic earnings per share calculation		9,327,000		9,275,000		9,308,000		9,252,000
Diluted Earnings per Common Share:
Weighted-average common shares outstanding		9,327,000		9,275,000		9,308,000		9,252,000
Stock options*		77,000		108,000		87,000		101,000
Weighted-average common stock outstanding for diluted earnings per share calculation		9,404,000		9,383,000		9,395,000		9,353,000

* During the three and nine month periods ended December 30, 2007, options to purchase 171,000 and 99,000 shares of common stock, respectively, and during the three and nine month periods ended December 31, 2006, options to purchase 26,000 shares of common stock were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common share.

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NOTE 2. Stock-Based Compensation

Net income for the three and nine month periods ended December 30, 2007 and December 31, 2006 includes $0.1 million net of tax, or $0.01 per diluted share, and $0.3 million net of tax, or $0.03 per diluted share, respectively, of stock based compensation expense. Stock based compensation expense was recorded in general, administrative and selling expenses.

The Company maintains the Amended and Restated 1992 Long Term Incentive Plan (the “1992 Plan”), the Amended and Restated 1998 Non-Employee Directors Stock Option Plan (the “1998 Plan”), the 1999 Long Term Incentive Plan (the “1999 Plan”), the 2004 Long Term Incentive Plan (the “2004 Plan”) and the 2006 Long Term Incentive Plan (the “2006 Plan”).

Under the terms of the 2006 Plan, 500,000 shares of the Company’s common stock may be granted as stock options or awarded as restricted stock to officers, non-employee directors and certain employees of the Company through July 2016. Under the terms of the 2004 Plan, 200,000 of the Company’s common shares may be granted as stock options or awarded as restricted stock to officers, non-employee directors and certain employees of the Company through September 2014. Under the terms of the 1999 Plan, 300,000 of the Company’s common shares may be granted as stock options or awarded as restricted stock to officers, non-employee directors and certain employees of the Company through July 2009. Under the terms of the 1998 Plan, 250,000 of the Company’s common shares may be granted as stock options to non-employee directors of the Company through July 2008. The 1992 Plan expired in September 2002 and no grants or awards may be made thereafter under the 1992 Plan, however, there remain outstanding unexercised options granted in fiscal year 2000 and in fiscal year 2002 under the 1992 Plan.

Under each of the 1992, 1998, 1999, 2004 and 2006 Plans, option exercise prices equal the fair market value of the common shares at the respective grant dates. Options granted prior to May 1999 to officers and employees, and all options granted to non-employee directors, expire if not exercised on or before five years after the date of the grant. Options granted beginning in May 1999 to officers and employees expire no later than 10 years after the date of the grant. Options granted to directors, officers and employees vest ratably over three years beginning one year after the date of the grant. In the event of the occurrence of certain circumstances, including a change of control of the Company as defined in the various Plans, vesting of options may be accelerated.

The weighted-average Black-Scholes value per option granted in fiscal 2008 and fiscal 2007 was $6.80 and $6.83, respectively. The following assumptions were used in the Black-Scholes option pricing model for options granted in fiscal 2008 and fiscal 2007. Expected volatilities are based on historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate the expected term of the options granted. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company has assumed no forfeitures due to the limited number of employees at the executive and senior management level who receive stock options, past employment history and current stock price projections.

	2008			2007
Dividend yield		0.0	%		0.0	%
Volatility		48.9	%		51.0	%
Risk-free interest rate		4.7	%		5.1	%
Expected term of options (in years)		7.0			7.0

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The following table summarizes stock option activity under all plans:

				Aggregate		Approximate		Weighted-
				Intrinsic		Remaining		Average
	Number			Value		Contractual		Exercise
	of Shares			(in thousands)		Term (Years)		Price
Outstanding at March 31, 2007		364,996		$	814		7	$	8.91
Granted		75,000			—		—	$	12.04
Exercised		(44,085	)	$	265		—	$	6.22
Canceled or expired		( 2,000	)		—		—	$	10.12
Outstanding at December 30, 2007		393,911		$	837		6	$	9.80
Options exercisable at December 30, 2007		257,285		$	775		5	$	8.97
Unvested options expected to become exercisable after December 30, 2007		136,626		$	62		9	$	11.35
Shares available for future option grants at December 30, 2007 (a)		642,137

(a) May be decreased by restricted stock grants.

Cash received from stock option exercises during the first nine months of fiscal 2008 was approximately $65,000. In lieu of a cash payment for stock option exercises, the Company received 17,188 shares of common stock, which were retired into treasury, valued at the price of the common stock at the transaction date. There was no tax benefit generated to the Company from options granted prior to April 1, 2006 and exercised during the first nine months of fiscal 2008.

As noted above, stock options granted to non-employee directors, officers and employees vest ratably over three years beginning one year after the date of the grant. During the first nine months of fiscal 2008 and fiscal 2007, compensation expense associated with stock options was approximately $0.3 million and $0.2 million, respectively, before taxes of approximately $0.1 million, and such expense was recorded in general, administrative and selling expenses. As of December 30, 2007 there was approximately $0.7 million of unrecognized compensation cost related to stock options granted but not yet vested that are expected to become exercisable, which cost is expected to be recognized over a weighted-average period of 1.9 years.

It is the policy of the Company that the stock underlying option grants consist of authorized and unissued shares available for distribution under the applicable Plan. Under the 1992, 1999, 2004 and 2006 Plans, the Incentive and Compensation Committee of the Board of Directors (made up of independent Directors) may at any time offer to repurchase a stock option that is exercisable and has not expired. There is no such provision permitting the repurchase of stock options under the 1998 Plan. The Company is prohibited by its Senior Credit Facility from repurchasing shares on the open market to satisfy option exercises.

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A summary of restricted stock award activity under all plans is as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Non-vested at March 31, 2007		24,305		$	10.93
Granted		24,331		$	12.40
Vested		(21,737	)	$	11.04
Cancelled		—			—
Non-vested at December 30, 2007		26,899		$	12.17

Restricted stock awards are utilized both for director compensation and awards to officers and employees. Restricted stock awards are distributed in a single grant of shares, which shares are subject to forfeiture prior to vesting and have voting and dividend rights from the date of distribution. With respect to restricted stock awards to officers and employees, forfeiture and transfer restrictions lapse ratably over three years beginning one year after the date of the award. With respect to restricted stock awards granted to non-employee directors, the possibility of forfeiture lapses after one year and transfer restrictions lapse on the date which is six months after the director ceases to be a member of the board of directors. In the event of the occurrence of certain circumstances, including a change of control of the Company as defined in the various Plans, the lapse of restrictions on restricted stock may be accelerated.

The fair value of restricted stock awards is based on the market price of the stock at the grant date and compensation cost is amortized to expense on a straight line basis over the requisite service period as stated above. The Company expects no forfeitures during the vesting period with respect to unvested restricted stock awards granted. As of December 30, 2007, there was approximately $0.2 million of unrecognized compensation cost related to non-vested restricted stock awards, which is expected to be recognized over a period of approximately 1.3 years.

NOTE 3. Inventories

Inventories are summarized as follows (in thousands):

	December 30,		March 31,
	2007		2007
Finished goods	$	—	$	—
Work in process		3,180		2,139
Purchased and manufactured parts		19,081		18,378
Total	$	22,261	$	20,517

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NOTE 4. Property and Related Depreciation

Property is recorded at cost. Provisions for depreciation are made on a straight-line basis over the estimated useful lives of depreciable assets. Depreciation expense for the three and nine month periods ended December 30, 2007 was $0.4 million and $0.9 million, respectively, and for the three and nine month periods ended December 31, 2006, depreciation expense was $0.3 million and $0.8 million, respectively.

Average useful lives for property, plant and equipment are as follows:

Buildings	10 to 33 years
Machinery and equipment	3 to 10 years
Furniture and fixtures	3 to 10 years
Computer hardware and software	3 to 5 years

NOTE 5. Product Warranty Costs

Equipment has a one year warranty for which a reserve is established using historical averages and specific program contingencies when considered necessary. Changes in the carrying amount of accrued product warranty costs for the nine month period ended December 30, 2007 are summarized as follows (in thousands):

Balance at March 31, 2007	$	475
Warranty costs incurred		(235	)
Change in estimates to pre-existing warranties		(16	)
Product warranty accrual		144
Balance at December 30, 2007	$	368

NOTE 6. Income Taxes

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes”, on April 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies”. As required by FIN No. 48, which clarifies SFAS No. 109, “Accounting for Income Taxes”, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied FIN No. 48 to all tax positions for which the statute of limitations remained open. As a result of the implementation of FIN No. 48, the Company recognized an increase of $250,000 in the liability for unrecognized tax benefits, which was accounted for as a reduction to the April 1, 2007 balance of retained earnings and an increase to the FIN No. 48 tax reserve balance.

The amount of unrecognized tax benefits as of April 1, 2007, prior to the FIN No. 48 implementation, amounted to $270,000. The total amount of unrecognized tax benefits as of the date of adoption amounted to $520,000 which, if ultimately realized, will reduce the Company’s annual effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued approximately $110,000 for the payment of interest and penalties through April 1, 2007, which is included in the $520,000 unrecognized tax benefit amount. The Company anticipates that the resolution of these unrecognized tax benefits will occur within the next twelve months.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and

11

require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the fiscal years prior to 2002.

At December 30, 2007, the Company had federal and state net operating loss carryforwards, or NOLs, of approximately $44.7 million and $83.2 million, respectively, which are due to expire in fiscal 2022 through fiscal 2025 and fiscal 2008 through fiscal 2012, respectively. The state NOL due to expire in fiscal 2009 is approximately $49.4 million against which the Company has a valuation allowance. The NOLs may be used to offset future taxable income through their respective expiration dates and thereby reduce or eliminate our federal and state income taxes otherwise payable. A corresponding valuation allowance of $5.9 million has been established relating to the state NOLs, as it is the Company’s belief that it is more likely than not that a portion of the state NOLs are not realizable. Failure to achieve sufficient taxable income to utilize the NOLs would require the recording of an additional valuation allowance against the deferred tax assets.

The Internal Revenue Code of 1986, as amended (the “Code”), imposes significant limitations on the utilization of NOLs in the event of an “ownership change” as defined under section 382 of the Code (the “Section 382 Limitation”). The Section 382 Limitation is an annual limitation on the amount of pre-ownership NOLs that a corporation may use to offset its post-ownership change income. The Section 382 Limitation is calculated by multiplying the value of a corporation’s stock immediately before an ownership change by the long-term tax-exempt interest rate (as published by the Internal Revenue Service). Generally, an ownership change occurs with respect to a corporation if the aggregate increase in the percentage of stock ownership by value of that corporation by one or more 5% shareholders (including specified groups of shareholders who in the aggregate own at least 5% of that corporation’s stock) exceeds 50 percentage points over a three-year testing period. The Company believes that it has not gone through an ownership change that would cause its NOLs to be subject to the Section 382 Limitation.

If the Company does not generate adequate taxable earnings, some or all of the deferred tax assets represented by its NOLs may not be realized. Additionally, changes to the federal and state income tax laws also could impact its ability to use the NOLs. In such cases, the Company may need to revise the valuation allowance established related to deferred tax assets for state purposes.

NOTE 7. Debt

Debt payable to banks, including current maturities consisted of the following (in thousands):

	December 30, 2007		March 31, 2007
Senior Credit Facility	$	37,583	$	41,096
Less current maturities		7,129		8,346
Total long-term debt	$	30,454	$	32,750

Credit Facility — On May 1, 2006, the Company refinanced and paid in full its former senior credit facility with a new five year $50.0 million Senior Credit Facility consisting of a $10.0 million revolving credit facility, and two term loans of $20.0 million each, which had a blended interest rate of 8.4% at December 30, 2007 (the “Senior Credit Facility”). As a result of this refinancing, in the first quarter of fiscal 2007 the Company recorded a pre-tax charge of $1.3 million consisting of $0.9 million for the write-off of unamortized debt issue costs and $0.4 million for the payment of prepayment premiums. The term loans require monthly principal payments of $0.2 million, an additional quarterly principal payment of $50,000, and a mandatory prepayment for fiscal 2007 of approximately $2.0 million, as discussed below, which was paid in July 2007. The remaining payments under the term loans are due at maturity. Accordingly, the balance sheet reflects $3.1 million of current maturities due under term loans of the Senior Credit Facility as of December 30, 2007.

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The Senior Credit Facility contains certain mandatory prepayment provisions in the event of extraordinary income, the issuance of equity in the Company or items which are linked to cash flow. The cash flow provision requires prepayment of the Senior Credit Facility in an amount equal to 50% of earnings before interest, taxes, depreciation and amortization (EBITDA) less principal payments, interest payments, tax payments, capital expenditures and, with respect to our fiscal year 2007, certain environmental remediation payments and the final payment to the U.S. Government pursuant to a settlement with the government concluded September 8, 2005. Each such prepayment is applied first to the outstanding principal of one of the term loans up to a certain recapture amount, then ratably to the outstanding principal of all of the term loans until paid in full, and then to the outstanding principal of the revolver in the credit facility. A mandatory prepayment for fiscal 2007 of approximately $2.0 million was required under this provision and was paid in July 2007. The current estimated mandatory prepayment for fiscal 2008 is approximately $2.4 million. The Company expects to have sufficient borrowing capacity under the revolving portion of its Senior Credit Facility to make this payment.

The Senior Credit Facility prohibits the payment of dividends. The Senior Credit Facility is secured by all of the assets of the Company. At December 30, 2007, the Company was in compliance with the provisions of the Senior Credit Facility. At December 30, 2007, there was $4.1 million in outstanding borrowings and $5.9 million in availability, under the revolving portion of the Senior Credit Facility.

NOTE 8. Employee Benefit Plans

The Company has a defined contribution plan covering all eligible employees. Contributions are based on certain percentages of an employee’s eligible compensation. Expenses related to this plan were $0.2 million and $0.6 million for the three and nine month periods ended December 30, 2007 and December 31, 2006, respectively.

The Company provides postretirement benefits to certain union employees. The Company funds these benefits on a pay-as-you-go basis. The measurement date is March 31.

In February 2002, the Company’s subsidiary, Seeger-Orbis GmbH & Co. OHG, now known as TransTechnology Germany GmbH (the “Selling Company”), sold its retaining ring business in Germany to Barnes Group Inc. (“Barnes”). As German law prohibits the transfer of unfunded pension obligations which have vested for retired and former employees, the legal responsibility for the pension plan that related to the business (the “Pension Plan”) remained with the Selling Company. At the time of the sale and subsequent to the sale, that pension liability was recorded based on the projected benefit obligation since future compensation levels will not affect the level of pension benefits. The relevant information for the Pension Plan is shown below under the caption Pension Plan. The measurement date is December 31. Barnes has entered into an agreement with the Company and its subsidiary, the Selling Company, whereby Barnes is obligated to administer and discharge the pension obligation as well as indemnify and hold the Selling Company and the Company harmless from these pension obligations. Accordingly, the Company has a recorded asset equal to the benefit obligation for the pension plan of $4.3 million at December 30, 2007 and $3.9 million at March 31, 2007. This asset is included in other long-term assets and is restricted in use to satisfy the legal liability associated with the Pension Plan.

