<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1994
REGISTRATION NO. 33-53113
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ROHR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-1607455
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
850 LAGOON DRIVE
CHULA VISTA, CALIFORNIA 91910
(619) 691-4111
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
R. W. MADSEN
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ROHR, INC.
850 LAGOON DRIVE
CHULA VISTA, CALIFORNIA 91910
(619) 691-2025
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
RHONDA S. WAGNER, ESQ. THOMAS C. SADLER, ESQ.
GIBSON, DUNN & CRUTCHER LATHAM & WATKINS
750 B STREET, SUITE 3300 633 WEST FIFTH STREET, SUITE 4000
SAN DIEGO, CALIFORNIA 92101 LOS ANGELES, CALIFORNIA 90071-2007
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
The Prospectus relating to the Senior Notes being registered hereby (the
"Senior Notes Prospectus") is set forth following this page. The Prospectus to
be used in connection with a concurrent offering by Rohr, Inc. of Convertible
Subordinated Notes follows the Senior Notes Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
APRIL 19, 1994
PROSPECTUS
$100,000,000
ROHR, INC. [LOGO OF ROHR]
% SENIOR NOTES DUE 2003
The % Senior Notes due 2003 (the "Senior Notes") are being issued by Rohr,
Inc. ("Rohr" or the "Company") and will mature on , 2003. Interest on
the Senior Notes is payable semiannually, on and of each year,
commencing , 1994. The Senior Notes are redeemable at the option of
the Company, in whole or in part, at any time on and after , 1999, at
the redemption prices specified herein, plus accrued interest. The Senior Notes
do not provide for any sinking fund. Upon a Change of Control (as defined), the
holders of the Senior Notes will have the right, subject to certain
restrictions and conditions, to require the Company to purchase all or any part
of the Senior Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of purchase.
In connection with the offering of the Senior Notes (the "Offering"), the
Company is concurrently offering, pursuant to a separate prospectus (together
with the Offering, the "Offerings"), $50 million aggregate principal amount
(assuming no exercise of the Underwriter's over-allotment option) of its %
Convertible Subordinated Notes due 2004 (the "Convertible Subordinated Notes"
and, together with the Senior Notes, the "Securities"). See "Description of
Concurrent Financing."
The Senior Notes will be general unsecured obligations of the Company, senior
in right of payment to all existing and future subordinated indebtedness of the
Company and pari passu in right of payment with all other existing and future
senior indebtedness of the Company. The Senior Notes will be effectively
subordinated to all indebtedness and other liabilities of the Company's
subsidiaries. As of January 30, 1994, after giving effect to the Offerings and
the anticipated use of the proceeds therefrom, the Company would have had
approximately $157.8 million of pari passu indebtedness (excluding the Senior
Notes), and $315.0 million of subordinated indebtedness, outstanding (assuming
no exercise of the Underwriter's over-allotment option). In addition, there
would have been approximately $32.7 million of indebtedness and other
liabilities of the Company's subsidiaries at such date.
AN INVESTMENT IN THE SENIOR NOTES INVOLVES A SIGNIFICANT DEGREE OF RISK. SEE
"RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE SENIOR NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY(2)
<S> <C> <C> <C>
Per Note..................................... % % %
Total........................................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from , 1994 to the date of
delivery.
(2) Before deducting expenses payable by the Company, estimated at $ .
The Senior Notes are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Senior Notes will be made at the office of
Salomon Brothers Inc, Seven World Trade Center, New York, New York or through
the facilities of The Depository Trust Company, on or about , 1994.
_____________________
SALOMON BROTHERS INC
- --------------------------------------------------------
The date of this Prospectus is , 1994.
<PAGE>
INSERT PICTURES
2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Securities and Exchange
Commission (the "Commission") by Rohr pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), are incorporated herein by reference
and made a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1993;
(2) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended October 31, 1993 and January 30, 1994; and
(3) The Company's Current Report on Form 8-K, dated May 2, 1994.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering made hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such document.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER OF SENIOR NOTES, TO WHOM THIS PROSPECTUS IS DELIVERED, UPON
THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE
DOCUMENTS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE INTO SUCH DOCUMENTS). SUCH REQUESTS SHOULD BE DIRECTED TO: ROHR,
INC., ATTN.: SHAREHOLDER SERVICES, P.O. BOX 878, CHULA VISTA, CALIFORNIA 91912-
0878, (619) 691-2808.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (together with all
amendments and exhibits thereto, the "Registration Statement") with the
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities. This Prospectus does not contain all of the
information set forth in such Registration Statement, certain portions of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected, without
charge, and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
the following regional offices of the Commission: Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and
other information can also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005 and The Pacific Stock
Exchange Incorporated, 301 Pine Street, San Francisco, California 94104.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere or incorporated by reference in this Prospectus. Investors should
carefully consider the information set forth under the heading "Risk Factors."
Market discussions and references to aircraft production exclude consideration
of markets in the former U.S.S.R.
THE COMPANY
Rohr, Inc. ("Rohr" or the "Company") designs, develops, manufactures, sells
and supports complete nacelle and pylon systems for large aircraft engines. The
Company has over 50 years of experience in the aerospace industry and is the
leading independent supplier of nacelle and pylon systems to the world's major
commercial airframe and engine manufacturers ("OEMs"). Rohr manages projects
from the early design stage through production and systems integration to
lifetime customer support. In addition, the Company has the right to provide
customer and product support directly to approximately 145 airlines around the
world, including on-site field services and the sale of spare parts.
Nacelles are aerodynamic structures which surround jet engines. A nacelle
system generally includes the nose cowl or inlet, fan cowl, nozzle systems,
thrust reverser and engine build-up ("EBU"). Pylons (sometimes referred to as
struts) are the structures that attach the jet engines to the aircraft. Nacelle
and pylon systems are highly engineered, critical to fuel efficiency and
integral to all of the key interfaces between the jet engine and the airframe.
The Company believes that it is competitively well-positioned in its core
business. Management estimates that the Company supplied approximately 45% of
the nacelle systems and 25% of the pylons for all large commercial aircraft
produced worldwide in 1993, including products represented on the Boeing 737,
747, 757 and 767, the Airbus A300, A310, A320, A321, A330 and A340, and the
McDonnell Douglas MD-80 and MD-11. The Company attributes its strong market
position to its leading technologies, its focus on a specific product line and
its competitive cost structure. Management believes that this market position
is protected by (i) Rohr's long-term contracts, including some "life-of-
program" agreements, (ii) the substantial costs required for the airframe or
engine OEMs to change supply sources, (iii) the significant up-front design,
development, tooling and certification costs which must be borne before
production on a program may begin and (iv) a strong reluctance by airlines to
support different nacelle systems manufactured by more than one supplier.
Rohr's management intends to maintain the Company's leading market position
by supplying its customers with high-quality, technically-advanced products at
competitive prices while improving profitability and returns to investors.
Management plans to accomplish this goal by (i) focusing on its core product
line and on customer satisfaction, (ii) continuing to reduce costs and improve
productivity, (iii) capitalizing on past investments in product lines and fixed
assets and (iv) implementing a financing plan to improve the Company's capital
structure and liquidity.
Focus on Core Business: Over the past year, the Company has increased its
focus on its core business within the commercial aerospace industry--the design
and manufacture of nacelle and pylon systems for large commercial aircraft. The
Company intends to focus exclusively on these products and to be the low cost
producer in this segment. The Company is currently in negotiations to sell two
non-core businesses, its business jet product line and its overhaul and repair
business. These two businesses generated approximately $35 million of revenue
in fiscal 1993.
4
<PAGE>
In April 1993, Robert H. Rau was recruited from outside the Company and
appointed President and Chief Executive Officer. Under his leadership, new
management has placed increased emphasis on enhancing its customers'
satisfaction. Management believes these efforts have contributed to the strong
relationships that the Company currently has with customers.
Cost Improvement Program: New management has taken aggressive actions to
increase competitiveness, improve earnings, maximize cash flow and reduce debt.
From April 30, 1993 (the end of the third quarter of fiscal 1993) to January
30, 1994 (the end of the second quarter of fiscal 1994), total employment was
reduced over 30% from 7,450 employees to 5,154. The ratio of indirect employees
to direct employees has improved from 1-to-2.0 to 1-to-2.6 over this same time
frame. Management has targeted a ratio of 1-to-2.8 by July 31, 1994. Management
has established a total overhead expense budget equal to 29% of sales for
fiscal 1994, which compares to a high of 41% of sales in fiscal 1989 and 32% of
sales for the 12 months ended January 30, 1994. Total overhead peaked at $477
million in fiscal 1991, was reduced to $327 million for the 12 months ended
January 30, 1994, and is budgeted for $267 million in fiscal 1994.
Coincident with these overhead reductions, the Company has increased its
effort to streamline its operations and reduce material costs. To reduce excess
capacity and to increase overall production efficiencies through higher
utilization of its remaining facilities, the Company has closed and sold the
Auburn, Washington plant, is closing the Hagerstown, Maryland plant and has
deferred completion of a new facility in Arkadelphia, Arkansas.
Modest Future Investment Requirements: During the five-year period ended July
31, 1993, the Company invested significantly in the design, development,
tooling, certification and other start-up costs associated with new aircraft
programs. Although the Company intends to aggressively pursue all important new
nacelle programs, management anticipates that few program introductions will be
made by airframe and engine manufacturers during the next five years.
Management believes that this slow down in new product introductions will
enable the Company to focus on efficiencies in existing programs, protect its
current market share and generate increased cash flow without the investments
required for new product development.
In addition, capital expenditures (including expenditures funded by
industrial revenue bonds and capital leases) averaged $45 million per year over
the past five fiscal years. During that period, the Company spent $109 million
for upgraded production and office facilities. No new facilities will be
required over the next five years. Management anticipates that capital
expenditures will total approximately $7 million in fiscal 1994 and that
capital expenditures over the subsequent four years will average less than $20
million per year.
Financing Plan: The Company has adopted a financing plan to enhance its
liquidity, extend the maturity of its bank credit facility and improve its
financial flexibility. The financing plan is comprised of three components: (i)
amendments to a three-year revolving credit agreement (the "Revolving Credit
Agreement"), providing an initial commitment of $110 million, (ii) amendments
to certain other financing agreement and (iii) the offering of $100 million of
Senior Notes and the offering of $50 million of Convertible Subordinated Notes
(assuming no exercise of the Underwriter's over-allotment option).
5
<PAGE>
RECENT FINANCIAL PERFORMANCE
The Company believes that its performance for the three most recent fiscal
quarters represents meaningful evidence of the Company's financial turnaround.
For the nine-month period ended January 30, 1994, the Company recorded an
operating profit margin of 6.0%, net income margin of 1.1% and EBITDA of $62.7
million. During the same nine-month period, the Company generated $78.1 million
in cash from operating activities and reduced total financings (debt plus off-
balance sheet financings) by $94.4 million from $681.4 million at May 2, 1993
to $587.0 million at January 30, 1994.
SELECTED UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JULY 31, 1994 FISCAL YEAR ENDED JULY 31, 1993
----------------- ----------------------------------------
SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating Income (Loss). $ 14,594 $ 17,064 $ 12,710 $(23,367) $ (7,534) $ 16,503
Operating Margin........ 6.1% 7.0% 5.0% (7.9)% (2.2)% 5.8%
EBITDA(1)............... $ 20,642 $ 22,709 $ 19,314 $ 7,959 (2) $ (1,330) $ 22,947
Capital Expenditures.... 1,474 1,475 4,647 4,011 6,993 11,885
Cash Provided by (Used
In) Operating Activi-
ties................... 27,284 17,644 33,168 81,071 (19,814) (15,757)
Total Financings(3)..... $586,982 $618,380 $643,855 $681,412 $740,490 $601,987
Employee Data:
Direct Employees....... 3,727 4,081 4,334 4,994 5,823 6,047
Indirect Employees..... 1,427 1,705 2,130 2,456 2,678 2,795
-------- -------- -------- -------- -------- --------
Total Employees...... 5,154 5,786 6,464 7,450 8,501 8,842
</TABLE>
- --------
(1) EBITDA represents earnings before the cumulative effect of the accounting
changes, interest and other income, interest expense, taxes on income
(benefit), depreciation, amortization and the impact of the special
provisions referred to in note (2) below. EBITDA is presented here to
provide additional information about the Company's ability to meet its
future debt service, capital expenditure, and working capital requirements
and should not be construed as a substitute for or a better indicator of
results of operations or liquidity than net income or cash flow from
operating activities computed in accordance with generally accepted
accounting principles.
(2) EBITDA is adjusted for the impact of the net provision of $25.0 million for
plant closure, inventory obsolescence and other asset valuation, other
costs related to the planned consolidation process and various items of
litigation.
(3) Includes off-balance sheet financings. See "Capitalization."
----------------
The Company's principal executive offices are located at 850 Lagoon Drive,
Chula Vista, California. The Company's mailing address is P. O. Box 878, Chula
Vista, California 91912-0878, and its telephone number is (619) 691-4111.
6
<PAGE>
THE OFFERING
Issue....................... $100,000,000 principal amount of % Senior
Notes due 2003.
Maturity.................... , 2003.
Interest Payment Dates...... and of each year,
commencing , 1994.
Optional Redemption......... The Senior Notes are redeemable, at the Company's
option, in whole or from time to time in part, on
and after , 1999, at the redemption prices
specified herein, plus accrued interest. See
"Description of Senior Notes--Optional
Redemption."
Ranking..................... The Senior Notes will be general unsecured
obligations of the Company ranking senior in
right of payment to all existing and future
subordinated indebtedness of the Company and pari
passu in right of payment with the Company's
other existing and future senior indebtedness.
The Senior Notes will be effectively subordinated
to all indebtedness and other liabilities of the
Company's subsidiaries. As of January 30, 1994,
after giving effect to the Offerings and the
anticipated use of proceeds therefrom, the
Company would have had approximately $157.8
million of pari passu indebtedness (excluding the
Senior Notes) and $315 million of subordinated
indebtedness outstanding (assuming no exercise of
the Underwriter's over-allotment option). In
addition, there would have been approximately
$32.7 million of indebtedness and other
liabilities of the Company's subsidiaries at such
date.
Change of Control........... In the event of a Change of Control, the Company
will be required, subject to certain conditions
and limitations, to offer to purchase all Senior
Notes then outstanding at a purchase price equal
to 101% of the aggregate principal amount of the
Senior Notes plus accrued and unpaid interest to
the date of purchase. There can be no assurance
that the Company will have sufficient cash to pay
the Change of Control purchase price in the event
that a Change of Control occurs. See "Description
of Senior Notes--Change of Control."
Sale of Assets.............. The Company may be required, subject to certain
conditions and limitations, to offer to purchase
certain of the Senior Notes at 100% of the
aggregate principal amount thereof, plus accrued
and unpaid interest, in the event of an Asset
Sale (as defined). See "Description of Senior
Notes--Certain Covenants--Limitation on Sale of
Assets."
Certain Covenants........... The Indenture will contain certain covenants,
which, among other things, will limit the
Company's ability to incur additional
indebtedness, pay dividends, make certain other
distributions and create liens, sell assets,
enter into certain transactions
7
<PAGE>
with affiliates or merge, consolidate or transfer
substantially all of its assets. The provisions
of the Indenture would not necessarily afford
holders of the Senior Notes protection in the
event of a highly leveraged transaction,
reorganization, restructuring, merger or similar
transaction that may adversely affect the holders
of Senior Notes. See "Description of Senior
Notes--Certain Covenants."
Use of Proceeds............. Proceeds from the sale of the Senior Notes will
be used to repay all outstanding amounts under
the Company's Revolving Credit Agreement to the
extent necessary after application of the net
proceeds of the offering of Convertible
Subordinated Notes, and for general corporate
purposes. See "Use of Proceeds."
Risk Factors................ An investment in the Senior Notes involves a
significant degree of risk. For a discussion of
certain material factors to be considered by
potential investors, see "Risk Factors."