13

The net periodic pension cost is based on estimated values provided by independent actuaries. The following tables provide the components of the net periodic benefit cost (in thousands):

	Postretirement Benefits
	Three Months Ended					Nine Months Ended
	December 30,		December 31,			December 30,		December 31,
	2007		2006			2007		2006
Components of net periodic benefit costs:
Interest Cost	$	13	$	10		$	39	$	31
Amortization of net (gain) loss		—		(10	)		—		(31	)
Net periodic benefit cost	$	13	$	—		$	39	$	—

	Pension Plan
	Three Months Ended				Nine Months Ended
	December 30,		December 31,		December 30,		December31,
	2007		2006		2007		2006
Components of net periodic benefit costs:
Interest Cost	$	47	$	31	$	136	$	92
Amortization of net loss		—		1		—		3
Net periodic benefit cost	$	47	$	32	$	136	$	95

NOTE 9. New Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, research and development assets and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income taxes. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The adoption of the provisions of SFAS 141R is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, An Amendment of ARB No. 51.” SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS 141R. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The statement shall

14

be applied prospectively as of the beginning of the fiscal year in which the statement is initially adopted. The adoption of the provisions of SFAS 160 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, providing companies with an option to report selected financial assets and liabilities at fair value. This standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The standard requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the Company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for the Company on April 1, 2008. The adoption of the provisions of SFAS 159 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R).” SFAS 158 requires companies to recognize a net asset for a defined benefit postretirement pension or healthcare plan’s over funded status or a net liability for a plan’s under funded status in its balance sheet. SFAS 158 also requires companies to recognize changes in the funded status of a defined benefit postretirement plan in accumulated other comprehensive income in the year in which the changes occur. SFAS 158 was adopted on March 31, 2007. Additionally, SFAS 158 requires companies to measure plan assets and benefit obligations as of the date of the Company’s fiscal year end balance sheet, which is consistent with the Company’s current practice. This requirement is effective for fiscal years ending after December 15, 2008. The adoption of the provisions of SFAS 158 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The adoption of the provisions of SFAS 157 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In July 2006, the FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of SFAS 109”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes”. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized as an adjustment to the opening balance of retained earnings (or other appropriate components of equity) for that fiscal year. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 effective April 1, 2007. See Note 6, Income Taxes, for further discussion.

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NOTE 10. Contingencies

Environmental Matters. The Company evaluates the exposure to environmental liabilities using a financial risk assessment methodology, including a system of internal environmental audits and tests, and outside consultants. This risk assessment includes the identification of risk events/issues, including potential environmental contamination at Company and off-site facilities; characterizes risk issues in terms of likelihood, consequences and costs, including the year(s) when these costs could be incurred; analyzes risks using statistical techniques; and, constructs risk cost profiles for each site. Remediation cost estimates are prepared from this analysis and are taken into consideration in developing project budgets from third party contractors. Although the Company takes great care in the development of these risk assessments and future cost estimates, the actual amount of the remediation costs may be different from those estimated as a result of a number of factors including: changes to government regulations or laws; changes in local construction costs and the availability of personnel and materials; unforeseen remediation requirements that are not apparent until the work actually commences; and other similar uncertainties. The Company does not include any unasserted claims that it might have against others in determining the liability for such costs, and, except as noted with regard to specific cost sharing arrangements, has no such arrangements, nor has the Company taken into consideration any future claims against insurance carriers that it might have in determining its environmental liabilities. In those situations where the Company is considered a de minimis participant in a remediation claim, the failure of the larger participants to meet their obligations could result in an increase in the Company’s liability with regard to such a site.

The Company continues to participate in environmental assessments and remediation work at eleven locations, including certain former facilities. Due to the nature of environmental remediation and monitoring work, such activities can extend for up to 30 years, depending upon the nature of the work, the substances involved, and the regulatory requirements associated with each site. In calculating the net present value (where appropriate) of those costs expected to be incurred in the future, the Company used a discount rate of 4.7%, which is the 20 year Treasury Bill rate at the end of the fiscal third quarter and represents the risk free rate for the 20 years those costs are expected to be paid. The Company believes that the application of this rate produces a result which approximates the amount that would hypothetically satisfy the Company’s liability in an arms-length transaction. Based on the above, the Company estimates the current range of undiscounted cost for remediation and monitoring to be between $5.4 million and $9.4 million with an undiscounted amount of $6.2 million to be most probable. Current estimates for expenditures, net of recoveries pursuant to cost sharing agreements, for each of the five succeeding fiscal years are $0.5 million, $1.6 million, $0.9 million, $0.8 million, and $0.8 million respectively, with $1.6 million payable thereafter. Of the total undiscounted costs, the Company estimates that approximately 50% will relate to remediation activities and that 50% will be associated with monitoring activities.

The Company estimates that the potential cost for implementing corrective action at nine of these sites will not exceed $0.5 million in the aggregate, payable over the next several years, and has provided for the estimated costs, without discounting for present value, in the Company’s accrual for environmental liabilities. In the first quarter of fiscal 2003, the Company entered into a consent order for a former facility in New York, which is currently subject to a contract for sale, pursuant to which the Company has developed a remediation plan for review and approval by the New York Department of Environmental Conservation. Based upon the characterization work performed to date, the Company has accrued estimated costs of approximately $1.7 million without discounting for present value. The amounts and timing of such payments are subject to the approved remediation plan.

The environmental cleanup plan the Company presented during the fourth quarter of fiscal 2000 for a portion of a site in Pennsylvania which continues to be owned by the Company, although the related business has been sold, was approved during the third quarter of fiscal 2004. This plan was submitted pursuant to the Consent Order and Agreement with the Pennsylvania Department of Environmental Protection (“PaDEP”) concluded in fiscal 1999. Pursuant to the Consent Order, upon its execution the Company paid $0.2 million for past costs, future oversight expenses and in full settlement of claims made by PaDEP related to the environmental remediation of the site with

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an additional $0.2 million paid in fiscal 2001. A second Consent Order was concluded with PaDEP in the third quarter of fiscal 2001 for another portion of the site, and a third Consent Order for the remainder of the site was concluded in the third quarter of fiscal 2003 (the “2003 Consent Order”). An environmental cleanup plan for the portion of the site covered by the 2003 Consent Order was presented during the second quarter of fiscal 2004. The Company is also administering an agreed settlement with the Federal government, concluded in the first quarter of fiscal 2000, under which the government pays 50% of the direct and indirect environmental response costs associated with a portion of the site. The Company also concluded an agreement in the first quarter of fiscal 2006, under which the Federal government paid an amount equal to 45% of the estimated environmental response costs associated with another portion of the site. No future payments are due under this second agreement. At December 30, 2007, the cleanup reserve was $2.3 million based on the net present value of future expected cleanup and monitoring costs and is net of expected reimbursement by the Federal Government of $0.5 million. The aggregate undiscounted amount associated with the estimated environmental response costs for the site in Pennsylvania is $3.3 million. The Company expects that remediation at this site, which is subject to the oversight of the Pennsylvania authorities, will not be completed for several years, and that monitoring costs, although expected to be incurred over twenty years, could extend for up to thirty years.

In addition, the Company has been named as a potentially responsible party in four environmental proceedings pending in several states in which it is alleged that the Company is a generator of waste that was sent to landfills and other treatment facilities. Such properties generally relate to businesses which have been sold or discontinued. The Company estimates that expected future costs, and the estimated proportional share of remedial work to be performed associated with these proceedings, will not exceed $0.1 million without discounting for present value and has provided for these estimated costs in the Company’s accrual for environmental liabilities.

Litigation. The Company is also engaged in various other legal proceedings incidental to its business. Management is of the opinion that, after taking into consideration information furnished by our counsel, these matters will not have a material effect on the consolidated financial position, results of operations, or cash flows of the Company in future periods.

NOTE 11. Segment, Geographic Location and Customer Information

The Company has three operating segments which it aggregates into one reportable segment; sophisticated lifting equipment for specialty aerospace and defense applications. The operating segments are Hoist and Winch, Cargo Hooks, and Weapons Handling. The nature of the production process (assemble, inspect, and test) is similar for each operating segment, as are the customers and the methods of distribution for the products.

Revenues from the three operating segments for the three and nine month periods ended December 30, 2007 and December 31, 2006 are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	December 30,		December 31,		December 30,		December 31,
	2007		2006		2007		2006
Hoist and Winch	$	12,608	$	12,511	$	36,638	$	37,283
Cargo Hooks		2,774		4,467		9,265		11,814
Weapons Handling		2,522		1,422		4,949		2,299
Other Sales		157		494		704		1,422
Total	$	18,061	$	18,894	$	51,556	$	52,818

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During the three month period ended December 30, 2007, 28%, 19% and 13% of net sales were made to three major customers, respectively. During the nine month period ended December 30, 2007, net sales to one customer accounted for 24% of total revenues and another customer accounted for 21% of total revenues. During the three and nine month periods ended December 31, 2006, net sales to one customer accounted for 38% and 34%, respectively, of total revenues and another accounted for 22% and 22%, respectively, of total revenues.

Net sales below show the geographic location of customers (in thousands):

	Three Months Ended				Nine Months Ended
	December 30,		December 31,		December 30,		December 31,
	2007		2006		2007		2006
Location:
United States	$	9,967	$	11,955	$	27,661	$	29,817
England		1,410		3,121		3,110		5,644
Italy		2,031		1,389		6,955		7,115
Other European Countries		986		880		5,237		4,371
Pacific and Far East		1,296		538		2,810		2,831
Other non-United States		2,371		1,011		5,783		3,040
Total	$	18,061	$	18,894	$	51,556	$	52,818

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

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934:

Certain of the statements contained in the body of this Quarterly Report on Form 10-Q (“Report”) are forward-looking statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In the preparation of this Report, where such forward-looking statements appear, the Company has sought to accompany such statements with meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those described in the forward-looking statements.

Forward Looking Statements

Certain statements in this Report constitute “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Acts”). Any statements contained herein that are not statements of historical fact are deemed to be forward-looking statements.

The forward-looking statements in this Report are based on current beliefs, estimates, and assumptions concerning the operations, future results, and prospects of the Company. As actual operations and results may materially differ from those assumed in forward-looking statements, there is no assurance that forward-looking statements will prove to be accurate. Forward-looking statements are subject to the safe harbors created in the Acts.

Any number of factors could affect future operations and results, including, without limitation, closing on the contract for the sale of the Company’s Union, New Jersey facility, competition from other companies; changes in applicable laws, rules, and regulations affecting the Company in the locations in which it conducts its business; the availability of equity and/or debt financing in the amounts and on the terms necessary to support the Company’s

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future business; interest rate trends; order flow associated with the delay in enactment of the 2008 Federal Defense budget; determination by the Company to dispose of or acquire additional assets; general industry and economic conditions; events impacting the U.S. and world financial markets and economies; and those specific risks that are discussed or referenced elsewhere in this Report.

The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information or future events.

General

We design, develop, and manufacture sophisticated lifting equipment for specialty aerospace and defense applications. With over 50% of the global market, we have long been recognized as the world’s leading designer and supplier of performance-critical rescue hoists and cargo-hook systems. We also manufacture weapons-handling systems, cargo winches, and tie-down equipment. Our products are designed to be efficient and reliable in extreme operating conditions and are used to complete rescue operations and military insertion/extraction operations, move and transport cargo, and load weapons onto aircraft and ground-based launching systems. We have three operating segments which we aggregate into one reportable segment; sophisticated lifting equipment for specialty aerospace and defense applications. The operating segments are Hoist and Winch, Cargo Hooks, and Weapons Handling. The nature of the production process (assemble, inspect, and test) is similar for each operating segment, as are the customers and the methods of distribution for the products.

All references to years in the Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to the fiscal year ended on or ending on March 31 of the indicated year unless otherwise specified.

Results of Operations

Three Months Ended December 30, 2007 Compared with Three Months Ended December 31, 2006 (in thousands)

	Three Months Ended				Increase
	December 30,		December 31,		(decrease)
	2007		2006		$			%
New Equipment	$	11,026	$	8,318	$	2,708			32.6
Spare Parts		3,527		7,250		(3,723	)		(51.4	)
Overhaul and Repair		3,403		3,233		170			5.3
Engineering Services		105		93		12			12.9
Net Sales		18,061		18,894		(833	)		(4.4	)
Cost of Sales		9,919		10,079		(160	)		(1.6	)
Gross Profit		8,142		8,815		(673	)		(7.6	)
General, administrative and selling expenses		4,714		5,050		(336	)		(6.7	)
Interest expense		846		1,000		(154	)		(15.4	)
Net income	$	1,526	$	1,622	$	(96	)		(5.9	)

Net Sales. Sales of $18.1 million for the third quarter of fiscal 2008 declined slightly from sales of $18.9 million in the third quarter of fiscal 2007. In the third quarter of fiscal 2008, we continued to experience a shift in product mix whereby sales of new equipment accounted for 61% of total net sales for the quarter versus 44% for the third quarter of fiscal 2007. The overall $2.7 million increase in sales of new equipment for the third quarter of fiscal 2008 as compared to the same period last year was driven by $2.9 million in higher shipments in the hoist and winch operating segment and $1.4 million in the weapons handling operating segment. This increase was partially offset by a decline of $1.6 million of new equipment sales in the cargo hook operating segment. Shipments in the hoist and winch operating segment of overhaul and repair increased $0.4 million, but were partially offset by $0.2 million of decreased shipments in the cargo hook operating segment of overhaul and repair during the third quarter of fiscal 2008 as compared to the same period last year. Spare parts sales in the hoist and winch operating segment decreased

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$3.2 million for the third quarter of fiscal 2008 as compared to the same period last year as the demand for spare parts remained weak due primarily, we believe, to the delay in passage of the 2008 Federal Government Defense budget, formally known as the National Defense Authorization Act for Fiscal Year 2008, which was signed into law in late January 2008. The Act authorizes funding for the defense of the United States and its interests abroad, for military construction, and for national security-related energy programs. The decline in hoist and winch related spare part sales had the biggest impact on the shift in our product sales mix during the fiscal third quarter.

Cost of Sales. The three operating segments of hoist and winch, cargo hooks, and weapons handling equipment have generated sales in three separate components: new equipment, overhaul and repair, and spare parts, each of which has progressively better margins. Accordingly, the cost of sales as a percent of sales will be affected by the weighting of these components to the total sales volume. In the third quarter of fiscal 2008, as compared to the third quarter of fiscal 2007, the cost of sales as a percent of sales increased approximately 1.6%, due to the higher levels of new equipment activity in the hoist and winch and weapons handling operating segments.