Concurrent Offering......... The Company is concurrently offering, pursuant to
a separate prospectus, $50 million in aggregate
principal amount of Convertible Subordinated
Notes (assuming no exercise of the Underwriter's
over-allotment option). See "Description of
Concurrent Financing." The sale of the Senior
Notes will be conditioned on the simultaneous
sale of the Convertible Subordinated Notes.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth a summary of selected financial and operating
data of the Company for each of the periods indicated in the five-year period
ended July 31, 1993, which were derived, except as otherwise noted, from the
audited Consolidated Financial Statements of the Company. The table also sets
forth selected financial and operating data for the six-month periods ended
January 30, 1994, and January 31, 1993, which were derived from unaudited
interim Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
------------------- ---------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993(A) 1992 1991 1990 1989
-------- --------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales......................... $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Operating Income (Loss)....... 31,658 8,969 (1,688)(b) 45,558(c) 100,578 31,605 75,044
Income (Loss) Before Taxes and
Cumulative Effect of
Accounting Changes........... 7,977 (13,801) (49,571) (17,815) 46,877 (9,001) 46,080
Income (Loss) Before
Cumulative Effect of
Accounting Changes........... 7,735 (8,515) (30,581) 1,455 30,517 39 33,480
Net Income (Loss)............. 7,735 (232,465)(d) (254,531)(d) 1,455 30,517 39 33,480
Net Income (Loss) Per Share:
Income (Loss) Before
Cumulative Effect of
Accounting Changes.......... $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 $ 0.00 $ 1.90
Net Income (Loss)(d)......... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 $ 0.00 $ 1.90
BALANCE SHEET DATA AT
PERIOD END:
Working Capital............... $358,453 $ 447,476 $ 350,321 $ 700,774 $ 712,520 $ 640,461 $ 549,799
Property, Plant and Equipment,
Net.......................... 230,849 245,948 239,045 270,283 237,434 234,166 204,911
Total Assets.................. 967,566 1,130,164 1,017,786 1,363,958 1,411,498 1,329,308 1,166,828
Total Debt(e)................. 483,425 628,243 531,608 572,594 636,070 551,227 426,390
Total Shareholders' Equity.... 190,229 217,336 182,243 448,866 441,401 413,713 412,387
OTHER DATA:
EBITDA(f)..................... $ 43,351 $ 21,617 $ 48,890 $ 123,413 $ 128,299 $ 58,645 $ 99,880
Capital Expenditures(g)....... 2,949 18,878 27,536 62,933 32,383 28,923 39,005
Ratio of Earnings to Fixed
Charges(h)................... 1.31x 0.40x 0.01x 0.72x 1.81x 0.83x 2.27x
EBITDA to Interest Expense(f). 1.79x 0.93x 1.00x 1.84x 2.34x 1.09x 3.13x
PRO FORMA DATA TO REFLECT
ACCOUNTING CHANGES
(UNAUDITED)(I):
Pro Forma Net Income
(Loss)(i).................... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680)
Pro Forma Net Income (Loss)
per Share.................... 0.43 (0.48) (1.71) (2.05) (1.31) (3.29) (0.49)
Pro Forma EBITDA(f)(j)........ 43,351 21,617 48,890 62,269 41,727 (36,182) 31,549
ADJUSTED DATA TO REFLECT
OFFERINGS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES
(UNAUDITED)(K):
Net Income (Loss)............. $ 4,412 $ (36,495)
Net Income (Loss) per Share... 0.24 (2.04)
Ratio of Earnings to Fixed
Charges(h)(l)................ 1.07x 0.01x
EBITDA to Interest Expense(f). 1.48x 0.85x
</TABLE>
9
<PAGE>
- --------
(a) Fiscal 1993 results reflect the Company's adoption, in the third quarter,
of changes to certain elements in the application of accounting principles
relating to long-term programs and contracts, including the expensing of
general and administrative costs that were previously carried in inventory
for amortization over future deliveries. The amounts also reflect the
Company's adoption of SFAS No. 106, "Employers' Accounting for Post-
Retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for
Income Taxes." The accounting changes described above were effective August
1, 1992. As a result, periods prior to August 1, 1992 are not comparable.
(b) Includes the impact of net provisions of $25.0 million for plant closure,
inventory obsolescence and other asset valuations, other costs related to
the planned consolidation process and various items of litigation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Fiscal 1993 Compared to Fiscal 1992."
The impact of the accounting change on fiscal 1993 was a reduction to
operating profit of $39.9 million.
(c) Includes the impact of special provisions of approximately $50.0 million
for the termination of the Lockheed C-5 spare pylon program, the Valsan 727
re-engining program, an investigation by government agencies concerning
production of parts and a provision for the closing of the Auburn plant.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Fiscal 1992 Compared to
Fiscal 1991."
(d) In the third quarter of fiscal 1993, the Company changed certain of its
accounting principles as described in note (a) above. These changes
required the Company to calculate the effect of the change in accounting
principles on retained earnings as of the first day in the fiscal year of
change.
(e) Excludes off-balance sheet financing. See "Capitalization."
(f) EBITDA is defined as earnings before the cumulative effect of the
accounting changes, interest and other income, interest expense and taxes
on income (benefit) and depreciation, amortization and the impact of the
special provisions referred to in notes (b) and (c) above. EBITDA is
presented here to provide additional information about the Company's
ability to meet its future debt service, capital expenditure, and working
capital requirements and should not be construed as substitute for or a
better indicator of results of operations or liquidity than net income or
cash flow from operating activities computed in accordance with generally
accepted accounting principles.
(g) Includes capitalized interest; excludes additions to property, plant and
equipment financed by industrial revenue bonds and capital leases.
(h) For purposes of determining the ratio of earnings to fixed charges, the
term "earnings" represents income (loss) before cumulative effect of
accounting changes, plus income tax (benefit) and fixed charges excluding
capitalized interest. The term "fixed charges" represents interest expense,
capitalized interest, amortization of debt issue expense and the portion of
operating lease rental expense considered to be representative of an
interest factor. Historical earnings were insufficient to cover fixed
charges by $14,886 for the six months ended January 31, 1993 and $51,184
for fiscal 1993, $19,312 for fiscal 1992 and $9,604 for fiscal 1990.
(i) The Pro Forma Data to Reflect Accounting Changes (Unaudited) assumes the
changes in the application of accounting principles for long-term programs
and contracts adopted by the Company effective August 1, 1992, are applied
retroactively. The pro forma amounts presented also reflect the retroactive
application of SFAS No. 109, "Accounting for Income Taxes" to the periods
presented--periods which predate both the Company's adoption of SFAS No.
109 and the release of that standard. Tax benefits arising pursuant to SFAS
No. 109, "Accounting for Income Taxes", are allocated ratably over the pro
forma restated periods. The pro forma restated effect of the Company's
adoption of SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other Than Pensions" are not material and are not presented. The
pro forma financial data should not be considered indicative of actual
results that would have been achieved had the accounting changes adopted by
the Company effective August 1, 1992 been in effect for the periods
indicated and do not purport to indicate results of operations as of any
future date or for any future period. The following information should be
read in conjunction with "Selected Consolidated Financial and Operating
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the "Consolidated Financial Statements of Rohr,
Inc. and Subsidiaries" and the Notes thereto, included elsewhere in this
Prospectus.
10
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
----------------- ----------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA INCOME STATE-
MENT DATA (UNAUDITED):
Sales.................. $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Cost and Expenses...... 439,719 594,568 1,133,040 1,242,240 1,321,792 1,092,150 996,313
General and Adminis-
trative Expenses(a)... 13,446 22,467 43,800 53,002 49,288 49,784 41,651
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating Income
(Loss)................ 31,658 8,969 (1,688)(b) (15,586)(c) 14,006 (63,222) 6,713
Interest Net........... 23,681 22,770 47,883 63,373 53,701 40,606 28,964
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (Loss) before
Taxes................. 7,977 (13,801) (49,571) (78,959) (39,695) (103,828) (22,251)
Taxes (Benefit) on
Income................ 242 (5,286) (18,990) (42,688) (16,797) (45,359) (13,571)
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss).... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680)
======== ======== ========== ========== ========== ========== ==========
</TABLE>
- --------
(j) The calculation of pro forma EBITDA is shown below (unaudited):
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
----------------- ---------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Income, as
Reported............... $31,658 $ 8,969 $(1,688)(b) $ 45,558 (c) $100,578 $ 31,605 $75,044
Less Changes in the Ap-
plication of Account-
ing Principles for
Long-Term Programs and
Contracts............. -- -- -- 61,144 86,572 94,827 68,331
------- ------- ------- -------- -------- -------- -------
Pro Forma Operating In-
come (Loss)............ 31,658 8,969 (1,688) (15,586) 14,006 (63,222) 6,713
Add Depreciation and
Amortization........... 11,693 12,648 25,578 27,855 27,721 27,040 24,836
------- ------- ------- -------- -------- -------- -------
Pro Forma Earnings...... 43,351 21,617 23,890 12,269 41,727 (36,182) 31,549
Add Special Provisions.. -- -- 25,000 50,000 -- -- --
------- ------- ------- -------- -------- -------- -------
Pro Forma EBITDA........ $43,351 $21,617 $48,890 $ 62,269 $ 41,727 $(36,182) $31,549
======= ======= ======= ======== ======== ======== =======
</TABLE>
- --------
(k) The unaudited adjusted data to reflect the Offerings assumes the financial
data has been adjusted for the effect of the Offerings and the
corresponding repayment of the outstanding balance under the Revolving
Credit Agreement and short-term bank debt as of the first day of each
fiscal period, and assumes no exercise of the Underwriter's over-allotment
option.
(l) Ratio of earnings to fixed charges as adjusted to reflect the Offerings,
reflects the issuance of Senior Notes and the Convertible Subordinated
Notes (assuming no exercise of the underwriter's over-allotment option) and
the application of proceeds therefrom, as if the Offerings had been
consummated as of the first day of each fiscal period. On such basis,
earnings were insufficient to cover the pro forma fixed charges by $60,769
for fiscal 1993.
11
<PAGE>
RISK FACTORS
An investment in the Securities involves a significant degree of risk. A
prospective investor should consider carefully all of the information contained
in this Prospectus before deciding whether to purchase the Securities and, in
particular, should consider the following:
HIGH LEVERAGE; DEBT SERVICE REQUIREMENTS
The Company is highly leveraged. At January 30, 1994, after giving pro forma
effect to the sale of the Securities and the repayment of certain indebtedness
with a portion of the estimated net proceeds of the Offerings, the Company
would have had consolidated total financings of approximately $687.0 million
(including $583.4 million of indebtedness and $103.6 million of off-balance
sheet sale-leaseback and accounts receivable financings and assuming no
exercise of the Underwriter's over-allotment option) and $123.1 million of
cash. See "Capitalization" and "Use of Proceeds." At January 30, 1994, the
Company's shareholders' equity was approximately $190.2 million, which does not
reflect certain anticipated charges to shareholders' equity in connection with
the Company's underfunded pension plans. In addition, at January 30, 1994, the
Company had a $102.6 million net deferred tax asset recorded in accordance with
SFAS No. 109, "Accounting for Income Taxes." See "--Deferred Tax Assets" and"--
Underfunded Pension Plans."
The Company has reported net income for each of the last three fiscal
quarters. On a pro forma basis, however, after giving effect to the accounting
changes adopted by the Company effective August 1, 1992, the Company would have
reported losses for each of the last five fiscal years and its pro forma
earnings would have been insufficient to cover fixed charges for each of such
fiscal years. See "Selected Consolidated Financial and Operating Data." The
Company's ability to make interest payments on the Securities and its other
financing obligations depends upon its future financial performance, including
earnings and cash flow from operations. On an adjusted basis, after giving
effect to the issuance of the Securities and the application of the proceeds
therefrom (assuming no exercise of the Underwriter's over-allotment option),
earnings (pre-tax income plus fixed charges) would have been $60.8 million less
than the adjusted fixed charges (which represent interest expense, capitalized
interest, amortization of debt issue expense and the portion of operating lease
rental expense considered to be representative of an interest factor) in fiscal
1993. For the six months ended January 30, 1994, however, adjusted earnings
would have been $2.2 million greater than adjusted fixed charges. Available
cash flow to service debt could be adversely affected by certain pension
funding requirements. See "--Underfunded Pension Plans." The degree to which
the Company is leveraged could have important consequences to holders of the
Securities, including the following: (1) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures or
general corporate purposes may be impaired; (2) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
interest on its indebtedness; and (3) the Company's leverage may make it more
vulnerable to future economic downturns and may limit its ability to withstand
competitive pressures. Based upon current levels of operations and anticipated
future business, the Company believes that cash flow from operations together
with available cash, borrowings under the Revolving Credit Agreement and other
sources of liquidity, will be adequate to meet the Company's anticipated
requirements for working capital, capital expenditures, interest payments and
scheduled principal payments. There can be no assurance, however, that the
Company's business will continue to generate cash flow at or above current
levels. If the Company is unable to generate sufficient cash flow from
operations in the future, it may be required to refinance all or a portion of
its existing debt or to obtain additional financing. There can be no assurance
that any such refinancing would be possible or that any additional financing
could be obtained on terms that are favorable or acceptable to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNDERFUNDED PENSION PLANS
The Company has substantial obligations related to its defined benefit
pension plans (the "Pension Plans"). As of July 31, 1993, the Company's
actuaries have determined that the Pension Plans were
12
<PAGE>
underfunded by $65.6 million on an ongoing plan basis. The underfunding
resulted from a combination of factors, including benefit increases, increased
levels of early retirement, less than actuarially-assumed returns on plan
assets and a reduction in the discount rate used to calculate the present value
of future liabilities of the Pension Plans for financial reporting purposes.
The Company is currently assessing certain additional decisions and actions
affecting the Pension Plans. It is anticipated that the unfunded liabilities
with respect to the Pension Plans will be increased by approximately $75
million on an ongoing basis due to an anticipated reduction in the discount
rate used to calculate the present value of future liabilities under the
Pension Plans from 8.5% to 7.5% and to a higher-than-previously-expected level
of early retirements. As a result of the anticipated increase in the unfunded
liabilities, the Company expects to take a direct charge to shareholders'
equity estimated at $45 million and to increase its deferred tax account by
approximately $30 million. In addition, the Company and its actuaries are
evaluating the extent to which the downsizing of personnel may necessitate the
expensing of certain unamortized pension benefit past service costs related to
the terminated employees. This would not increase the underfunded status of the
Pension Plans, but would result in an additional charge to earnings for
financial statement purposes. The Company expects that the evaluation of the
above described items and the recognition of the financial impact will be
completed by the end of the third quarter of fiscal 1994. Concurrent with the
consummation of the Offerings, the financial covenants in several of the
Company's principal financing agreements will be amended to accommodate the
anticipated impact of these matters on its reported financial results. See
"Description of Certain Financings."
IRS regulations will require the Company to increase its contribution to the
Pension Plans. Consistent with these IRS requirements, it is the Company's
current intention to have the Pension Plans fully funded within approximately
five years. The Company's minimum cash contributions to its Pension Plans,
based on current IRS regulations, are therefore expected to increase from the
current level of approximately $17 million in fiscal 1994 to an average of
approximately $35 million per year in fiscal years 1995, 1996 and 1997 and to
decline thereafter. The Company expects to have sufficient liquidity to make
these contributions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." In
addition, minimum cash contributions for these years may increase as a result
of legislation which has been introduced in Congress. The prospects for the
passage of such legislation are uncertain.
The calculation of the amount of underfunding of the Pension Plans for
financial reporting and IRS minimum funding purposes assumes continued
employment with projections for retirements, mortality, resignations and
discharges and also includes assumptions relating to the discount rate, plan
asset values and other matters. The Company and its actuaries review these
assumptions on a regular basis. If it were to become necessary to make
additional reductions in the discount rate, or to make certain other changes in
the existing assumptions, the Pension Plans' liabilities and underfunded status
might be increased. Such changes could adversely affect the Company because of
the increase in recorded liabilities, decreases in shareholders' equity and
increases in IRS minimum funding requirements.
INDUSTRY CYCLES; CURRENT BUSINESS OUTLOOK
The commercial aerospace industry is a cyclical business and the demand by
commercial airlines for new aircraft is highly dependent upon a variety of
factors, which historically have been related to the stability and health of
the United States and world economies. The industry typically lags behind the
general economic cycle because it can take up to two years to manufacture an
aircraft. Although the United States economy entered a period of slow growth
and recession in 1989 and 1990, the aerospace industry made record deliveries
of large commercial aircraft, by revenue, during these years. In fact, aircraft
deliveries continued to grow through 1991 and only decreased slightly in 1992.
In 1990 through 1992, United States scheduled airlines suffered record
operating losses of more than $2 billion per year. Non-United States scheduled
airlines also reported significantly reduced profits during this period. As a
result of the losses incurred by the airlines, the high levels of debt incurred
to
13
<PAGE>
purchase new aircraft and the excess capacity within the commercial airline
sector, airlines and leasing companies deferred existing orders for new
aircraft to an unprecedented extent and, to a lesser degree, canceled such
orders. All of the Company's major customers received numerous requests for
deferrals and cancellations from the airlines and leasing companies and slowed
their aircraft delivery rates. In response to the deferrals and cancellations
from their customers, airframe and engine manufacturers reacted by rescheduling
future production levels, laying off workers and passing production slow-downs
on to their suppliers, including the Company. The large number of aircraft
delivered over the last several years has created an excess capacity in the air
carrier system, as evidenced by the fact that a substantial number of new and
used aircraft are currently inactive. Reactivated aircraft could replace or
postpone new aircraft deliveries in the future. The Company expects that orders
from and deliveries of large commercial aircraft will continue to be affected
through calendar 1995 by the adverse United States and world economic
conditions which have existed in recent periods. It appears, however, that the
health of the airline industry is improving. In calendar 1993, United States
scheduled airlines reported operating income of approximately $1 billion. There
can be no assurance that the improved operating health of the commercial
airlines will continue or that deliveries of large commercial aircraft will not
continue to be affected beyond calendar 1995.
In connection with the current contraction in the commercial aircraft
industry, subcontractors such as Rohr have been experiencing pressures from
their customers to reduce prices. The Company, in turn, is exerting similar
pressure on its own suppliers to reduce prices and thus enable the Company to
manufacture products at lower costs. There can be no assurance that such
reductions in prices by Rohr's suppliers will be achieved. See "Business--
Markets."
RECOVERY OF PROGRAM INVESTMENTS
The development of a new aircraft, or a variation of an existing aircraft,
requires significant investments for pre-production costs such as design and
engineering, tooling, testing and certification. Competitive pressures forced
suppliers such as the Company to bear a significant amount of the cost and
investment risk associated with the large number of new programs under
development in the 1980s. During this period, the Company also experienced
substantial production inventory increases as it began to produce and deliver
products under new programs.