Gross Profit. As discussed in the “Cost of Sales” section above, the three components of sales in each of the operating segments have margins reflective of the market. During the last four fiscal years, the gross profit margin on new equipment was generally in the range of 31% to 35%, overhaul and repair 27% to 37% and spare parts ranging from 64% to 68%. The relative balance, or mix, of this activity, in turn, will have an impact on gross profit and gross profit margins. The lower spare part sales in the third quarter of fiscal 2008, compared to the third quarter of fiscal 2007, resulted in a decrease in the overall gross margin of approximately 2%. Legislation authorizing appropriations under the 2008 Federal Government Defense budget became effective during the fourth quarter of fiscal 2008. Notwithstanding this recent development, the extended delay in certain appropriations associated with the Defense budget will present an obstacle to achieving better operating performance in the last quarter of fiscal 2008, especially in regard to gross margins due to spare part sales having significantly higher gross profit margins than sales of new equipment. While the demand for spare parts was lower in the third quarter of fiscal 2008 compared to the same period last year, our overall gross margin for the third quarter of fiscal 2008 was 45%, which was principally the result of better performance, in both cost and pricing, in the production of new equipment, spare parts and overhaul and repair sales.

General, administrative and selling expenses. The $0.3 million decrease in general, administrative and selling expenses for the third quarter of fiscal 2008, as compared to the third quarter of fiscal 2007, was mainly due to lower costs related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

Interest expense. Required principal payments and strong cash flow allowed us to reduce our Senior Credit Facility by approximately $6.0 million during the twelve month period ended December 30, 2007. This pay down of debt is reflected in the $0.2 million decrease in interest expense for third quarter of fiscal 2008, as compared to the third quarter of fiscal 2007.

Net Income. We reported net income of $1.5 million in the third quarter of fiscal 2008 versus net income of $1.6 million in the third quarter of fiscal 2007. This decrease in net income resulted from the reasons discussed above. In view of the order patterns discussed in this report, we continue to limit discretionary spending wherever prudent.

New orders. New orders received during the third quarter of fiscal 2008 totaled $19.1 million, as compared with $9.8 million in the third quarter of fiscal 2007. Orders for new equipment increased $1.3 million in the hoist and winch operating segment and remained essentially unchanged in the cargo hook and weapons handling operating segments in the third quarter of fiscal 2008 as compared to the same period in the prior fiscal year. New orders for overhaul and repair in the hoist and winch and cargo hook operating segments increased $0.6 million and $0.4 million, respectively, during the third quarter of fiscal 2008 as compared to the third quarter of fiscal 2007. Orders for spare parts in the hoist and winch and weapons handling operating segments increased $2.4 million and $0.6 million, respectively, but were partially offset by a $0.3 million decrease in orders for spare parts in the cargo hook operating segment during the third quarter of fiscal 2008 compared to the third quarter of fiscal 2007. The increase in new orders in the spare parts operating segment during the third quarter as compared to the same period last year was the result of a $4.2 million multi year spare parts support contract from Westland Helicopter for a support contract for the UK Ministry of Defense. Excluding the $4.2 million order from Westland Helicopter, the demand

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for spare parts remained weak during the third quarter of fiscal 2008 as reflected in the booking of new orders that totaled approximately $1.4 million which was $1.5 million less than new orders received in the third quarter of fiscal 2007. While we remain confident that the unrealized portion of the anticipated spare part sales will eventually be ordered, it is clear that much of the delayed order flow previously expected in fiscal 2008 will fall into fiscal 2009. The recovery of the shipping pattern to more historical trends has not yet occurred due, we believe, to the delayed approval of appropriations under the 2008 Federal Government Defense budget, which was authorized by legislation that became effective in late January 2008.

Backlog. Backlog at December 30, 2007 was $122.5 million, an increase of $3.3 million from the $119.2 million at March 31, 2007. The backlog at December 30, 2007 includes approximately $66.4 million relating to the Airbus A400M Military Transport Program which is scheduled to commence shipping in late calendar 2009 and continue through 2020. The product backlog varies substantially from time to time due to the size and timing of orders. We measure backlog by the amount of products or services that our customers have committed by contract to purchase from us as of a given date. Approximately $37.3 million of backlog at December 30, 2007 is scheduled for shipment during the next twelve months. The book-to-bill ratio is computed by dividing the new orders received during the period by the sales for the period. A book-to-bill ratio in excess of 1.0 is potentially indicative of continued overall growth in our sales. Our book to bill ratio for the third quarter of fiscal 2008 was 1.1 as compared to 0.5 for the third quarter of fiscal 2007. The increase in the book to bill ratio was directly related to the 94% higher order intake during the third quarter of fiscal 2008, as compared to the third quarter of fiscal 2007. Cancellations of purchase orders or reductions of product quantities in existing contracts, although seldom occurring, could substantially and materially reduce our backlog. Therefore, our backlog may not represent the actual amount of shipments or sales for any future period.

Nine Months Ended December 30, 2007 Compared with Nine Months Ended December 31, 2006 (in thousands)

	Nine Months Ended				Increase
	December 30,		December 31,		(decrease)
	2007		2006		$			%
New Equipment	$	29,037	$	24,021	$	5,016			20.9
Spare Parts		11,613		17,529		(5,916	)		(33.7	)
Overhaul and Repair		10,507		10,953		(446	)		(4.1	)
Engineering Services		399		315		84			26.7
Net Sales		51,556		52,818		(1,262	)		(2.4	)
Cost of Sales		29,763		29,404		359			1.2
Gross Profit		21,793		23,414		(1,621	)		(6.9	)
General, administrative and selling expenses		14,069		14,385		(316	)		(2.2	)
Interest expense		2,670		3,286		(616	)		(18.7	)
Loss on extinguishment of debt		—		1,331		(1,331	)		(100.0	)
Net income	$	2,968	$	2,563	$	405			15.8

Net Sales. Sales of $51.6 million for the first nine months of fiscal 2008 declined slightly from sales of $52.8 million in the first nine months of fiscal 2007. In the first nine months of fiscal 2008, we continued to experience a shift in product mix whereby sales of new equipment accounted for 56% of total net sales versus 45% for the first nine months of fiscal 2007. The $5.0 million increase in sales of new equipment for the nine month period ended December 30, 2007 as compared to the same period last year was driven by $3.9 million in higher shipments in the hoist and winch operating segment and a $3.3 million increase in the weapons handling operating segment. This increase was partially offset by a decline of $2.2 million of new equipment sales in the cargo hook operating segment. A decrease in overhaul and repair sales in the cargo hook operating segment of $0.7 million, which was offset slightly by an increase in sales in the hoist and winch operating segment of $0.2 million, accounted for the

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overall $0.5 million decline in overhaul and repair sales during the first nine months of fiscal 2008 as compared to the same period last year. During the first nine months of fiscal 2008 as compared to the first nine months of fiscal 2007, spare parts sales decreased approximately $5.9 million with shipments in the hoist and winch operating segment accounting for approximately $4.8 million of the decrease and lower shipments of spare parts in the weapons handling and cargo hook operating segments accounting for $0.7 million and $0.4 million, respectively. The demand for spare parts remained weak due primarily, we believe, to the delay in passage of the 2008 Federal Government Defense budget, which was authorized by legislation that became effective in late January 2008. The decline in hoist and winch-related spare part sales had the biggest impact on the shift in our product sales mix during the period.

Cost of Sales. The three operating segments of hoist and winch, cargo hooks, and weapons handling equipment have generated sales in three separate components: new equipment, overhaul and repair, and spare parts, each of which has progressively better margins. Accordingly, the cost of sales as a percent of sales will be affected by the weighting of these components to the total sales volume. In the first nine months of fiscal 2008, as compared to the first nine months of fiscal 2007, the cost of sales as a percent of sales increased approximately 2%, due to the higher level of new equipment activity in the hoist and winch and weapons handling operating segments.

Gross Profit. As discussed in the “Cost of Sales” section above, the three components of sales in each of the operating segments have margins reflective of the market. During the last four fiscal years, the gross profit margin on new equipment was generally in the range of 31% to 35%, overhaul and repair 27% to 37% and spare parts ranging from 64% to 68%. The balance or mix of this activity, in turn, will have an impact on gross profit and gross profit margins. The gross margin of 42% for the first nine months of fiscal 2008, as compared to 44% for the first nine months of fiscal 2007, reflects the shift in sales more heavily weighted toward new equipment. While we have had better performance, both in cost and pricing, in the production of new equipment, spare parts and overhaul and repair sales in the first nine months of fiscal 2008, the extended delay in certain appropriations associated with the 2008 Federal Government Defense budget, which was authorized by legislation that became effective in late January 2008, will present an obstacle to achieving better operating performance in the last quarter of fiscal 2008, especially in regard to gross margins due to spare part sales having significantly higher gross profit margins than sales of new equipment.

General, administrative and selling expenses. General, administrative and selling expenses for the first nine months of fiscal 2008 decreased approximately $0.3 million as compared to the first nine months of fiscal 2007, and were approximately $0.5 million less than our plan, reflecting measures we have taken to contain or reduce costs as discussed in the net income section below. General, administrative and selling expenses for the first nine months of fiscal 2008 include costs of approximately $0.3 million associated with a threatened proxy contest which was settled during second quarter of fiscal 2008.

Interest expense. Required principal payments and strong cash flow allowed us to reduce our Senior Credit Facility by approximately $6.0 million during the twelve month period ended December 30, 2007. This pay down of debt is reflected in the $0.6 million decrease in interest expense for the first nine months of fiscal 2008, as compared to the first nine months of fiscal 2007.

Loss on Extinguishment of Debt. In the first quarter of fiscal 2007, we refinanced and paid in full the former senior credit facility with a new five year, $50.0 million Senior Credit Facility consisting of a $10.0 million revolving credit facility, and two term loans of $20.0 million. As a result of this refinancing, we recorded a pretax charge of $1.3 million in the first quarter of fiscal 2007, consisting of $0.9 million for the write-off of unamortized debt issue costs and $0.4 million for the payment of prepayment premiums.

Net Income. We reported net income of $3.0 million for the first nine months of fiscal 2008 versus net income of $2.6 million for the first nine months of fiscal 2007 which included a pretax charge of $1.3 million related to the refinancing of the Company’s debt. This increase in net income resulted from the reasons discussed above. In response to the order patterns mentioned below, in the beginning of the second quarter of fiscal 2008, we initiated certain cost cutting measures in an effort to improve operating results for the remainder of fiscal 2008. These measures involved a net reduction in our headcount of 14 people or about 7% of our work force. The personnel

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reductions were carefully considered and we feel that such a move will not inhibit our ability to meet the expected volume in the remainder of the fiscal year. We are also limiting discretionary spending wherever prudent.

New orders. New orders received during the first nine months of fiscal 2008 totaled $54.8 million compared to $83.1 million for the same period in fiscal 2007. New orders in the prior period included $21.5 million of orders for new equipment in the hoist and winch operating segment related to the Airbus A400M Military Transport Program, which is scheduled to commence shipping in late calendar year 2009 and continue through 2020. Excluding the new orders from Airbus, orders for new equipment in the hoist and winch operating segment increased approximately $5.4 million in the first nine months of fiscal 2008 as compared to the first nine months of fiscal 2007. This increase was offset by a decline in orders for new equipment in the cargo hook and weapons handling operating segments of approximately $3.8 million and $1.7 million, respectively. New orders for overhaul and repair decreased approximately $5.5 million in the first nine months of fiscal 2008 as compared to the same period last year with $4.5 million due to decreased orders in the hoist and winch operating segment and $1.0 million due to decreased orders in the cargo hook operating segment. During the first nine months of fiscal 2008 as compared to the same prior year period, orders for spare parts in the hoist and winch operating segment declined approximately $3.9 million and orders for spare parts in the cargo hook operating segment declined by approximately $1.2 million. The demand for spare parts remained weak during the first nine months of fiscal 2008 as reflected in the booking of new orders totaling approximately $12.5 million which was $4.6 million less than our plan of $17.2 million. While we remain confident that the unrealized portion of the spare part sales will eventually be ordered, it is clear that much of the delayed order flow previously expected in fiscal 2008 will fall into fiscal 2009. The recovery of the shipping pattern to more historical trends has not yet occurred due, we believe, to a delay associated with the approval of the 2008 Federal Government Defense budget, which was authorized by legislation that became effective in late January 2008.

Backlog. Backlog at December 30, 2007 was $122.5 million, an increase of $3.3 million from the $119.2 million at March 31, 2007. The backlog at December 30, 2007 includes approximately $66.4 million relating to the Airbus A400M Military Transport Program which is scheduled to commence shipping in late calendar 2009 and continue through 2020. The product backlog varies substantially from time to time due to the size and timing of orders. We measure backlog by the amount of products or services that our customers have committed by contract to purchase from us as of a given date. Approximately $37.3 million of backlog at December 30, 2007 is scheduled for shipment during the next twelve months. The book-to-bill ratio is computed by dividing the new orders received during the period by the sales for the period. A book-to-bill ratio in excess of 1.0 is potentially indicative of continued overall growth in our sales. Our book to bill ratio for the first nine months of fiscal 2008 was 1.1 as compared to 1.6 for the first nine months of fiscal 2007. The decrease in the book to bill ratio was directly related to the lower order intake during the first nine months of fiscal 2008, as compared to the first nine months of fiscal 2007, which included a new order received for the Airbus program for $21.5 million. Cancellations of purchase orders or reductions of product quantities in existing contracts, although seldom occurring, could substantially and materially reduce our backlog. Therefore, our backlog may not represent the actual amount of shipments or sales for any future period.

Liquidity and Capital Resources

Our principal sources of liquidity are cash on hand, cash generated from operations, and our Senior Credit Facility. Our liquidity requirements depend on a number of factors, many of which are beyond our control, including the timing of production under our contracts with the U.S. Government. Our working capital needs fluctuate between periods as a result of changes in program status and the timing of payments by program. Additionally, as our sales are generally made on the basis of individual purchase orders, our liquidity requirements vary based on the timing and volume of orders. Based on cash on hand, future cash expected to be generated from operations and the Senior Credit Facility, we expect to have sufficient cash to meet our requirements for at least the next twelve months.

Borrowings and availability under the revolving portion of our Senior Credit Facility (as defined below) at December 30, 2007 were $4.1 million and $5.9 million, respectively. The Senior Credit Facility prohibits the payment of dividends. We were in compliance with all of the covenants in the Senior Credit Facility at December 30, 2007.

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We have entered into an agreement of sale with an unaffiliated third-party to sell our headquarters facility and plant in Union, New Jersey. The sale is contingent upon the fulfillment of several conditions, including the completion of due diligence by the third-party and certain environmental requirements. If these contingencies are timely satisfied, it is anticipated that the transaction will close in our fiscal fourth quarter ending March 31, 2008. The agreement of sale contains no financing contingency. The contracted sales price for the facility is $10,500,000 and the agreement of sale includes a provision that we can lease the facility for up to two years after closing, pending our relocation to a new site, yet to be selected, that will be better suited to our current and expected needs. The lenders under the Senior Credit Facility have consented to the sale transaction.

Our common stock is listed on the American Stock Exchange (“AMEX”) under the trading symbol BZC.

Working Capital

Our working capital at December 30, 2007 was $25.3 million, as compared to $23.1 million at March 31, 2007. The ratio of current assets to current liabilities was 2.4 to 1 at December 30, 2007 and 2.1 to 1 at March 31, 2007.

Working capital changes during the first nine months of fiscal 2008 resulted from a decrease in accounts receivable of $2.9 million, an increase in inventory of $1.7 million, a decrease in accounts payable of $1.3 million, and a decrease in accrued compensation of $0.8 million. In addition, the revolving portion of our Senior Credit Facility increased $0.8 million, and the current portion of the term loans under the Senior Credit Facility decreased $2.0 million.