In response to these competitive market pressures, the Company agreed on
several of its significant contracts to finance a substantial portion of its
pre-production costs, with such costs to be recovered ratably as a specified
number of units, including spare equivalents, are sold. As a result of these
agreements, the Company's inventory included $199.4 million of capitalized pre-
production costs at January 30, 1994. See "Notes to the Consolidated Financial
Statements--Note 4." On some of these contracts, the prime contractor has
agreed to pay the Company for a portion of its pre-production costs if a
specified number of units is not sold by an agreed upon date or if the contract
is terminated before the specified number of units is delivered. However, on
other programs, the Company agreed, based upon its market analysis, to amortize
its pre-production costs over a specified number of units without receiving
such reimbursement protections from its customer if the specified number of
units is not sold. Based on its analysis of the demand for specific products,
the Company has also agreed on certain programs to a unit price which may not
be profitable, even after recovery of pre-production costs, if fewer units are
sold than the Company assumed for pricing purposes. If the Company's market
analysis with respect to these programs is incorrect, the Company could incur
substantial losses with respect to these programs. See "Business--Contracts,"
"Business--Program Funding" and "Notes to the Consolidated Financial
Statements--Notes 1.c and 4."
DEFERRED TAX ASSET
SFAS No. 109, "Accounting for Income Taxes," requires businesses to recognize
possible future tax benefits if it is "more likely than not" that the tax
benefits will be realized. Under this standard, on January 30, 1994, the
Company had a net deferred tax asset of $102.6 million, consisting of $85.4
14
<PAGE>
million for federal tax purposes and $17.2 million for state tax purposes.
(This net deferred tax asset is anticipated to increase by an additional $30
million in the third quarter of the current fiscal year as a result of an
increase in the Company's underfunded pension liabilities.) Based on current
tax rates, the Company must generate approximately $286 million of future
taxable income (net of $240 million of taxable income that the Company will
report as a result of the automatic reversal of existing taxable temporary
differences between asset and liability values for financial reporting and
income tax purposes) prior to the expiration of the Company's net operating
loss carryforwards ("NOLs") in 2003 through 2008 for full realization of the
net deferred tax asset. After the anticipated third quarter increase in the net
deferred tax asset, the amount of future taxable income the Company must
generate will be approximately $360 million. As with its other assets, the
Company will regularly re-evaluate the value of its net deferred tax asset. If
the Company were to determine that full realization of this asset is no longer
"more likely than not," it would be required to reduce the value of the asset
by establishing a valuation allowance. Such an allowance would reduce the
Company's earnings in the relevant period and, if it causes a loss in such
period, would reduce shareholders' equity. In addition, reductions in state or
federal tax rates, or limitations on the use of NOLs, as well as adjustments
resulting from any audit of the Company's tax returns, could reduce the value
of the Company's net deferred tax asset, again affecting earnings and
shareholders' equity. See "--Underfunded Pension Plans," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Income Taxes" and "Notes to the Consolidated Financial Statements--Note 6."
RESTRICTIVE COVENANTS
The Company's major financing agreements, as amended effective upon the
completion of the Offerings, require it to maintain specified financial
covenants, including a minimum Consolidated Tangible Net Worth (as defined in
such agreements to include the Company's net deferred tax asset), a minimum
ratio of Consolidated Net Income Available for Fixed Charges to Fixed Charges
(as defined in such agreements) and a maximum ratio of Debt (as defined in such
agreements to include the Company's underfunded pension liabilities) to
Consolidated Tangible Net Worth (each as defined in such agreements). Covenants
in these agreements also impose additional requirements on the Company,
including restrictions on its ability to create liens, enter into leases,
engage in mergers, consolidations and acquisitions, sell assets, repay debt
prior to its maturity, incur additional debt, amend other debt agreements,
declare and pay dividends, acquire company securities, and change the nature of
its business. A failure by the Company to maintain such financial ratios or to
comply with the restrictions contained in its Revolving Credit Agreement or
other financing agreements could result in a default thereunder, which in turn
could cause such indebtedness (and by reason of cross-default provisions, other
indebtedness) to become immediately due and payable, and would prevent the
Company from drawing any further amounts under its Revolving Credit Agreement.
As a result, any such default could have a material adverse effect on the
Company and its ability to make principal and interest payments on the
Securities. See "Description of Certain Financings" and "Description of Senior
Notes."
ENVIRONMENTAL MATTERS
As an international aerospace manufacturing corporation, the Company is
subject to foreign, federal, state and local laws and regulations that limit
the discharge of pollutants into the air, soil and water and establish
standards for the treatment, storage and disposal of hazardous wastes. As a
result, the Company is involved from time to time in administrative and
judicial proceedings and inquiries related to environmental matters. These
include several currently pending matters. The Company does not believe that
its environmental risks are materially different from those of comparable
manufacturing companies. Nevertheless, the Company cannot provide assurances
that environmental issues will not adversely affect the Company's operations
and financial condition in the future. Environmental risks are generally
excluded from coverage under the Company's current insurance policies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Legal and Environmental Matters."
15
<PAGE>
LIMITED CUSTOMER BASE
The Company conducts substantial business with each of the three major
commercial airframe manufacturers: The Boeing Company ("Boeing"), Airbus
Industrie ("Airbus") and McDonnell Douglas Corporation ("McDonnell Douglas").
In addition, the Company conducts business with each of the major commercial
jet engine manufacturers: General Electric Company ("General Electric"), Rolls-
Royce, plc ("Rolls-Royce"), United Technologies Corporation ("Pratt &
Whitney"), CFM International, Inc. (a corporation jointly owned by General
Electric and Societe Nationale d'Etude et de Construction de Moteurs
d'Aviation; "CFM International"), and International Aero Engines AG (a
corporation owned by Rolls-Royce, Pratt & Whitney, Fiat Aviazione, SpA,
Japanese Aero Engines Corporation and MTU Motoren-und Turbinen-Union Munchen
GmbH; "International Aero Engines"). Commercial products sold by the Company to
jet engine manufacturers are installed ultimately on aircraft produced by one
of the three major commercial airframe manufacturers. The Company's financial
condition and operations could be materially adversely affected if one or more
of its major customers were to reduce operations materially, shift a
significant amount of work from the Company or cease conducting operations. See
"Business."
COMPETITION
The Company's principal competition is Boeing (which, in addition to being a
customer, also manufactures nacelle systems and pylons for its own aircraft),
other significant aerospace companies who have development and production
experience with respect to portions of the nacelle system and the companies to
whom the Company has subcontracted various components and who could (and have)
bid on contracts in competition with the Company. See "Business--
Subcontractors." Military aerospace contractors are also potential competitors,
as excess capacity created by reductions in defense spending could cause some
of these contractors to look to expand in commercial markets.
Because of recent reductions in demand in the aircraft manufacturing
industry, excess production capacity exists in the market for a number of the
Company's principal products. While the Company has a significant share of the
market for commercial aircraft nacelles and pylons, there can be no assurance
that the Company can maintain its share of the market at existing levels. See
"Business-- Market Share and Competition."
REDUCED GOVERNMENT SALES
Government (military and space) sales accounted for approximately 12% of the
Company's total sales in the six months ended January 30, 1994, and 13% in the
fiscal year ended July 31, 1993. The Company expects that the percentage of
Company revenues attributable to government sales will continue to decline in
future years. The production rate for the Titan rocket motor casing program,
which accounted for 5.9% of revenues in fiscal 1993, is expected to decline
substantially in response to market demand. In addition, another company's
alternative technology casing approach may allow it to become a leading
competitor in the market for this product in the future. The Company's military
sales are primarily associated with older programs which are being phased out
of production.
RANKING OF THE SENIOR NOTES
The Senior Notes will be general unsecured obligations of the Company ranking
senior in right of payment to all existing and future subordinated indebtedness
of the Company and pari passu in right of payment with the Company's other
existing and future senior indebtedness. The Senior Notes will be effectively
subordinated to all indebtedness and other liabilities of the Company's
subsidiaries. As of January 30, 1994, after giving effect to the Offerings and
the anticipated use of the proceeds therefrom, the Company would have had
approximately $157.8 million of pari passu indebtedness (excluding the Senior
Notes) and $315 million of subordinated indebtedness outstanding (assuming no
exercise of the Underwriter's over-allotment option). None of the pari passu
indebtedness which was outstanding at January 30, 1994 was secured by assets of
the Company. In addition, there would have been approximately $32.7 million of
indebtedness and other liabilities of the Company's subsidiaries
16
<PAGE>
(excluding certain subsidiary indebtedness guaranteed by Rohr which is included
in the amount of pari passu indebtedness) and $103.6 million of off-balance
sheet sale-leaseback and accounts receivable financings outstanding. The
Company will have the ability to incur additional pari passu indebtedness,
including pursuant to its Revolving Credit Agreement under which no borrowings
are expected to be outstanding upon the completion of the Offerings.