The decrease in accounts receivable reflects collection of amounts due from customers related to the heavy shipments that occurred in the fourth quarter of fiscal 2007 as well as the improved timing of collections from our customers. The increase in inventory is due to parts being purchased in advance during the first half of fiscal 2008, as we transitioned to a product mix more heavily weighted to new equipment sales which require longer lead time. The decrease in accounts payable is reflective of our current shipment pattern , as we begin to work down the inventory levels that were previously built up to accommodate the product sales mix as discussed above. The decrease in accrued compensation was primarily due to incentive payments made in the first quarter of fiscal 2008. The increase in the revolving portion of the Senior Credit Facility reflects the working capital demands of the Company. The decrease in the current portion of our Senior Credit Facility is due to the mandatory prepayment for fiscal 2007 of approximately $2.0 million, as discussed below, which was paid in July 2007.

The number of days that sales were outstanding in accounts receivable decreased to 42.7 days at December 30, 2007 from 52.2 days at March 31, 2007. The decrease in days was attributable to higher shipments made in March of fiscal 2007 as compared to December of fiscal 2008, as well as improved timing of collections from our customers. Inventory turnover decreased to 1.8 turns at December 30, 2007 versus 2.0 turns at December 31, 2006. The decrease in inventory turns is reflective of the higher inventory levels due to the shift in product mix discussed above.

Capital Expenditures

Cash paid for our additions to property, plant and equipment were approximately $0.7 million for the first nine months of fiscal 2008, compared to $1.0 million for the first nine months of fiscal 2007. Projects budgeted in fiscal 2008 total approximately $1.4 million.

Senior Credit Facility

Senior Credit Facility — On May 1, 2006, we refinanced and paid in full our former senior credit facility with a new five year $50.0 million Senior Credit Facility consisting of a $10.0 million revolving credit facility, and two term loans of $20.0 million each, which had a blended interest rate of 8.4% at December 30, 2007. As a result of this

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refinancing, in the first quarter of fiscal 2007, the Company recorded a pre-tax charge of $1.3 million consisting of $0.9 million for the write-off of unamortized debt issue costs and $0.4 million for the payment of pre-payment premiums. The term loans require monthly principal payments of $0.2 million, an additional quarterly principal payment of $50,000, and a mandatory prepayment for fiscal 2007, of approximately $2.0 million, as discussed below, which was paid in July 2007. The remaining payments under the term loans are due at maturity. Accordingly, the balance sheet reflects $3.1 million of current maturities due under term loans of the Senior Credit Facility as of December 30, 2007.

The Senior Credit Facility contains certain mandatory prepayment provisions in the event of extraordinary income, the issuance of equity in the Company or items which are linked to cash flow. The cash flow provision requires prepayment of the Senior Credit Facility in an amount equal to 50% of earnings before interest, taxes, depreciation and amortization (EBITDA) less principal payments, interest payments, tax payments, capital expenditures and, with respect to our fiscal year 2007, certain environmental remediation payments and the final payment to the U.S. Government pursuant to a settlement with the government concluded September 8, 2005. Each such prepayment is applied first to the outstanding principal of one of the term loans up to a certain recapture amount, then ratably to the outstanding principal of all of the term loans until paid in full, and then to the outstanding principal of the revolver in the credit facility. A mandatory prepayment for fiscal 2007 of approximately $2.0 million was required under this provision and was paid in July 2007. The current estimated mandatory prepayment for fiscal 2008 is approximately $2.4 million. We expect to have sufficient borrowing capacity under the revolving portion of our Senior Credit Facility to make this payment.

The Senior Credit Facility prohibits the payment of dividends. The Senior Credit Facility is secured by all of our assets. At December 30, 2007 we were in compliance with the provisions of the Senior Credit Facility. At December 30, 2007, there was $4.1 million in outstanding borrowings and $5.9 million in availability, under the revolving portion of the Senior Credit Facility.

Tax Benefits from Net Operating Losses

At December 30, 2007, we had federal and state net operating loss carryforwards, or NOLs, of approximately $44.7 million and $83.2 million, respectively, which are due to expire in fiscal 2022 through fiscal 2025 and fiscal 2008 through fiscal 2012, respectively. The state NOL due to expire in fiscal 2009 is approximately $49.4 million against which we have a valuation allowance. The NOLs may be used to offset future taxable income through their respective expiration dates and thereby reduce or eliminate our federal and state income taxes otherwise payable. A corresponding valuation allowance of $5.9 million has been established relating to the state NOLs, as it is management’s belief that it is more likely than not that a portion of the state NOLs are not realizable. Failure to achieve sufficient taxable income to utilize the NOLs would require the recording of an additional valuation allowance against the deferred tax assets.

The Internal Revenue Code of 1986, as amended (the “Code”) imposes significant limitations on the utilization of NOLs in the event of an “ownership change” as defined under section 382 of the Code (the “Section 382 Limitation”). The Section 382 Limitation is an annual limitation on the amount of pre-ownership NOLs that a corporation may use to offset its post-ownership change income. The Section 382 Limitation is calculated by multiplying the value of a corporation’s stock immediately before an ownership change by the long-term tax-exempt interest rate (as published by the Internal Revenue Service). Generally, an ownership change occurs with respect to a corporation if the aggregate increase in the percentage of stock ownership by value of that corporation by one or more 5% shareholders (including specified groups of shareholders who in the aggregate own at least 5% of that corporation’s stock) exceeds 50 percentage points over a three-year testing period. We believe that we have not gone through an ownership change that would cause our NOLs to be subject to the Section 382 Limitation.

If we do not generate adequate taxable earnings, some or all of the deferred tax assets represented by our NOLs may not be realized. Additionally, changes to the federal and state income tax laws also could impact our ability to use the NOLs. In such cases, we may need to revise the valuation allowance established related to deferred tax assets for state purposes.

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Summary Disclosure About Contractual Obligations and Commercial Commitments

The following table reflects a summary of our contractual cash obligations for the next several fiscal years as of December 30, 2007 (in thousands):

	Payments Due By Period
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Debt principal repayments (a)	$	33,511	$	3,057	$	6,114	$	24,340	$	—
Estimated interest payments on long-term debt (b)		7,252		2,453		4,199		600		—
Operating leases		425		146		242		37		—
Total	$	41,188	$	5,656	$	10,555	$	24,977	$	—

(a)	Obligations for long-term debt reflect the requirements of the Term Loans under the Senior Credit Facility See Note 7 of Notes to Unaudited Consolidated Financial Statements included elsewhere in this Report.
(b)	Estimated interest payments on long-term debt reflect the scheduled interest payments of the Term Loans under the Senior Credit Facility and assume an effective weighted average interest rate of 7.6%, the Company’s estimated blended interest rate.

Inflation

While neither inflation nor deflation has had, and we do not expect it to have, a material impact upon operating results, we cannot be certain that our business will not be affected by inflation or deflation in the future.

Environmental Matters

We evaluate the exposure to environmental liabilities using a financial risk assessment methodology, including a system of internal environmental audits and tests, and outside consultants. This risk assessment includes the identification of risk events/issues, including potential environmental contamination at Company and off-site facilities; characterizes risk issues in terms of likelihood, consequences and costs, including the year(s) when these costs could be incurred; analyzes risks using statistical techniques; and, constructs risk cost profiles for each site. Remediation cost estimates are prepared from this analysis and are taken into consideration in developing project budgets from third party contractors. Although we take great care in the development of these risk assessments and future cost estimates, the actual amount of the remediation costs may be different from those estimated as a result of a number of factors including: changes to government regulations or laws; changes in local construction costs and the availability of personnel and materials; unforeseen remediation requirements that are not apparent until the work actually commences; and other similar uncertainties. We do not include any unasserted claims that we might have against others in determining the liability for such costs, and, except as noted with regard to specific cost sharing arrangements, have no such arrangements, nor have we taken into consideration any future claims against insurance carriers that we might have in determining our environmental liabilities. In those situations where we are considered a de minimis participant in a remediation claim, the failure of the larger participants to meet their obligations could result in an increase in our liability with regard to such a site.

We continue to participate in environmental assessments and remediation work at eleven locations, including certain former facilities. Due to the nature of environmental remediation and monitoring work, such activities can extend for up to thirty years, depending upon the nature of the work, the substances involved, and the regulatory requirements associated with each site. In calculating the net present value (where appropriate) of those costs expected to be incurred in the future, we used a discount rate of 4.7%, which is the 20 year Treasury Bill rate at the end of the fiscal third quarter and represents the risk free rate for the 20 years those costs are expected to be paid. We believe that the application of this rate produces a result which approximates the amount that would hypothetically satisfy our liability in an arms-length transaction. Based on the above, we estimate the current range

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of undiscounted cost for remediation and monitoring to be between $5.4 million and $9.4 million with an undiscounted amount of $6.2 million to be most probable. Current estimates for expenditures, net of recoveries pursuant to cost sharing agreements, for each of the five succeeding fiscal years are $0.5 million, $1.6 million, $0.9 million, $0.8 million, and $0.8 million respectively, with $1.6 million payable thereafter. Of the total undiscounted costs, we estimate that approximately 50% will relate to remediation activities and that 50% will be associated with monitoring activities.

We estimate that the potential cost for implementing corrective action at nine of these sites will not exceed $0.5 million in the aggregate, payable over the next several years, and have provided for the estimated costs, without discounting for present value, in our accrual for environmental liabilities. In the first quarter of fiscal 2003, we entered into a consent order for a former facility in New York, which is currently subject to a contract for sale, pursuant to which we have developed a remediation plan for review and approval by the New York Department of Environmental Conservation. Based upon the characterization work performed to date, we have accrued estimated costs of approximately $1.7 million without discounting for present value. The amounts and timing of such payments are subject to the approved remediation plan.

The environmental cleanup plan we presented during the fourth quarter of fiscal 2000 for a portion of a site in Pennsylvania which continues to be owned, although the related business has been sold, was approved during the third quarter of fiscal 2004. This plan was submitted pursuant to the Consent Order and Agreement with the Pennsylvania Department of Environmental Protection (“PaDEP”) concluded in fiscal 1999. Pursuant to the Consent Order, upon its execution we paid $0.2 million for past costs, future oversight expenses and in full settlement of claims made by PaDEP related to the environmental remediation of the site with an additional $0.2 million paid in fiscal 2001. A second Consent Order was concluded with PaDEP in the third quarter of fiscal 2001 for another portion of the site, and a third Consent Order for the remainder of the site was concluded in the third quarter of fiscal 2003 (the “2003 Consent Order”). An environmental cleanup plan for the portion of the site covered by the 2003 Consent Order was presented during the second quarter of fiscal 2004. We are also administering an agreed settlement with the Federal government, concluded in the first quarter of fiscal 2000, under which the government pays 50% of the direct and indirect environmental response costs associated with a portion of the site. We also concluded an agreement in the first quarter of fiscal 2006, under which the Federal government paid an amount equal to 45% of the estimated environmental response costs associated with another portion of the site. No future payments are due under this second agreement. At December 30, 2007, the cleanup reserve was $2.3 million based on the net present value of future expected cleanup and monitoring costs and is net of expected reimbursement by the Federal Government of $0.5 million. The aggregate undiscounted amount associated with the estimated environmental response costs for the site in Pennsylvania is $3.3 million. We expect that remediation at this site, which is subject to the oversight of the Pennsylvania authorities, will not be completed for several years, and that monitoring costs, although expected to be incurred over twenty years, could extend for up to thirty years.

In addition, we have been named as a potentially responsible party in four environmental proceedings pending in several states in which it is alleged that we are a generator of waste that was sent to landfills and other treatment facilities. Such properties generally relate to businesses which have been sold or discontinued. We estimate that expected future costs, and the estimated proportional share of remedial work to be performed associated with these proceedings, will not exceed $0.1 million without discounting for present value and we have provided for these estimated costs in our accrual for environmental liabilities.

Litigation

We are also engaged in various other legal proceedings incidental to our business. It is our opinion that, after taking into consideration information furnished by our counsel, these matters will not have a material effect on our consolidated financial position, results of operations, or cash flows in future periods.

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Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, research and development assets and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income taxes. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The adoption of the provisions of SFAS 141R is not expected to have a material effect on our financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, An Amendment of ARB No. 51.” SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS 141R. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The statement shall be applied prospectively as of the beginning of the fiscal year in which the statement is initially adopted. The adoption of the provisions of SFAS 160 is not expected to have a material effect on our financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, providing companies with an option to report selected financial assets and liabilities at fair value. This standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The standard requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the Company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for us on April 1, 2008. The adoption of the provisions of SFAS 159 is not expected to have a material effect on our financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R).” SFAS 158 requires companies to recognize a net asset for a defined benefit postretirement pension or healthcare plan’s over funded status or a net liability for a plan’s under funded status in its balance sheet. SFAS 158 also requires companies to recognize changes in the funded status of a defined benefit postretirement plan in accumulated other comprehensive income in the year in which the changes occur. SFAS 158 was adopted on March 31, 2007. Additionally, SFAS 158 requires companies to measure plan assets and benefit obligations as of the date of our fiscal year end balance sheet, which is consistent with our current practice. This requirement is effective for fiscal years ending after December 15, 2008. The adoption of SFAS 158 is not expected to have a material effect on our financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 is not expected to have a material effect on our financial position, results of operations or cash flows.

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In July 2006, the FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of SFAS 109”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes.” FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, FIN No. 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized as an adjustment to the opening balance of retained earnings (or other appropriate components of equity) for that fiscal year. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 effective April 1, 2007. See Note 6 of Notes to Unaudited Consolidated Financial Statements included elsewhere in this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various market risks, primarily changes in interest rates associated with the Senior Credit Facility. At December 30, 2007, approximately $37.6 million of the Senior Credit Facility was tied to LIBOR and, as such, a 1% increase or decrease will have the effect of increasing or decreasing annual interest expense by approximately $0.4 million based on the amount outstanding under the facility at December 30, 2007.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of December 30, 2007, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during the first nine months of the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are engaged in various legal proceedings incidental to our business. It is the opinion of management that, after taking into consideration information furnished by our counsel, these matters will not have a material effect on our consolidated financial position, results of operations, or cash flows in future periods.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2007, as amended,

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as filed with the Securities and Exchange Commission, and incorporated herein by reference, which factors could materially affect our business, financial condition, financial results or future performance.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Senior Credit Facility described in Part I above prohibits the payment of dividends.

Item 6. Exhibits

10.1	Waiver Under Amended and Restated Credit Agreement dated as of October 17, 2007 by and among the Company, the lenders listed on the signatory pages thereof, Wells Fargo Foothill, Inc., as the co-lead arranger and administrative agent for such lenders and AC Finance LLC, as co-lead arranger.
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

	BREEZE-EASTERN CORPORATION (Registrant)
Dated: February 6, 2008	By:	/s/ Joseph F. Spanier
		Joseph F. Spanier, Executive Vice President, Chief Financial Officer and Treasurer *

* On behalf of the Registrant and as Principal Financial and Accounting Officer.

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EX-10.1

Execution Copy

WAIVER UNDER
CREDIT AGREEMENT

     THIS WAIVER UNDER CREDIT AGREEMENT (this “Waiver”) is made and entered into as of October 17, 2007, by and among Breeze-Eastern Corporation, a Delaware corporation (formerly known as TransTechnology Corporation, “Borrower”), the lenders listed on the signatory pages hereof (the “Lenders”), and Wells Fargo Foothill, Inc., a California corporation, as the arranger and administrative agent for the Lenders (“Administrative Agent”), and AC Finance LLC as co-lead arranger (“Co-Lead Arranger”).

WITNESSETH:

     WHEREAS, Borrower, the Lenders, Administrative Agent, and Co-Lead Arranger are parties to that certain Amended and Restated Credit Agreement, dated as of May 1, 2006 (as the same may be amended, restated, supplemented or otherwise modified from time to time, including all schedules thereto, the “Credit Agreement”);

     WHEREAS, Borrower desires to enter into that certain Contract No. DP3/ between The General Headquarters (GHQ) of the United Arab Emirates Armed Forces and Borrower (the “Contract”), attached as Exhibit A hereto;

     WHEREAS, should the Borrower execute the Contract, Borrower would be required to enter into certain down payment guarantees (the “Guarantees”) and performance/warranty bonds (the “Bonds”), the aggregate amount of Indebtedness in respect of which would not exceed $707,787.20 (such Guarantees and the Bonds are to be agreed in substantially the same form as Annex 4 and Annex 5, respectively, included in Exhibit A hereto);

     WHEREAS, absent a waiver from the Required Lenders, the delivery of the Guarantees and the Bonds would cause an Event of Default under Section 7.2(a) of the Credit Agreement (the “Indebtedness Default”) to occur;

     NOW, THEREFORE, in consideration of the agreements and provisions herein contained, the parties hereto do hereby agree as follows:

Section 1. Definitions. Any capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement.

Section 2. Waiver. Subject to the terms and conditions set forth herein, Administrative Agent and Required Lenders hereby agree to waive the Indebtedness Default so long as the aggregate amount of Indebtedness in respect of the Guarantees and the Bonds does not exceed $900,000.00 in the aggregate.

Section 3. Representations and Warranties. In order to induce Administrative Agent and the Required Lenders to enter into this Waiver, Borrower hereby represents and warrants that:

          3.01 No Default. At and as of the Effective Date (as defined in Section 4), after giving effect to this Waiver, no Default or Event of Default exists.

          3.02 Representations and Warranties True and Correct. At and as of the Effective Date, and both prior to and after giving effect to this Waiver, each of the representations and warranties contained in the Credit Agreement and the other Loan Documents is true and correct as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date).

          3.03 Corporate Power, Etc. Borrower (a) has all requisite corporate power and authority to execute and deliver this Waiver and to consummate the transactions contemplated hereby and (b) has taken all action, corporate or otherwise, necessary to authorize the execution and delivery of this Waiver and the consummation of the transactions contemplated hereby.

          3.04 No Conflict. The execution, delivery and performance by Borrower of this Waiver will not (a) violate any provision of federal, state, or local law or regulation applicable to Borrower, the Governing Documents of Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on Borrower, (b) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Borrower, (c) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (d) require any unobtained approval of Borrower’s interestholders or any unobtained approval or consent of any Person under any material contractual obligation of Borrower.

          3.05 Binding Effect. This Waiver has been duly executed and delivered by Borrower and constitutes the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, relating to or affecting the enforcement of creditors’ rights generally, and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 4. Conditions. This Waiver shall be effective as of October 17, 2007 (the “Effective Date”) upon the fulfillment, in a manner satisfactory to Administrative Agent of all of the following conditions precedent set forth in this Section 4:

          4.01 Execution of the Waiver. Borrower, Administrative Agent and the Required Lenders shall have executed an original counterpart of this Waiver and shall have delivered (including by way of facsimile or other electronic transmission) the same to Administrative Agent.

2

          4.02 Delivery of Documents. Administrative Agent shall have received a fully executed copy of all other such instruments, documents and agreements as Administrative Agent may reasonably request, in form and substance reasonably satisfactory to Administrative Agent.

          4.03 Representations and Warranties. As of the Effective Date, the representations and warranties set forth in Section 3 hereof shall be true and correct.

          4.04 Compliance with Terms. Borrower shall have complied in all respects with the terms hereof and of any other agreement, document, instrument or other writing to be delivered by Borrower in connection herewith.

Section 5. Miscellaneous.

          5.01 Continuing Effect. Except as specifically provided herein, the Credit Agreement and the other Loan Documents shall remain in full force and effect in accordance with their respective terms and are hereby ratified and confirmed in all respects.

          5.02 No Waiver. This Waiver is limited as specified and the execution, delivery and effectiveness of this Waiver shall not operate as a modification, acceptance or waiver of any provision of the Credit Agreement or any other Loan Document, except as specifically set forth herein.

          5.03 Governing Law. THIS WAIVER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

          5.04 Severability. The provisions of this Waiver are severable, and if any clause or provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision in this Waiver in any jurisdiction.

          5.05 Counterparts. This Waiver may be executed in any number of counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with Borrower, Administrative Agent and each Lender.

          5.06 Headings. Section headings in this Waiver are included herein for convenience of reference only and shall not constitute a part of this Waiver for any other purpose.

          5.07 Binding Effect; Assignment. This Waiver shall be binding upon and inure to the benefit of Borrower, Administrative Agent, Co-Lead Arranger and the Lenders and their respective successors and assigns.

          5.08 Expenses. Borrower agrees to pay Administrative Agent upon demand for all reasonable expenses, including reasonable fees of attorneys and paralegals for Administrative Agent (who may be employees of Administrative Agent), incurred by

3

Administrative Agent in connection with the preparation, negotiation and execution of this Waiver and any document required to be furnished herewith.

[Signature pages follow]

4

     IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be executed by their respective officers thereunto duly authorized, as of the date first above written.

BREEZE-EASTERN CORPORATION, as Borrower
By:	/s/ JOSEPH F. SPANIER
	Name:	JOSEPH F. SPANIER
	Title:	EXEC. VP, CFO + TREASURER
WELLS FARGO FOOTHILL, INC., as Administrative Agent and Lender
By:	/s/ Peter Schuebler
	Name:	Peter Schuebler
	Title:	Vice President
MAPS CLO FUND I, LLC, as Lender By: Callidus Capital Management, LLC, its Collateral Manager
By:	/s/ PETER R. BENNITT
	Name:	PETER R. BENNITT
	Title:	PRINCIPAL
MAPS CLO FUND II, LTD., as Lender By: Callidus Capital Management, LLC, its Collateral Manager
By:	/s/ PETER R. BENNITT
	Name:	PETER R. BENNITT
	Title:	PRINCIPAL

[SIGNATURE PAGE TO OCTOBER 2007 WAIVER]

AC FINANCE LLC, as Co-Lead Arranger
By:	/s/ Joseph Taylor
	Name:	Joseph Taylor
	Title:	Managing Director
ALLIED CAPITAL SENIOR DEBT FUNDING 2007-1, as Lender By: A.C. Corporation, Its Collateral Manager
By:	/s/ Eric Groberg
	Name:	Eric Groberg
	Title:	Managing Director

[SIGNATURE PAGE TO OCTOBER 2007 WAIVER]

EXHIBIT A

[See attached]

CONTRACT No. DP3/

BETWEEN

THE GENERAL HEADQUARTERS (GHQ) OF THE
UNITED ARAB EMIRATES ARMED FORCES

AND

Breeze-Eastern Corporation

DP3/ 1

TABLE OF CONTENTS

TITLE	PAGE
TABLE OF CONTENTS		2
ARTICLE 1 —GENERAL		6
ARTICLE 2 — ORIGIN		6
ARTICLE 3 — DEFINITIONS		6
ARTICLE 4 — SCOPE		7
ARTICLE 5 — PRICES		7
ARTICLE 6 — TERMS AND MEANS OF PAYMENT		8
ARTICLE 7 — OPTION TO PURCHASE		10
ARTICLE 8 — DELIVERY		11
ARTICLE 9 — TITLE & RISK OF LOSS		11
ARTICLE 10 — PENALTIES FOR LATE DELIVERY		11
ARTICLE 11 — REJECTED LINE ITEMS		12
ARTICLE 12 — FORCE MAJEURE		12
ARTICLE 13 — OBLIGATIONS & RIGHTS		12
ARTICLE 14 — WARRANTY		13
ARTICLE 15 — MARKING & PACKING		13
ARTICLE 16 — INSURANCE		14
ARTICLE 17 — CHANGES		14
ARTICLE 18 — PERFORMANCE/WARRANTY BONDS		14
ARTICLE 19 — TERMINATION OF CONTRACT		15
ARTICLE 20 — TAXES & DUTIES		15
ARTICLE 21 — SPARES		16
ARTICLE 22 — MANUALS & CATALOGUES		16
ARTICLE 23 — TRAINING		16
ARTICLE 24 — ASSIGNMENT & BENEFIT		16
ARTICLE 25 — INSPECTION		17
ARTICLE 26 — ACCEPTANCE		17
ARTICLE 27 — INDEMNITY		17
ARTICLE 28 — POLITICS		18

DP3/ 2

TITLE	PAGE
ARTICLE 29 — ENVIRONMENTAL CONDITIONS		18
ARTICLE 30 — MISCELLANEOUS		18
ARTICLE 31 — MODIFICATION		19
ARTICLE 32 — PRIOR AGREEMENT		19
ARTICLE 33 — MAINTENANCE		19
ARTICLE 34 — TECHNICAL ASSISTANCE		19
ARTICLE 35 — OBSERVATION OF RULES & REGULATIONS		19
ARTICLE 36 — EXPORT/IMPORT LAWS		20
ARTICLE 37 — ARBITRATION		20
ARTICLE 38 — ADDRESSES AND NOTICES		20
ARTICLE 39 — OFFSETS AGREEMENT		21
ARTICLE 40 — ENTIRE CONTRACT		22
ARTICLE 41 — COMING INTO FORCE		22

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ANNEXES

		Page
ANNEX 1	TECHNICAL ASSISTANCE	24
ANNEX 2	PRICE BREAKDOWN	25
ANNEX 3	DELIVERY SCHEDULE	26
ANNEX 4	SPECIMEN OF DOWN PAYMENT GUARANTEE	27
ANNEX 5	SPECIMEN OF PERFORMANCE/WARRANTY BOND	28
ANNEX 6	SPECIMEN FOR FACTORY ACCEPTANCE CERTIFICATE	29
ANNEX 7	SPECIMEN DELIVERY ACCEPTANCE CERTIFICATE	30
ANNEX 8	SPECIMEN FOR FINAL ACCEPTANCE CERIFICATE	31
ANNEX 9	WARRANTY	32
ANNEX 10	TRAINING	34
ANNEX 11	PRODUCT SPECIFICATION	36
ANNEX 12	SPECIMEN OF CERTIFICATE OF ORIGIN	37
ANNEX 13	Conditions of Storage and Conditioning Requirements Sheet	38

DP3/ 4

This CONTRACT is made by, and between:

The GHQ, UAE ARMED FORCES, ABU DHABI, UNITED ARAB EMIRATES,

Represented by Lt General Hamad Mohamed Thani AlRomaithi

Hereinafter called the BUYER (The First Party).

And

Breeze-Eastern Corporation
700 Liberty Ave
Union, NJ 07083
U.S.A.

Represented by Frank Wukovits

Vice President of Programs and Contracts

Hereinafter called the SELLER (The Second Party).

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PREAMBLE

Whereas the BUYER is desirous to purchase the following Products and Services from the SELLER for their aircrafts Puma SM and Chinook CH47C+ in accordance with the provisions of this Contract:

• A quantity of ten (10) dual rescue hoist systems (HS-29900) with spares, training and warranty according to this contract.

and

Whereas the SELLER undertakes to supply the Products and Services subject of this Contract according to the terms and conditions of this Contract and specifications agreed upon.

Therefore, the Parties agree as follows:

ARTICLE 1 — GENERAL

1.1 The Preamble aforementioned and all Annexes attached shall form an integral part of this Contract.

ARTICLE 2 — ORIGIN

2.1 All Products under this contract shall be of North America and EU Origin Only.

ARTICLE 3 — DEFINITIONS

3.1	Definitions and interpretation of the words used in this Contract are as follows and part of this Contract:-
3.1.1	“BUYER” shall mean:- The General Headquarters, UAE Armed Forces, Abu Dhabi.
3.1.2	“SELLER” shall mean:- Breeze-Eastern Corporation
3.1.3	“CONTRACT” shall mean:- The conditions of this Contract and its annexes incorporated hereto.
3.1.4	“Products” shall mean:- Dual rescue hoist systems, and spares as per Annex 2.
3.1.5	“Service” shall mean:- Support to the BUYER, Technical Assistance, training and warranty as detailed within Annexes 1, 9 and 10.
3.1.6	“Month” shall mean:- Calendar month.

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ARTICLE 4 — SCOPE

The SELLER hereby agrees to sell and deliver, and the BUYER hereby agrees to purchase and accept the Products their spare parts, manuals and related Services as set forth in this CONTRACT at the prices as set forth herein and according to the other terms and conditions of this CONTRACT.

ARTICLE 5 — PRICES

5.1	The Seller agrees to sell and deliver new and latest year manufactured Products and supply in accordance with specifications, design, quality and material as stipulated in the CONTRACT.
5.2	Total CONTRACT value is: $2,359,292 (US Dollars Two Million, Three Hundred Fifty Nine Thousand, Two Hundred and Ninety Two).
5.3	Currency of the CONTRACT is: United States Dollars (USD)
5.4	The prices of the Products to be delivered to the BUYER are DDU Abu Dhabi International Airport (Incoterms 2000) as specified under Annex 3.
5.5	The prices quoted in this CONTRACT are fixed, final and not subject to escalation.
5.6	Price breakdown of the Products and Services is specified under Annex (2). These prices includes the cost of:

5.6.1	Airworthy packing of goods.
5.6.2	Sellers costs for factory acceptance and inspection.
5.6.3	Sellers costs for final acceptance.
5.6.4	Export duties/license levied by other than the Buyer’s country.
5.6.5	Any charges or other duties / fees to be levied in the country manufacturing the Goods.
5.6.6	Seller’s reasonable support in accordance with the requirements of this Contract to Buyer to assist a 3rd party in the integration of the products.