In the event of any bankruptcy, liquidation or reorganization of the Company,
the assets of the Company will be available to pay the obligations under the
Senior Notes and any other unsecured pari passu indebtedness only after all
secured indebtedness of the Company and any other secured or priority claims,
including secured claims relating to the Company's underfunded pension
liabilities, as described below, have been paid in full. See "--Underfunded
Pension Plans" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources." After such
payments, there may not be sufficient assets remaining to pay amounts
outstanding under the Senior Notes, other unsecured pari passu indebtedness and
the Company's other unsecured and unsubordinated liabilities. In addition, the
assets of the Company's subsidiaries will be available to creditors of the
Company only after such subsidiaries obligations are satisfied in full.
Certain rights of the Pension Benefit Guaranty Corporation (the "PBGC") could
also affect the Company in connection with any such bankruptcy, liquidation or
reorganization. In general, the PBGC (an agency of the federal government)
guarantees certain benefits provided under defined benefit plans, such as the
Company's Pension Plans. If a plan is terminated (by either the sponsor or the
PBGC) and the sponsor of such plan does not pay the guaranteed benefits, the
PBGC will pay those benefits and then seek recovery of all unfunded benefits
from any company which contributes to such a plan and certain of its
affiliates. If the PBGC has a right to such a recovery, it also has a statutory
lien on all assets of such companies, up to a maximum of 30% of the net worth
of all companies liable for such amounts. Any claim in excess of the PBGC's
secured claim would be a general unsecured claim. The actuarial assumptions
used by the PBGC in assessing funding liabilities reflect a termination of the
plan rather than continued funding by the plan sponsor. This may result in a
substantially greater liability for benefits under the Company's Pension Plans
than is reflected in actuarial valuations for such plans prepared on an ongoing
basis.
ABSENCE OF PUBLIC MARKET FOR THE SECURITIES
The Securities comprise new issues of securities for which there is currently
no public market. If the Securities are traded after their initial issuance,
they may trade at a discount from their initial offering price as a result of
prevailing interest rates, the market for similar securities, the performance
of the Company and other factors. The Company does not intend to apply for the
listing of the Senior Notes on any securities exchange. Salomon Brothers Inc
(the "Underwriter") has informed the Company that its current intent is to make
a market in the Senior Notes. The Underwriter is not obligated to do so,
however, and any such market making may be discontinued at any time without
notice. The Company, therefore, cannot provide assurances as to whether an
active trading market will develop or will be maintained for the Securities.
See "Underwriting."
FINANCING PLAN
The Company has adopted a financing plan to enhance its liquidity, extend the
maturity of its Revolving Credit Agreement and improve its financial
flexibility. To meet these objectives, the Company is offering the Senior Notes
and the Convertible Subordinated Notes and, effective upon the completion of
the Offerings, amending its Revolving Credit Agreement and certain of its other
principal financing agreements.
Upon completion of the Offerings, the Company's existing unsecured Revolving
Credit Agreement will be amended to provide for an extended three-year term. As
part of this amendment, the principal financial covenants in the Revolving
Credit Agreement will be modified to provide the Company with greater financial
flexibility and to eliminate the previous requirement that the Company sell
additional subordinated debt. For a summary of the principal covenants to be
contained in the amended Revolving Credit Agreement, see "Description of
Certain Financings--Revolving Credit Agreement."
17
<PAGE>
The Company will also amend, effective upon the completion of the Offerings,
the financial covenants in the agreements governing its existing 9.35% and
9.33% Senior Notes in substantially the same manner as the financial covenants
in the Revolving Credit Agreement. For a summary of the principal covenants
contained in such agreements, see "Description of Certain Financings--9.35%
Senior Notes due 2000 and 9.33% Senior Notes due 2002."
USE OF PROCEEDS
The Company intends to use all of the net proceeds of the Convertible
Subordinated Notes offering and, to the extent necessary, a portion of the net
proceeds of the Senior Notes offering to repay, on the date of issuance of the
Securities, all of the amounts outstanding under the Company's Revolving Credit
Agreement. This repayment will not reduce the lenders' three-year commitment
under that agreement. The Revolving Credit Agreement will have an initial
availability of $110 million. As of May 1, 1994, the Company had $50 million
borrowed under its Revolving Credit Agreement. The Company intends to use the
remaining net proceeds for general corporate purposes. For additional
information concerning the term, interest rate and other provisions of the
Revolving Credit Agreement, see "Description of Certain Financings--Revolving
Credit Agreement."
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
and its subsidiaries as of January 30, 1994, and as adjusted to give effect to
(i) the sale of the Senior Notes, (ii) the sale of the Convertible Subordinated
Notes and (iii) the repayment of amounts outstanding under the Revolving Credit
Agreement. This table should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 30, 1994
-------------------
AS
ACTUAL(1) ADJUSTED
--------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and Short-Term Investments.......................... $ 28,768 $123,068
======== ========
Debt:
Revolving Credit Agreement(2).......................... $ 50,000 $ --
9.35% Senior Notes due 2000............................ 75,000 75,000
9.33% Senior Notes due 2002............................ 62,000 62,000
Senior Notes due 2003.................................. -- 100,000
Capital leases......................................... 11,102 11,102
Convertible Subordinated Notes due 2004................ -- 50,000(3)
9.25% Subordinated Debentures due 2017................. 150,000 150,000
7.00% Convertible Subordinated Debentures due 2012..... 115,000 115,000
Other debt............................................. 20,323 20,323
-------- --------
Total Debt(4)........................................ 483,425 583,425(3)
Shareholders' Equity:
Preferred Stock, $1 par value, 10,000,000 shares
authorized, no shares issued.......................... -- --
Common Stock, $1 par value, 50,000,000 shares autho-
rized, 18,017,930 shares issued(5).................... 18,018 18,018
Additional paid-in capital............................. 102,541 102,541
Retained earnings...................................... 82,976 82,976
Minimum pension liability adjustment(6)................ (13,306) (13,306)
-------- --------
Total Shareholders' Equity........................... 190,229 190,229
-------- --------
Total Capitalization................................. $673,654 $773,654
======== ========
</TABLE>
- --------
(1) See "Notes to the Consolidated Financial Statements--Notes 7 and 10" for
additional information concerning indebtedness and shareholders' equity.
(2) Borrowings under the Revolving Credit Agreement were $50 million as of May
1, 1994. All outstanding amounts under the Revolving Credit Agreement will
be repaid with a portion of the net proceeds of the Offerings. See "Use of
Proceeds."
(3) Assuming the Underwriter does not exercise any part of its over-allotment
option.
(4) The Company's total financings include indebtedness, shown in the table
above, and off-balance sheet financings consisting of a $60 million
accounts receivable sales facility, which is reported as a reduction to
accounts receivable, and certain sale-leaseback transactions, accounted for
as operating leases, with an outstanding balance of $50.5 million as of
January 30, 1994. At January 31, 1994, the Company had deposited
approximately $7 million of cash into a reserve fund to support the
accounts receivable facility. See "Description of Certain Financings." The
Company's total financings were $587 million at January 30, 1994, and $687
million as adjusted for the Offerings.
(5) Excludes 2,674,418 shares reserved for issuance upon conversion of the
7.00% Convertible Subordinated Debentures due 2012, 3,058,175 shares
reserved for issuance upon exercise of outstanding or issuable stock
options, and 600,000 shares reserved for issuance upon exercise of
outstanding warrants.