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ARTICLE 6 — TERMS AND MEANS OF PAYMENT

6.1	PAYMENTS
	The schedule of payments will be the following:
6.1.1	DOWN PAYMENT
	A down payment of USD $471,858 (US Dollars Four hundred Seventy One Thousand, Eight hundred and Fifty Eight) representing Twenty percent (20%) of the total value of this CONTRACT, will be paid by the BUYER to the SELLER, according to article 6.2.2 of the CONTRACT.
6.1.2	DELIVERY PAYMENTS
	Delivery payment of USD $1,179,646 (US Dollars One Million, One Hundred Seventy Nine Thousand, Six Hundred and Forty Six) representing Fifty percent (50%) of the total value of the Products and Services specified in Annex 2 of this CONTRACT, will be paid by the BUYER to the SELLER according to article 6.2.4.1 of the CONTRACT.
6.1.3	FINAL PAYMENTS
	Final payments of USD $707,788 (US Dollars Seven Hundred Seven Thousand, Seven Hundred and Eighty Eight) representing Thirty percent (30%) of the total value of the Products and Services specified in Annex 2 of this CONTRACT, will be paid by the BUYER to the SELLER according to article 6.2.4.2 of the CONTRACT.
6.2	PROCEDURE OF PAYMENTS
6.2.1	BANK ACCOUNT

J.P. Morgan Chase & Co.
2000 Morris Avenue, Union, NJ 07083 U.S.A.
Account No. 323404243
ABA Routing No. 021000021
SWIFT Code: CHASU533

6.2.2	DOWN PAYMENT: TRANSFER OF FUNDS
6.2.2.1	Within thirty (30) days after receipt by the SELLER of notification of signature of the original CONTRACT by the BUYER, the SELLER will present to the BUYER the following documents for payment:

• One (1) original invoice together with seven (7) complete copies bearing CONTRACT number, of an amount of USD $471,858 (US Dollars Four hundred Seventy One Thousand, Eight hundred and Fifty Eight) corresponding to the Down Payment of the Contract value, as specified in Annex 2 of the CONTRACT.

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• Down Payment Guarantee Certificate, as per specimen in Annex 4.

6.2.2.2	The BUYER, shall within 30 days after receipt of the above mentioned documents, pay, by telegraphic transfer of funds, the said Down payment to the account of the SELLER as per Article 6.2.1 of the CONTRACT
6.2.3	DELIVERY AND FINAL PAYMENTS
6.2.3.1	The BUYER shall, within Sixty (60) days after receipt of the Performance Guarantee Certificate, open in favor of the SELLER, an irrevocable, transferable and allowing partial deliveries, Documentary Credit at SELLER’S bank stipulated in article 6.2.1 of the CONTRACT.
6.2.3.2	The amount of the documentary credit will be USD $1,887,434 (US Dollar One Million, Eighty Hundred Eighty Seven, Four Hundred and Thirty Four) representing eighty percent (80%) of the value of the CONTRACT as specified in Annex 2.
6.2.3.3	This documentary credit shall remain valid until the whole amount of the CONTRACT has been paid.
6.2.3.4	Should the documentary credit expire before completion of the payments of the Contract, the BUYER shall in due time extend the documentary credit at the request of the SELLER. All the related costs of the extension of the documentary credit shall be borne by the SELLER if he is in default to deliver as per the CONTRACT.
6.2.3.5	All fees, taxes, bank and other charges related to the documentary credit required to be paid in the BUYER’S country shall be borne by the BUYER.
6.2.3.6	All fees, taxes, bank and other charges related to the documentary credit required to be paid outside the BUYER’S country shall be borne by the SELLER
6.2.4	DOCUMENTS REQUIRED FOR PAYMENT
6.2.4.1	DOCUMENTS REQUIRED FOR PAYMENT OF DELIVERY PAYMENTS
6.2.4.1.1	Fifty percent (50%) of the value of each Products and Services as specified under Annex 2 for each delivery against the following documents:
a)	One original and seven (7) copies of commercial invoice, each bearing CONTRACT number, and documentary credit number.
b)	One (1) original and two (2) copies of Certificate of Conformity, countersigned by the SELLER’S Quality Assurance.

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c)	One (1) original and two (2) copies of Factory Acceptance Certificate as per specimen in Annex 6, signed by the SELLER’S representative.
d)	Bill of lading or Airway bill signifying delivery as per Article 8.
e)	One (1) original and two (2) copies of the packing list
f)	Delivery Acceptance Certificate as per specimen in Annex 7, countersigned by BUYER’S authorized representative.
6.2.4.2	DOCUMENTS REQUIRED FOR PAYMENT OF FINAL PAYMENTS
6.2.4.2.1	The final thirty percent (30%) of the value of each Products and Services as specified in Annex 2 against the following documents:
a)	One original and seven (7) copies of commercial invoice, each bearing CONTRACT number, and documentary credit number.
b)	One (1) original and two (2) copies of Final Acceptance Certificate as per specimen in Annex 8, signed by the Commander/Deputy Commander, Special Operations Command.
6.2.5	BANK GUARANTEES
6.2.5.1	In order to guarantee the repayment of the Down Payment in case of failure in the delivery obligations of the SELLER as has been stated, a Down Payment Guarantee of the same amount as stipulated under Article 6.1.1 shall be issued in favour of the BUYER. A specimen of this bank guarantee is shown under Annex 4.
6.2.5.2	In order to guarantee the fulfillment of the CONTRACT, a Performance/Warranty guarantee of USD $235,929.20, (US Dollar Two Hundred Thirty Five Thousand, Nine Hundred Twenty Nine and twenty Cents) representing 10 % of the value of the CONTRACT, shall be issued in favour of the BUYER, as stipulated in Article 18 of the CONTRACT.
6.2.5.3	The Performance/Warranty Guarantee shall become valid from the date of issuance, and shall be reduced to the amount of USD $117,965 (US Dollar One Hundred Seventeen Thousand, Nine Hundred and Sixty Five) representing 5% of the value of the delivered Products, upon final acceptance of the last deliverable Products and Services and shall then continue in force as a Warranty Guarantee until expiration of the warranty period as stipulated under article 14.

ARTICLE 7 — OPTION TO PURCHASE

7.1 In addition to the purchase of the firm quantity subject of this CONTRACT, the BUYER can purchase additional Products according to the price breakdown in Annex 2 and the delivery schedule in Annex 3.

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ARTICLE 8 — DELIVERY

8.1	The SELLER undertakes to deliver the Products and Services on DDU Abu Dhabi (International Airport), basis as per Incoterms 2000.
8.2	Delivery schedule is attached hereto as Annex 3. CONTRACT effective date (T0) will be at notification of signature of CONTRACT, Article 40. Any delay of more than 30 days beyond the period stated in Article 6.2.2, by the BUYER in paying the Down Payments as stipulated under Article 6.2.2, will extend T0 with a corresponding period, provided the delay is not due to SELLER’S default.
8.3	Earlier and partial deliveries of Products will be allowed, provided the BUYER agrees with the revised delivery schedule.

ARTICLE 9 — TITLE & RISK OF LOSS

9.1 Risk, Title and Ownership of the Products shall be transferred to the BUYER at the time the delivery is made by the SELLER as per Article 8 above.

ARTICLE 10 — PENALTIES FOR LATE DELIVERY

10.1	PENALTIES FOR LATE DELIVERY
	In case the SELLER fails to supply the Products contracted for in whole or in part at a time later than that stated in the CONTRACT, including the replacement of the rejected items, the BUYER reserves the right to apply a penalty of one percent (1%) per week of the value of items so delayed for the first week or a part thereof. Thereafter the penalty will be increased to two percent (2%) per week for each subsequent week or part thereof, up to a maximum penalty of 10% of the value of the items so delayed.
10.2	RISK PURCHASE
	In case the SELLER fails to supply the items contracted for in whole or in part (including the rejected items) at the time of delivery as provided for in the CONTRACT, the BUYER shall have the right to take one of the two following measures, without entering into litigation, provided a 30 day notice is given to the SELLER by a registered letter:

1) Make a risk purchase of the items that the SELLER has failed to supply from a third party at the expense of the SELLER (through direct negotiations or inquiries, subject to the same conditions and specifications previously agreed to and contracted for with the SELLER). Any excess values in price shall be deducted from the guarantee provided by the SELLER or from his dues held with the BUYER or any Government authority, plus overhead expenses at the rate of 5% of the

DP3/ 11

	value of items so purchased plus whatever penalty is due for the delayed period in supply.
2)	Cancel the contracted items and encash the entire amount of the guarantee in case of failure to supply totally or encash an amount equivalent to 10% of the value of the items so cancelled

10.3 The BUYER may waive the penalty in full or in part, should the SELLER submit documents to prove to the satisfaction of the BUYER that the causes of delay were beyond his reasonable control as per article 12.

ARTICLE 11 — REJECTED LINE ITEMS

11.1

On receipt of the Products at Abu Dhabi, if any item/items are rejected by the BUYER for non-conformity with specifications and modifications agreed upon, as per conditions of CONTRACT, then the SELLER must arrange for replacement of rejected items free of charge (including the freight and insurance charges) as per the agreed specifications and modifications, along with the payment of consequent penalty charges for late delivery imposed with effect from the contractual delivery date and until the date of replacement. The rejected items are to be collected by the SELLER at his own cost and risk.

11.2

If the rejected items are sent back to the SELLER on his request, then all the expenses thus incurred by the BUYER plus administrative charges of 10% value of the rejected goods shall be borne by the SELLER

ARTICLE 12 — FORCE MAJEURE

The following should be considered as cases of force majeure and relieve the parties of their obligation under the CONTRACT as long as the circumstances last-

Fire, mobilization, requisition, war, embargoes, currency restriction, insurrection, and acts of God.

ARTICLE 13 — OBLIGATIONS & RIGHTS

The Party claiming force majeure shall immediately upon occurrence, notify the other party of such event by fax, telex or telegraph stating the estimated consequences. Onus to prove the occurrence of such events lies on the party claiming its invocation. If the force majeure situation lasts more than (3) three months the BUYER may terminate the CONTRACT without affecting his rights adversely under this CONTRACT. Any extension in the delivery period due to causes of force majeure shall be by mutual agreement between the parties.

DP3/ 12

ARTICLE 14 — WARRANTY

14.1	The SELLER warrants that the Products, (including software), and the Services (including validation, qualification, modification and retrofit, performed and delivered under this contract) shall be in full conformance with the specifications and shall be free from defect in material, workmanship, design and manufacture for a period of 24 months after final acceptance, as specified under Article 26, and further warrants that any item/items or part/parts found defective through faulty design, workmanship, manufacture, size, dimensions and material will be replaced or repaired free of cost, within the said period of 24months.
14.2	The SELLER shall guarantee a storage warranty of 3 years for the stored spare arts provided under Annex 2 of the CONTRACT, provided proper storage and packing is maintained during that period in accordance with Annex 14 of the Contract. No warranty is given with respect to those parts and components of the deliverables which are normally Time-Limited such as, but not limited to, rubber parts, ball bearings, electronic and non-metallic parts.
14.3	It is understood that if a defect(s) of a part or parts of the Products is/are due to a failure by a part subject of this warranty, the warranty will apply to said defective part or parts.
14.4	If necessary to return any item accepted under this clause to the SELLER to affect the necessary repair or replacement, all associated cost shall be born by the SELLER, including the cost of transportation, insurance and handling charges.
14.5	The warranties stated herein are in lieu of all other warranties. SELLER shall not be liable or responsible for consequential damages with respect to the contract items delivered hereunder except to the extent identified above, and the BUYER agrees to indemnify and hold harmless the SELLER against such damages

ARTICLE 15 — MARKING & PACKING

15.1	The spares/items, required to be kept in the Warehouse should be suitably preserved and packed for long-term storage keeping in view the climatic conditions of the UAE.
15.2	Marking and packing of the Products will be done in accordance with the approved standard of the factory. Each package will be marked and consigned to:

15.2.1	FOR DELIVERY TO UAE
	CONTRACT No.                      UAE ARMED FORCES SPECIAL OPERATIONS COMMAND POST BOX No. 309/39

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	ABU DHABI — UAE
15.2.2	FOR DELIVERY TO Breeze-Eastern Corporation 700 Liberty Avenue Union, NJ 07083 U.S.A.

15.3	The O-level spares will be delivered in suitable containers.
15.4	Any loss or damage to the goods due to faulty packing will be the responsibility of the SELLER

ARTICLE 16 — INSURANCE

16.1 During transportation from SELLER’S facilities to Abu Dhabi, the SELLER will arrange insurance.

ARTICLE 17—CHANGES

17.1

Should at any time during the life of the CONTRACT, either party desire to make a change to this CONTRACT, the party desiring the change shall submit to the other party a written request specifying the details of the desired change. The party receiving the change request shall reply within thirty (30) days, or such other time as the parties agree upon by a written notice of its desire to perform or not to perform the requested change. If it is agreed to proceed with the change, SELLER shall submit a written priced (if any) proposal for the change. Upon mutual agreement as to the terms of the change, it shall be incorporated into this CONTRACT via formal amendment signed by an authorized representative of each party. Unless otherwise agreed to in writing by the change request and reply, neither party shall be obligated to start work on the requested change until the formal amendment has been made a part of this CONTRACT through execution.

17.2

Amendments which do not affect the total value of this CONTRACT or the quantities to be delivered, can be signed by the Commander/Deputy Commander, Special Operations Command and the SELLER’S representative

ARTICLE 18 — PERFORMANCE/WARRANTY BONDS

18.1	The SELLER undertakes to submit within thirty (30) days from notification of signature of the CONTRACT, an unconditional Performance/Warranty Bank Guarantee for 10% of the value of the CONTRACT as per specimen given in Annex 5.
18.2	The Performance/Warranty Guarantee shall be unconditional and valid for ninety days after the final acceptance date of Products, and thereafter shall be

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	reduced to cover the value of the Products for the warranty period, and shall automatically be renewed by the guarantor until all obligations have been fulfilled.
18.3	The amount of the Performance Guarantee shall be unconditionally payable to the BUYER upon first written demand by him without reference to the SELLER.
18.4	If the Performance Guarantee amount decreases due to any deduction from the SELLER’S account or if the value of supplies or works exceed the amount stipulated in the CONTRACT as a result of extra requirements or subsequent to variation orders, the SELLER shall upon demand from the BUYER raises the Performance Guarantee, to an amount equivalent to 10% of the total amount of the CONTRACT after the increase, within twenty days from the date of the claim. If the SELLER fails to do so the BUYER reserves the right to withhold the amount required to replenish the Performance Guarantee from SELLER’S payment held with him.

ARTICLE 19 —TERMINATION OF CONTRACT

19.1

Notwithstanding anything contained in the provision of Articles 10 Penalties For Late Deliveries & 13 Obligations and Rights hereof should the SELLER hereto fail to perform or observe any of the obligations or conditions on his part to be performed or observed under this CONTRACT or fail to meet the delivery schedule and fail to remedy the breach within 30 days after written notice from the BUYER to remedy the same, the BUYER shall be entitled, in addition to and without prejudice to any other remedy available, forthwith to terminate this CONTRACT

19.2

The BUYER is entitled to call on the Bank Guarantees of Down payments (if any) and Performance Guarantee. The BUYER reserves the right to terminate the Supply CONTRACT and forfeit the Performance Guarantee without prejudice to the claim for compensation upon occurrence of the following cases:

• If the SELLER employs fraud and manipulation in his dealings.

• If the SELLER involves himself directly or indirectly in bribing any of the BUYER Staff and employees or if he participates in activities to cause damage to the interest of the BUYER.

• If the SELLER goes bankrupt or insolvent.

ARTICLE 20 — TAXES & DUTIES

20.1 All taxes, duties, stamps and other fees imposed by any authority outside UAE in connection with the execution of this CONTRACT will be for SELLER’S account. All taxes, duties, stamps and fees imposed inside UAE to be for BUYER’S account.