(6) See "Notes to the Consolidated Financial Statements--Note 9a" and "Risk
Factors--Underfunded Pension Plan."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth the selected financial and operating data of
the Company for each of the periods indicated in the five-year period ended
July 31, 1993, which were derived, except as otherwise noted, from the audited
Consolidated Financial Statements of the Company. The table also sets forth
selected financial and operating data for the six-month periods ended January
30, 1994, and January 31, 1993, which were derived from unaudited interim
Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
-------------------- -------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993(A) 1992 1991 1990 1989
-------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.................. $484,823 $ 626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Cost and Expenses...... 439,719 594,568 1,133,040 1,223,931 1,275,269 1,038,501 969,240
General and Adminis-
trative Expenses(b)... 13,446 22,467 43,800 10,167 9,239 8,606 393
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Income
(Loss)................ 31,658 8,969 (1,688)(c) 45,558(d) 100,578 31,605 75,044
Interest--Net.......... 23,681 22,770 47,883 63,373 53,701 40,606 28,964
-------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before
Taxes and Cumulative
Effect of Accounting
Changes............... 7,977 (13,801) (49,571) (17,815) 46,877 (9,001) 46,080
Taxes (Benefit) on In-
come.................. 242 (5,286) (18,990) (19,270) 16,360 (9,040) 12,600
-------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before
Cumulative Effect of
Accounting Changes.... 7,735 (8,515) (30,581) 1,455 30,517 39 33,480
Cumulative Effect
Through July 31, 1992
of Accounting
Changes--Net of
Taxes(e).............. -- (223,950) (223,950) -- -- -- --
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)...... $ 7,735 $ (232,465) $ (254,531) $ 1,455 $ 30,517 $ 39 $ 33,480
======== ========== ========== ========== ========== ========== ==========
Net Income (Loss) Per
Share:
Income (Loss) Before
Cumulative Effect of
Accounting Changes.. $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 $ 0.00 $ 1.90
Cumulative Effect
Through July 31,
1992 of Accounting
Changes--Net of
Taxes............... -- (12.52) (12.50) -- -- -- --
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss).... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 $ 0.00 $ 1.90
======== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA AT
PERIOD END:
Working Capital........ $358,453 $ 447,476 $ 350,321 $ 700,774 $ 712,520 $ 640,461 $ 549,799
Property, Plant and
Equipment, Net........ 230,849 245,948 239,045 270,283 237,434 234,166 204,911
Total Assets........... 967,566 1,130,164 1,017,786 1,363,958 1,411,498 1,329,308 1,166,828
Total Debt(f).......... 483,425 628,243 531,608 572,594 636,070 551,227 426,390
Total Shareholders'
Equity................ 190,229 217,336 182,243 448,866 441,401 413,713 412,387
OTHER DATA:
EBITDA(g).............. $ 43,351 $ 21,617 $ 48,890 $ 123,413 $ 128,299 $ 58,645 $ 99,880
Depreciation and Amor-
tization.............. 11,693 12,648 25,578 27,855 27,721 27,040 24,836
Net Cash Provided by
(Used in)
Operating Activities.. 44,928 (35,571) 78,668 110,342 (62,770) (155,644) (106,747)
Capital
Expenditures(h)....... 2,949 18,878 27,536 62,933 32,383 28,923 39,005
Ratio of Earnings to
Fixed Charges(i)...... 1.31x 0.40x 0.01x 0.72x 1.81x 0.83x 2.27x
EBITDA to Interest
Expense(g)............ 1.79x 0.93x 1.00x 1.84x 2.34x 1.09x 3.13x
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
------------------ -----------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993(A) 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA DATA TO REFLECT
ACCOUNTING CHANGES:
(UNAUDITED)(j):
Pro Forma Net Income
(Loss)(j).................. $ 7,735 $(8,515) $(30,581) $(36,271) $(22,898) $(58,469) $(8,680)
Pro Forma Net Income (Loss)
per Share.................. $ 0.43 $ (0.48) $ (1.71) $ (2.05) $ (1.31) $ (3.29) $ (0.49)
Pro Forma EBITDA(g)(k)...... $43,351 $21,617 $ 48,890 $ 62,269 $ 41,727 $(36,182) $31,549
Pro Forma EBITDA to Inter-
est Expense................ 1.79x 0.93x 1.00x 0.93x 0.76x (l) 0.99x
ADJUSTED DATA TO REFLECT
OFFERINGS BEFORE CUMULA-
TIVE EFFECT OF ACCOUNTING
CHANGES: (UNAUDITED)(m)
Net Income (Loss)(m)........ $ 4,412 $(36,495)
Net Income (Loss) per
Share...................... $ 0.24 $ (2.04)
Ratio of Earnings to Fixed
Charges(n)................. 1.07x 0.01x
EBITDA to Interest
Expense(g)................. 1.48x 0.85x
</TABLE>
- --------
(a) Fiscal 1993 results reflect the Company's adoption, in the third quarter,
of changes to certain elements in the application of accounting principles
relating to long-term programs and contracts, including the expensing of
general and administrative costs that were previously carried in inventory
for amortization over future deliveries. The amounts also reflect the
Company's adoption of SFAS No. 106, "Employers Accounting for Post-
Retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting
for Income Taxes." The accounting changes described above were effective
August 1, 1992. As a result, periods prior to August 1, 1992 are not
comparable.
(b) Fiscal 1993 results reflect the Company's changed accounting policy to
expense general and administrative expenses as incurred; these expenses
were previously inventoried.
(c) Includes the impact of net provisions of $25.0 million for plant closure,
inventory obsolescence and other asset valuations, other costs related to
the planned consolidation process and various items of litigation. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations--Fiscal 1993 Compared to Fiscal
1992." The impact of the accounting change on fiscal 1993 was a reduction
to operating profit of $39.9 million.
(d) Includes the impact of special provisions of approximately $50.0 million
for the termination of the Lockheed C-5 spare pylon program, the Valsan
727 re-engining program, an investigation by government agencies
concerning production of parts and a provision for the closing of the
Auburn plant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Fiscal 1992
Compared to Fiscal 1991."
(e) In the third quarter of fiscal 1993, the Company changed certain of its
accounting principles as described in note (a) above. These changes
required the Company to calculate the effect of the change in accounting
principles on retained earnings as of the first day in the fiscal year of
change.
(f) Excludes off-balance sheet financing. See "Capitalization."
(g) EBITDA is defined as earnings before the cumulative effect of the
accounting changes, interest and other income, interest expense and taxes
on income (benefit) and depreciation, amortization and the impact of the
special provisions referred to in notes (b) and (c) above. EBITDA is
presented here to provide additional information about the Company's
ability to meet its future debt service, capital expenditure, and working
capital requirements and should not be construed as substitute for or a
better indicator of results of operations or liquidity than net income or
cash flow from operating activities computed in accordance with generally
accepted accounting principles.
(h) Includes capitalized interest; excludes additions to property, plant and
equipment financed by industrial revenue bonds and capital leases.
(i) For purposes of determining the ratio of earnings to fixed charges, the
term "earnings" represents income (loss) before cumulative effect of
accounting changes, plus income tax (benefit) and fixed charges excluding
capitalized interest. The term "fixed charges" represents interest
expense, capitalized interest, amortization of debt issue expense and the
portion of operating lease rental expense considered to be representative
of an interest factor. Historical earnings were insufficient to cover
fixed charges by $14,886 for the six months ended January 31, 1993 and
$51,184 for fiscal 1993, $19,312 for fiscal 1992 and $9,604 for fiscal
1990.
21
<PAGE>
(j) The Pro Forma Data to Reflect Accounting Changes (Unaudited), assumes the
changes in the application of accounting principles for long-term programs
and contracts adopted by the Company effective August 1, 1992, are applied
retroactively. The pro forma amounts presented also reflect the
retroactive application of SFAS No. 109, "Accounting for Income Taxes" to
the periods presented--periods which predate both the Company's adoption
of SFAS No. 109 and the release of that standard. Tax benefits arising
pursuant to SFAS No. 109, "Accounting for Income Taxes," are allocated
ratably over the pro forma restated periods. The pro forma restated effect
of the Company's adoption of SFAS No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions" are not material and are not
presented. The pro forma financial data should not be considered
indicative of actual results that would have been achieved had the
accounting changes adopted by the Company effective August 1, 1992 been in
effect for the periods indicated and do not purport to indicate result of
operations as of any future date or for any future period. The following
information should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations", and the
"Consolidated Financial Statements of Rohr, Inc. and Subsidiaries" and the
Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
------------------ ----------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA INCOME
STATEMENT DATA
(UNAUDITED):
Sales.................. $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Cost and Expenses...... 439,719 594,568 1,133,040 1,242,240 1,321,792 1,092,150 996,313
General and
Administrative
Expenses.............. 13,446 22,467 43,800 53,002 49,288 49,784 41,651
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating Income
(loss)................ 31,658 8,969 (1,688)(c) (15,586)(d) 14,006 (63,222) 6,713
Interest Net........... 23,681 22,770 47,883 63,373 53,701 40,606 28,964
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before
Taxes................. 7,977 (13,801) (49,571) (78,959) (39,695) (103,828) (22,251)
Tax (Benefit) on
Income................ 242 (5,286) (18,990) (42,688) (16,797) (45,359) (13,571)
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)...... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680)
======== ======== ========== ========== ========== ========== ==========
Pro Forma Ratio of
Earnings to Fixed
Charges............... 1.31x 0.40x 0.01x (l) 0.30x (l) 0.33x
</TABLE>
(k) The calculation of pro forma EBITDA is shown below (unaudited):
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
----------------- ---------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Income, as Re-
ported................. $31,658 $ 8,969 $ (1,688)(c) $ 45,558(d) $100,578 $ 31,605 $75,044
Less Changes in the Ap-
plication of Account-
ing Principles for
Long-Term Programs and
Contracts............. -- -- -- 61,144 86,572 94,827 68,331
------- ------- -------- -------- -------- -------- -------
Pro forma Operating In-
come (Loss)............ 31,658 8,969 (1,688) (15,586) 14,006 (63,222) 6,713
Add Depreciation and Am-
ortization............. 11,693 12,648 25,578 27,855 27,721 27,040 24,836
------- ------- -------- -------- -------- -------- -------
Pro Forma Earnings...... 43,351 21,617 23,890 12,269 41,727 (36,182) 31,549
Add Special Provisions.. -- -- 25,000 50,000 -- -- --
------- ------- -------- -------- -------- -------- -------
Pro Forma EBITDA........ $43,351 $21,617 $ 48,890 $ 62,269 $ 41,727 $(36,182) $31,549
======= ======= ======== ======== ======== ======== =======
</TABLE>
(l) Negative numbers as losses were incurred.