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ARTICLE 21 — SPARES

21.1	The SELLER guarantees to make available at prevailing prices the spare parts of the Products purchased under this CONTRACT for a period of 20 years from the date of Final acceptance. If the SELLER continues to support the Products after 20 years, the SELLER shall make the spare parts available for the same period.
21.2	The SELLER shall also submit to the BUYER prior to the first delivery, his quotation for recommended spare parts to cover two years maintenance of the Products purchased under this CONTRACT
21.3	In case of an AOG, the SELLER shall supply the ordered spares within the best lead-time from the receipt of a purchase order from the BUYER.
21.4	The SELLER undertakes to provide the spares ordered by the BUYER within a 4 month lead-time, from the receipt of a purchase order from the BUYER.
21.5	A separate Order/CONTRACT for approved spare parts will be made between the parties if so required by the BUYER.

ARTICLE 22 — MANUALS & CATALOGUES

22.1	The manuals and catalogues are stipulated in Annex 2 and 9, and will be in the English language.
22.2	The SELLER undertakes to provide the BUYER with the manuals and catalogues, as described in Annex 2 and 9, as DDU, Abu Dhabi, UAE
22.3	The SELLER undertakes to update these documents, as necessary, for the next 20 years, at the prevailing price to the BUYER. If the SELLER continues to update the documents after 20 years, the SELLER shall make these updates available for the same period

ARTICLE 23 — TRAINING

23.1 The SELLER’S detailed training obligations and program is stipulated in Annex 1 Technical Assistance and Annex 10 Training.

ARTICLE 24 — ASSIGNMENT & BENEFIT

24.1 This CONTRACT and the rights and obligations thereof shall inure to the benefit of the parties hereto, their respective successors and assigns but no party can assign this CONTRACT to any third party/person without the written consent and on terms and conditions acceptable to the other party.

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ARTICLE 25 — INSPECTION

25.1

All materials purchased under this CONTRACT will be constructed/manufactured in accordance with the specifications agreed upon between the parties and will be inspected by the SELLER’S own system of inspecting and quality control. The BUYER, however, reserves the right to send his representatives, the number of whom shall be agreed with the SELLER, to the manufacturing plant to be present during inspection.

25.2

The SELLER will notify the BUYER of the inspection dates. In the event of the BUYER declining to witness the inspection, or does not respond to the SELLER’S notification within 20 days, the SELLER shall proceed to conduct the inspection, and be authorized to sign the certificate of conformance.

ARTICLE 26 — ACCEPTANCE

26.1	Factory Acceptance will be carried out by the SELLER according to the Factory Acceptance Test (FAT) procedure and the Factory Acceptance Certificate shall be completed as per specimen included hereto under Annex 6. The BUYER, however, reserves the right to send his representatives, the number of whom shall be agreed with the SELLER, to the manufacturing plant to be present during acceptance.
26.2	The SELLER will notify the BUYER of the acceptance dates two (2) months in advance. In the event of the BUYER declining to witness the acceptance, or does not respond to the SELLER’S notification within 45 days, the SELLER shall proceed to conduct the acceptance, and be authorized to sign the certificate of acceptance.
26.3	A. Final Acceptance Certificate shall be completed by the BUYER’S representative upon final acceptance of the Products and the certificate completed as per specimen included hereto under Annex 8
26.4	The Costs of the BUYER’S representative’s travel, including lodging, meals, laundry and car, to and from the SELLER’S facility for domestic schedule meeting as required by this CONTRACT will be arranged and paid for by the BUYER.
26.5	The SELLER shall assist the BUYER on a best-efforts basis in arranging for visas and permits for the BUYER’S representatives, for entry into and exit from the SELLER’S country.

ARTICLE 27 — INDEMNITY

27.1 The SELLER shall indemnify the BUYER against any liability in respect of damage to property of the BUYER, or a third party or death or injury to the BUYER or to the BUYER’S personnel or a third party arising solely from the

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performance of the CONTRACT task by the SELLER’S personnel under the provision of this agreement, except where such damage is attributable to or death or injury results from an act of negligence or omission by the BUYER’S personnel in which event BUYER will be liable.

ARTICLE 28 — POLITICS

28.1 The SELLER’S employees will perform their duties in respect of the execution of this CONTRACT with care and diligence. They shall refrain from participating in the politics of the UAE and are forbidden to deal in any private business for profit in the United Arab Emirates. In the event of such an occurrence, the SELLER at his own expense will replace the employee upon request of the BUYER without any loss of time.

ARTICLE 29 — ENVIRONMENTAL CONDITIONS

29.1 The BUYER fully understands the Hoist System HS-29900-59-1 has been qualified to the environments listed in B-E product specification BDC-302-33 which is representative of the environments anticipated for this type of equipment when installed and operated on rotorcraft throughout the world.

ARTICLE 30 — MISCELLANEOUS

30.1	It is understood by both parties that the SELLER has not directly or indirectly entered and will not enter into a consultancy deal or any other CONTRACT with any of the Commercial firms or companies operating in the UAE, or any person to act on his behalf as an Agent or Consultant in consideration of certain amount of fees or remuneration in order to facilitate and promote the negotiation and finalization of this CONTRACT.
30.2	Similarly it is understood that no commission, remuneration or fees have been or will be, through gratuities, gifts or personal payments granted either directly or indirectly or in any way conferred by the SELLER in connection with this CONTRACT to any Officer, Personnel or Civilian of UAE Armed Forces, or any UAE Government Employees working in/outside the country, as a bribe or commission for securing their signatures in connection with this CONTRACT negotiations or performance.
30.3	The SELLER also assures that there is no such promise legally binding on him and if any such commitment or obligations is made in ignorance by the SELLER with any of the firms or companies of the UAE in the past the same is hereby considered non binding.
30.4	If the SELLER contravenes in any way the provision of this Clause and the BUYER brings evidence to this effect, the SELLER is liable to pay the BUYER a

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	penalty of 30% of the CONTRACT value and the BUYER is entitled to terminate the CONTRACT without prejudice to his legal rights.
30.5	The SELLER agrees to update Annex 11 Product Specification with Product specification BDC-302-33 through a proper Amendment once approved from the US government.

ARTICLE 31 — MODIFICATION

31.1	If in the judgement of the Seller and before the actual delivery, certain modification/alterations are essential for improvement and safety purposes and such changes do not affect the prices and the delivery schedule, the Seller is obliged to incorporate the said modification/alteration in the product purchased under this Contract.
31.2	Any mandatory modification for safety purposes shall be carried out by the Seller free of cost to the products already delivered to the Buyer.
31.3	The Buyer may ask the Seller to make proposal for studies relating to specific modification for the Buyer’s own operational needs, all cost related to the study and implementation of such specific need shall be mutually agreed upon.
3.4	The Seller shall inform the Buyer by fax/telex or any other means of communication immediately of any incident or accident involving safety of using a product, including the actions to be taken.

ARTICLE 32 — PRIOR AGREEMENT

32.1 The provisions of this CONTRACT supersede all prior representation or agreements whether oral or written between the parties relating to the subject matter hereof.

ARTICLE 33 — MAINTENANCE

The seller has agreed to carry out periodical maintenance of the Product purchased under this Contract according to the maintenance manual free of cost till the final acceptance of the product.

ARTICLE 34 — TECHNICAL ASSISTANCE

34.1 Technical assistance shall be as specified in Annex 1

ARTICLE 35 — OBSERVATION OF RULES & REGULATIONS

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35.1 During performance of services in the UAE the SELLER’S personnel shall abide by all rules and regulations existing in the U.A.E.

ARTICLE 36 — EXPORT/IMPORT LAWS

36.1	The supplies covered by this CONTRACT are subject to the USA government ruling concerning the transfer to, or the use by a third party of the supplies falling under the category described as “Military Products” under USA government laws and will require an export license. The parties agree to comply with all applicable US Export Control Laws.
36.2	All End User Certificates required will be completed and supplied by the SELLER to the BUYER for signature within 2 months of the CONTRACT coming into force (Article 41). The BUYER will return the signed and completed End User Certificates to the SELLER within 30 days of submission by the SELLER, any delay beyond this 30 day period in returning these End User Certificates, will result in a corresponding delay in delivery of Products or Services under this CONTRACT.
36.3	All export licenses or permissions required by the USA Government shall be obtained and secured by the SELLER as part of the contractual responsibility of the SELLER.
36.4	In the event U.S. Export License is denied or revoked, the Buyer guarantees to take no action against SELLER’S Letter of Guarantee for Good Performance and to immediately return the Letter of Guarantee to the appropriate bank for cancellation.

ARTICLE 37 — ARBITRATION

37.1

This CONTRACT shall be governed and interpreted in accordance with the laws of Switzerland

37.2

The SELLER and the BUYER base their relations with regard to this CONTRACT on the principles of good will and good faith. All disputes arising in connection with the present CONTRACT, if not amicably resolved between the parties, shall be finally settled under the rules of conciliation and arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said rules. The arbitration shall take place in Lausanne/Switzerland and the arbitrators shall have the powers of amiable compositor. The decision of the Arbitration shall be final, binding and enforceable, on the parties. The language of the arbitration shall be English.

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ARTICLE 38 — ADDRESSES AND NOTICES

38.1 As to the performance of this CONTRACT, any notice correspondence or communications to be given by one party to the other shall be sent to the following address:-

38.1.1 BUYER:

DIRECTOR GENERAL PURCHASING DIRECTORATE

UAE Armed Forces
P.O. Box 2501
Abu Dhabi
UAE
Fax No.+971 2 441.5687

Copy to:

GROUP 18
Special Operations Command
P.O. Box 128889
Fax No +971 2 558 8664

38.1.2 SELLER:-

Vice President, Programs and Contracts
Breeze-Eastern Corporation
700 Liberty Avenue
Union, NJ 07083
U.S.A.
Fax No. 908-686-9292
e-mail: www.breeze-eastern.com

38.2	In case of change of address by any party immediate notification thereof will be made by registered airmail to the other party.
38.3	All notices and communications so addressed shall be deemed to have been received only on their actual receipt by the other party.

ARTICLE 39 — OFFSETS AGREEMENT

39.1	It is agreed by the BUYER and the SELLER that any Contract or aggregate of Contracts entered between the two parties, the total of which amounts to US Ten (10) million Dollars and above, (or the equivalent in other currencies), shall be subject to the UAE Offsets program.
39.2	The SELLER undertakes to sign the Offsets Agreement and/or the Supplemental Agreement with the UAE Offsets Group in respect of such contract(s). It is agreed between the two Parties that in accordance with Article

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18 herein the SELLER shall not receive his copy of the CONTRACT unless the SELLER provides a Clearance Letter signed by an authorized representative of the UOG confirming that the necessary Documentation has been signed between the SELLER and UOG

ARTICLE 40 — ENTIRE CONTRACT

40.1 This CONTRACT is executed in the English Language and is comprised of Volume 1, Articles 1 through 41 with Annexes 1 through 13, which constitute the entire CONTRACT between the parties.

40.2 Both parties agree that the English language shall be the official language governing the conduct of the parties under this CONTRACT and all written or printed material provided by the SELLER and all communications and correspondence between the parties related to this CONTRACT shall be in the English language.

ARTICLE 41 — COMING INTO FORCE

41.1	The CONTRACT, five (5) originals and five (5) copies in the English Language, shall become valid and effective upon signature by the duly authorized representatives of the BUYER and the SELLER.
41.2	Four (4) originals and five (5) copies are for the BUYER.
41.3	One (1) original is for the SELLER

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THUS DONE AND SIGNED ON THIS                                         DAY OF                                                              2007

FOR AND ON BEHALF OF BUYER

GENERAL HEADQUARTERS
OF THE UNITED ARAB EMIRATES
ABU DHABI — UAE

NAME: LT GENERAL HAMAD MOHAMED THANI ALROMAITHI

TITLE: CHEIF OF STAFF, UAE ARMED FORCES

SIGNATURE:                                                                                  

FOR AND ON BEHALF OF THE SELLER

Breeze-Eastern Corporation

NAME: FRANK WUKOVITS

TITLE: VICE PRESIDENT OF PROGRAMS AND COTRACTS

SIGNATURE:                                                                                  

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ANNEX 1

Technical Assistance

Breeze-Eastern will make available to the Special Operations Command our HS-29800 Internally Mounted Hoist (ITAR Controlled Export License required) to be used as a training aid within the UAE. (This hoist system has been sold in the past for as much as $190K each).

Breeze-Eastern will also provide 3 days of O level maintenance training in the UAE for up to 10 students at a mutually agreed time. In exchange, the UAE agrees to initiate the appropriate steps toward the establishment of a Depot Level Service Center at a location to be determined. Breeze-Eastern has access to several, experienced hoist operators with both civil and military experience who can be used as consultants for your operational training.

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ANNEX 2

Price Breakdown

				Unit Price		Extended Price
1.	Part Number	Description	Quantity	(USD)		(USD)
	HS-29900-59-1*	Rescue Hoist System	10 ea		$229,804.00		$2,298,040.00

* Consists of:

2 ea BL-29900-59 Hoist System
2 ea HK-116-3 Hook Assembly
2 ea CP-1700-1 Pendant Assembly
2 ea EC-14170-2 Pendant Cable Assembly
2 ea BL-11140-1 Kit, Pressure Cartridge
1 ea Operation & Maintenance Manual (Hard Copy and CD)

2.	BL-10653-3	Load Cable	10 ea	$	1,550.00	$	15,500.00
3.	HK-116-3	Hook Assembly	4 ea	$	5,191.00	$	20,764.00
4.	KT-444	Kit Pressure Cartridge	6 ea	$	1,248.00	$	7,488.00
4a.	Sub Total					$	2,341,792.00
5.	BL-29800-1	Hoist Assembly, Internal	1 ea	No charge		No Charge
6.	N/A	Warranty		No Charge		No Charge
7.	N/A	Training		No Charge		No Charge
8.	Shipping/Freight	DDU Abu Dhabi Int'l Airport**		$	1,750.00	$	17,500.00
	TOTAL					$	2,359,292.00

** Shipping charges are per ship set and based on Inland freight, airfreight from JFK to Abu Dhabi International Airport and insurance coverage.

Article 7 — Option to Purchase

     HS-29900-59-1* Rescue Hoist System 6 ea

	Unit Price*		Extended Price
Quantity	(USD)		(USD)
6 ea	$	213,970.00	$	1,283,820.00
Shipping Freight	$	1,750.00		10,500.00
TOTAL			$	1,294,320.00

* Option Price is valid for order placement within sixty (180) days of the date the Contract becomes valid and effective.

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ANNEX 3

Delivery Schedule

Delivery Schedule 2007 (or sooner)

Month	Part Number	Quantity
September 2007	HS-29900-59-1		1
	BL-10653-3		10
	HK-116-3		4
	KT-444		6
October 2007	BL-29800-1		1
	HS-29900-59-1		2
November 2007	HS-29900-59-1		2
February 2008	HS-29900-59-1		2
March 2008	HS-29900-59-1		1
April 2008	HS-29900-59-1		2

* Shipment of the first shipset is contingent upon receipt of our Export License.

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Annex 4

SPECIMEN OF DOWN PAYMENT GUARANTEE

1)	With reference to the contract no                      , concluded on                    between GHQ Armed Forces, General Purchasing Directorate, Abu Dhabi, UAE (hereinafter called the BUYER — 1st party) and                     ( hereinafter called the SELLER-2nd party) for the supply of                                         as stipulated in the contract, stipulating that an amount of                                                             USD(                                         Cents, US Dollars), representing twenty percent (20%) of the value of the contract shall be paid in advance to the SELLER, we the undersigned undertake to hold at the disposal of the GHQ Armed Forces, Abu Dhabi the said sum as a guarantee for the advance payment and it will become effective from the date at which the BUYER makes remittance of the amount to the account of the SELLER.
2)	This guarantee is unconditionally payable to the BUYER upon first written demand by him without reference to the SELLER stating that the SELLER has failed to fulfil the terms of the contract.
3)	This guarantee shall be valid for the entire period of the contract but shall be progressively reduced in proportion to the partial deliveries in accordance with the terms of the contract referred to above by the amount confirmed by the finance department as having been received towards the settlement of the advance and will expire automatically upon completion of full deliveries under this contract without returning the documents to the bank.
4)	If deliveries are not finalised within the stipulated period of the contract and the cancellation has also not been notified, the guarantee will progressively and automatically be extended until such time as the confirmation is given by the Director Government Accounts, Abu Dhabi Department that either the delivery of outstanding items is completed or the advance has been fully recovered.

*Issued by

*Bank incorporated in the U.A.E

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Annex 5

SPECIMEN OF PERFORMANCE/WARRANTY BOND

1)	With reference to the contract no                     , concluded on                      between GHQ Armed Forces, General Purchasing Directorate, Abu Dhabi, UAE (hereinafter called the BUYER — 1st party) and                                          ( hereinafter called the SELLER — 2nd party) for the supply of                                          and in accordance with Article 18 of the said contract, we the undersigned undertake to hold at the disposal of the GHQ Armed Forces, Abu Dhabi the sum of                                                                USD(                                                               Cents, US Dollars), representing ten percent (10%) of the value of the contract as a guarantee for the fulfillment of the terms and conditions of the contract.
2)	This guarantee is unconditionally payable to the BUYER upon first written demand by him without reference to the SELLER stating that the SELLER has failed to fulfil the terms of the contract. This guarantee shall become effective from the date indicated below and will remain valid until final acceptance of the last deliverable item under this contract but shall be progressively reduced in proportion to the partial deliveries in accordance with the terms of the contract. This guarantee will then automatically be reduced to an amount of                                                              USD (                                                              Cents), representing five percent (5%) of the value of the delivered equipment, and shall then remain valid as a warranty guarantee until expiration of the warranty period as stipulated in Article 14 of the contract.
3)	If the obligations of the SELLER are not finalised within the stipulated period of the contract and the cancellation has also not been notified, the guarantee will progressively and automatically be extended until such time as the confirmation is given by the Director General Purchasing Directorate, GHQ Armed Forces that the obligations under the contract are fulfilled.
4)	This guarantee will be returned upon the fulfillment of the obligations.
5)	Date of guarantee

*Issued by

*Bank incorporated in the U.A.E.

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Annex 6

SPECIMEN FOR FACTORY ACCEPTANCE CERTIFICATE

FACTORY ACCEPTANCE CERTIFICATE

CERTIFICATE NO	:
CONTRACT NO	:
DOCUMENTARY CREDIT NO	:
BUYER	:	GHQ Armed Forces
		General Purchasing Directorate
		Post Box No. 2501
		Abu Dhabi
		UAE
SELLER	:	Breeze-Eastern Corporation
		700 Liberty Ave.
		Union, NJ 07083
		U.S.A.

We, the undersigned hereby certify that the specific EQUIPMENT/SERVICES as detailed below have been accepted as per Article 26 of the above Contract.

Payment as per Article 6

ITEM NUMBER	DESCRIPTION	DDU PRICE
1	Item Description

AUTHORISED SIGNATURE OF THE BUYER DATE

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ANNEX 7

Specimen Delivery Acceptance certificate

DELIVERY ACCEPTANCE CERTIFICATE

CERTIFICATE NO	:
DELIVERY NOTE NO	:
CONTRACT NO	:
DOCUMENTARY CREDIT NO	:
BUYER	:	GHQ Armed Forces
		General Purchasing Directorate
		Post Box No. 2501
		Abu Dhabi
		UAE
SELLER	:	Breeze-Eastern Corporation
		700 Liberty Ave.
		Union, NJ 07083
		U.S.A.

We, the undersigned hereby certify that the specific EQUIPMENT/SERVICES as detailed below have been accepted as per Article 26 of the above Contract.

Payment as per Article 6

ITEM NUMBER	DESCRIPTION	DDU PRICE
1	Item Description

AUTHORISED SIGNATURE OF THE BUYER DATE

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ANNEX 8

SPECIMEN FOR FINAL ACCEPTANCE CERTIFICATE

FINAL ACCEPTANCE CERTIFICATE

CERTIFICATE NO	:
CONTRACT NO	:
DOCUMENTARY CREDIT NO	:
BUYER	:	GHQ Armed Forces
		General Purchasing Directorate
		Post Box No. 2501
		Abu Dhabi
		UAE
SELLER	:	Breeze-Eastern Corporation
		700 Liberty Ave.
		Union, NJ 07083
		U.S.A.

We, the undersigned hereby certify that the specific EQUIPMENT/SERVICES as detailed below have been finally accepted as per Article 26 of the above Contract.

Payment as per Article 6

ITEM NUMBER	DESCRIPTION	DDU PRICE
1	Item Description

COMMANDER/DEPUTY COMMANDER
SPECIAL OPERATIONS COMMAND DATE

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ANNEX 9

WARRANTY

The SELLER warrants that the Hoist System HS-29900-59-1 delivered under this contract has been qualified to the environments listed in B-E product specification BDC-302-33 which is representative of the environments anticipated for this type of equipment when installed and operated on rotorcraft throughout the world.

Performance tests shall be performed, supported by the BUYER, prior to usage of the equipment, if stored more than 6 months.

Within 30 days after discovery of any defect, the BUYER shall notify the SELLER of such defect, giving all available information to the SELLER so that the SELLER may determine the proper course of action. Within 10 days of receipt of this information, the SELLER shall propose to the BUYER to either carry out the repair/ adjustment / replacement by SELLER at Buyer’s facility or at SELLER’S facility.

Prior to, or concurrently with shipment of any alleged defective part or parts, the BUYER shall furnish the SELLER with a Trouble/Failure Report describing its claim.

The time required for repairing of the items sent back to the SELLER under Article 14 of the CONTRACT, shall not exceed 90 Days from the date of receipt of the items by the SELLER. Incase a replacement of part is required the replacing part/s shall not take more than 14 days from the date of receipt of the items by the SELLER.

The SELLER will give priority to adjustment / repair / replacement of items returned under warranty so as to reduce as much as possible the duration of said adjustment / repair / replacement.

The repaired product will be returned to the BUYER, with an updated warranty certificate, the original warranty period extended by the actual repair duration at the SELLER’S service centre.

Should frequent or recurrent failures occur during the warranty period on SELLER’S equipment, then the BUYER and the SELLER will together investigate the matter in order to determine the reasons for such frequent failure(s). Following said investigation results, corrective steps will be defined, including study and implementation, free of charge, of possible modifications.

In such a case of frequent failure arising during the warranty period, this warranty for the said failure will extend until such time as a solution is reached and the failure resolved

This warranty shall apply only to the extent that such equipment have been properly stored, installed and maintained in accordance with the SELLER’S recommendations as stated in the Maintenance and Repair Manuals, Service Bulletins and other instructions issued by the SELLER. This warranty does not apply if the item has been damaged by misuse (save in the case of the SELLER) or if modified or repaired by a party other than the SELLER

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This warranty shall apply to any defect arising as a result of incorrect procedures or information laid down in the documentation, i.e. maintenance manual(s), pilot manuals(s), provided by the SELLER. Acceptance by the BUYER of the documentation delivered under this contract does not constitute a waiver of Article 14 of the CONTRACT.

The items to be returned to the SELLER, shall be marked and packed accordance to the approved standard of the factory. Each package will be marked and consigned to:

Breeze-Eastern Corporation
700 Liberty Ave.
Union, NJ 07083

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ANNEX 10

TRAINING

CABLE MANAGEMENT/LINE MAINTENANCE
TRAINING SYLLABUS
FOR HS-29900-XX RESCUE HOIST SYSTEM

1.0	INTRODUCTION
1.1	This training plan is addresses Cable Management and Line Maintenance Training for the HS-29900-XX Rescue Hoist System. The Rescue Hoist System is comprised of a Hoist Assembly, Pendant Control and Grip Assembly, Crew Control Panel Assembly, and Pilot Control Panel Assembly.
2.0	SCOPE
2.1	The Training Program will provide Breeze-Eastern recommendations for maintenance, removal and replacement of components at the Line Level of Maintenance.
2.2	Training will also include instructions on how to operate, maintain, repair, and test the equipment, and detail the interrelationship between the Hoist, Controller and Pendant Control Assembly.
2.3	Training may be conducted at either Breeze-Eastern’s Union, NJ facility or at the user’s facility. However, it is the responsibility of the user to supply a Rescue Hoist System for this training, either shipped to Breeze-Eastern prior to this training, or installed on the aircraft at an user’s facility. One (1) instructor from Breeze-Eastern are required for this course.
3.0	PURPOSE
3.1	The purpose of the training session is to provide the student(s) with the knowledge and know-how to operate, maintain and repair the equipment in support of line level activities.
4.0	TRAINING COURSE
4.1	The training courses will be conducted and accomplished in two (2) working days. Each day shall consist of 8 hours per day plus one hour lunch break.
4.2	The course content will be based on 10% theory and 90% practical.
4.2.1	Theory will consist of Breeze-Eastern system information and design, theory of operation, detailed information on replacement of LRU’s and SRU’s, test equipment and testing.

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4.2.2 Practical Training will be a “hands-on” demonstration. Line level maintenance for the Hoist Assembly, Controller and Pendant will include as a minimum:

a.	Operation
b.	Flight Line Handling Techniques
c.	Cable Reel-In and Cable Reel-Out
d.	Cable Inspection and Maintenance
e.	Pre-Flight Inspection
f.	Post-Flight Inspection
g.	Periodic Inspection and Criteria
h.	Load Ring/Sling Rollover on Hoist Cable Hooks
i.	Operation of Limit Switches
j.	Adjustment of Limit Switches
k.	Cable Removal and Replacement
l.	Tension Roller Removal and Replacement
m.	Swivel Hook Removal and Replacement
n.	Bumper Assembly Removal and Replacement
o.	Cable Cutter Removal and Replacement
p.	Motor Assembly Removal and Replacement
q.	Controller Assembly Removal and Replacement
r.	Control Pendant Assembly Removal and Replacement
s.	Crew Control Pane Assembly Removal and Replacement
t.	Pilot Control Panel Assembly Removal and Replacement

5.0	DOCUMENTATION
5.1	The training documentation will be an Operation and Maintenance Manual for the HS-29900-XX Rescue Hoist System, as well as applicable Breeze-Eastern assembly and subassembly drawings. Quantity one hard copy for each student and one softcopy for the whole training session.
6.0	PERSONNEL
6.1	Breeze-Eastern will provide all necessary personnel required to train the students in line level maintenance for the Rescue Hoist System.

It is recommended that no more than ten (10) students attend the training session.

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ANNEX 11
PRODUCT SPECIFICATION

HS-29900 SYSTEM INTERFACES (TYPICAL)

PERFORMANCE (TYPICAL)			DISPLAYS
Rated load	600 lb (272 kg)		Digital cable payout
Speed @ 600lb 0-350 ft/min		(01.78m/s)	Motor Hot
Cable length	295 ft (90 m)		Full In
System weight	110 lb (50 kg)		Full Out
			Cycle counter
POWER REQUIREMENTS (Aircraft Supply)			SAFETY FEATURES
Voltage	115 VAC, 3ph, 400 HZ		Electronic overload protection
Electric current	24 A/Phase		Safety clutch
Control power	28 VDC, 5A		Redundant limit switches
Cable cutter	28 VDC, 5 A pulse		Mechanical reif-safe brake
			Cable tension control (bidirectional)
HOIST CONTROL			Automatic slowdown at travel ends
Operator	Up/Down variable speed		Redundant cable cut switches
Pilot	Up/Down fixed speed		Cable four sensor
			OPTIONAL FEATURES
			Various- control pendant designs
			Various hook designs
			Various control station designs
			Hover trim / search light control
			NVG compatible displays

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Annex 12
SPECIMEN OF CERTIFICATE OF ORIGIN

CERTIFICATE
OF
ORIGIN

I, undersigned                                                             , Manager, of Company Name, Company address,

Certify that:

DESIGNATION P/N

Shipped under packing list N°                                          on                                          200x

Are of US origin

Location, Date

Stamp of the Company
Signature
 

Title 

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ANNEX 13

Specimen of Conditions of Storage and Conditioning Requirements Sheet

Manufacturer’s Name:	Breeze-Eastern Corporation		Date: 1/22/07
Equipment Designation:	HS-29900-59
Manufacturer’s P/N:	HS-29900-59	Yes o No o
P/N: Limited calendar operating material
STORAGE
Limited Storage Material:		Yes þ No o
Maximum duration (months)	36 Months
Specific actions during storage:		Yes o No þ
Specific actions at limit of storage:
To be scrapped:		Yes o No þ
To be revalidated:		Yes þ No o
Works to be done:	ATP, BQC-284-985
Specific storage conditions (Position, temperature, etc.):
-40° C to+85° C		Yes þ No o
Humidity (max): 80% per DO-160D, section 4, section 6, category A
CONDITIONING
Specific conditioning conditions:
- in the short term:	In Breeze-Eastern	Yes þ No o
	original container.
•   Description:
See TD-00-018 for specific instructions.
- in the long term:	Inspection, Test	Yes þ No o
•   Description:
See TD-00-018 for specific requirements.
Breeze-Eastern Corporation		UAE
Name: T. F. McLoughlin
Date:   January 22, 2007
Signature:

DP3/ 38

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Robert L.G. White, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Breeze-Eastern Corporation;

     2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

     3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

          (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          (b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

          (c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

          (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;

          (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 6, 2008	/s/ Robert L.G. White
	Robert L. G. White
	President & Chief Executive Officer

31

EX-31.2

EXHIBIT 31.2

I, Joseph F. Spanier, certify that:

     1. I have reviewed this quarterly report on Form 10-Q of Breeze-Eastern Corporation;

     2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

     3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

          (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          (b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

          (c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

          (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;

          (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 6, 2008	/s/ Joseph F. Spanier
	Joseph F. Spanier
	Chief Financial Officer

32

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Breeze-Eastern Corporation (the “Company”) on Form 10-Q for the quarterly period ended December 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the date indicated below, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 6, 2008	/s/ Robert L.G. White
	Robert L.G. White,
	President & Chief Executive Officer
Date: February 6, 2008	/s/ Joseph F. Spanier
	Joseph F. Spanier,
	Chief Financial Officer

33