(m) The unaudited adjusted data to reflect the Offerings assumes the financial
data has been adjusted for the effect of the Offerings and the
corresponding repayment of the outstanding balance under the Revolving
Credit Agreement and short-term bank debt as of the first day of each
fiscal period and assumes no exercise of the Underwriter's over-allotment
option.
(n) Ratio of earnings to fixed charges as adjusted to reflect the Offerings,
reflect the issuance of the Senior Notes and the Convertible Subordinated
Notes (assuming no exercise of the Underwriter's over-allotment option),
and the application of the proceeds therefrom, as if the Offerings had
been consummated as of the first day of each fiscal period. On such basis,
earnings were insufficient to cover the pro forma fixed charges by $60,769
for fiscal 1993.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis presents management's assessment of
material developments affecting the Company's results of operations, liquidity
and capital resources for the three years ended July 31, 1993 and the six
months ended January 30, 1994. These discussions should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto.
Comparisons between periods may not be meaningful because of significant
changes the Company made in certain of its accounting policies, effective
August 1, 1992, as discussed in "--Accounting Changes," and the substantial
provisions taken in the third quarters of fiscal 1992 and 1993.
On certain long-term programs under which the Company sells spares directly
to the airlines, the Company accounts for profit and loss under the program
method of accounting. Under the program method of accounting, the quantity of
units in the profit center includes existing and anticipated contracts and is
predicated upon market forecasts, which have inherent uncertainties. Included
within the program quantity are spares anticipated to be sold concurrent with
production units which, as a percentage of total deliveries, increase as a
program matures and historically have been sold at higher prices than
production units. As spares and production units are both included in the
program quantity, higher margins are reported in the early program years based
upon anticipated production and spare orders in the future. Programs for which
the Company uses the program method of accounting and for which spares are
significant are as follows: V2500, CF6-80C, CFM56-5, A340 and MD-90. Market
forecasts continue to support the reasonableness of the projected spares
included in program quantities. See "Notes to Consolidated Financial
Statements--Note 1b."
COMPANY OUTLOOK
As a result of the slow down in the commercial aerospace industry and
reductions in the Company's military and space programs (see "Risk Factors--
Industry Cycles; Current Business Outlook" and "Business--Markets"), the
Company's revenues decreased approximately 8% from fiscal 1991 to fiscal 1992
and approximately 8% from fiscal 1992 to fiscal 1993. Revenues for the first
six months of fiscal 1994 were approximately 23% less than for the comparable
period in fiscal 1993. In response to these conditions, management has taken
aggressive actions to increase competitiveness, improve earnings, maximize cash
flow and reduce debt.
The Company has reduced its workforce from a peak of approximately 12,100 at
July 31, 1989, to approximately 6,500 at July 31, 1993, and 5,154 at January
30, 1994. The Company's new management has also focused on reducing the ratio
of indirect employees to direct employees. From April 30, 1993 to January 30,
1994, this ratio improved from 1-to-2.0 to 1-to-2.6. Management has targeted a
ratio of 1-to-2.8 by July 31, 1994. Management has also established a total
overhead expense budget equal to 29% of sales for fiscal 1994, which compares
to a high of 41% of sales in fiscal 1989 and 32% of sales for the 12 months
ended January 30, 1994.
To reduce excess capacity and to increase overall production efficiencies
through higher utilization of its remaining facilities, the Company has closed
and sold its Auburn, Washington plant, is closing its Hagerstown, Maryland
plant and has deferred completion of a new facility in Arkadelphia, Arkansas.
The Company also has reduced capital expenditures from an average of $45
million per year over the last five fiscal years to a planned expenditure of $7
million in fiscal 1994. Average expenditures over the next four years are not
expected to exceed $20 million per year.
The Company has also increased its focus on its core business within the
commercial aerospace industry--the design and manufacture of nacelle and pylon
systems for large commercial aircraft. The Company intends to focus exclusively
on these products and to be the low cost producer in this
23
<PAGE>
segment. The Company is currently in negotiations to sell two non-core
businesses, its business jet product line and its overhaul and repair business.
These two businesses generated approximately $35 million of revenue in fiscal
1993.
RESULTS OF OPERATIONS
First Six Months Fiscal 1994 Compared to First Six Months Fiscal 1993
Total sales for the first six months of fiscal year 1994 were $484.8 million,
down $141.2 million or 22.6% from the first six months of fiscal year 1993.
Commercial sales during the first six months of fiscal year 1994 were down
compared to the same period of fiscal year 1993 due primarily to reductions in
deliveries. Government sales for the comparative period declined due primarily
to a reduction in the delivery rate on the Titan program. Commercial sales
aggregated 88% and government sales 12% of the Company's total sales in the
first six months of fiscal year 1994.
Operating income increased to $31.7 million for the first six months of
fiscal year 1994, up from $9.0 million for the same period of fiscal year 1993.
A significant contributor was reduced general and administrative expenses which
declined $9.1 million from $22.5 million for the first six months of fiscal
1993 to $13.4 million for the first six months of fiscal 1994. The decline was
primarily the result of work force reductions and other ongoing cost cutting
efforts. Fiscal 1994 results were adversely impacted by a reduction in sales
volume on several programs. Fiscal 1993 results were impacted by losses on
tooling and design efforts and cost problems related to certain programs, a
loss on the 727 re-engining program, and $5 million for additional provisions
related to various litigation uncertainties. Operating income in the first six
months of fiscal year 1994 was also impacted by a less favorable follow-on
contract on the Titan program.
Net interest expense was $23.7 million for the first six months of fiscal
year 1994 compared to $22.8 million for the same period last year. While total
financings have declined, interest rates paid by the Company have increased
primarily due to the replacement of certain variable rate financings with long-
term fixed rate financing.
Earnings for the first six months of fiscal year 1994 were a positive $7.7
million or 43 cents per share compared to a loss of $8.5 million or 48 cents
per share (before the cumulative effect of the accounting change) for the same
period last year. The Omnibus Budget Reconciliation Act, adopted in August
1993, increased federal tax rates, thus causing the deferred tax asset shown on
the balance sheet to increase and taxes on income to decrease for the first
six-months of fiscal year 1994. This resulted in a one time increase in net
income of $2.8 million and earnings per share of 16 cents.
The first six-months of fiscal year 1993 were additionally impacted by a loss
of $223.9 million, net of taxes, or $12.52 per share, due to the cumulative
effect for the changes in the application of accounting principles through July
31, 1992, adopted on a retroactive basis in the third quarter of fiscal year
1993.
Additional Items
The Company is still experiencing softness in orders by airlines for spare
components, which caused the Company to revise its spares delivery forecast in
the near term on certain programs. See "--Fiscal 1993 Compared with Fiscal
1992."
The Company has notified its customer on the V2500 program that it has
exercised its contractual right to terminate the contract in 1995 so the
Company will not be required to accept orders under the current contract terms
after mid-year 1995. The Company is discussing possible alternative contractual
arrangements with its customer under which it would continue with the program.
In addition, anticipated spares deliveries for the V2500 program have been
revised downward in the near term and the Company now expects to incur the
total loss previously booked on this program.
24
<PAGE>
The Company and its actuary are evaluating the extent to which the downsizing
of personnel may necessitate the expensing of unamortized pension benefit past
service costs related to the termination of employees. This evaluation and the
recognition of its financial impact is expected to be complete by the end of
the third quarter of fiscal 1994. See "Risk Factors--Underfunded Pension
Plans."
Fiscal 1993 Compared with Fiscal 1992
Sales declined from $1,279.7 million in fiscal 1992 to $1,175.2 million in
fiscal 1993. Commercial sales benefited from deliveries on the Airbus A340
program, and start-up of the MD-90 program. However, commercial sales in fiscal
1993 were negatively impacted by reductions in the delivery rate of large
commercial aircraft. See "Risk Factors--Industry Cycles; Current Business
Outlook" and "Business--Markets." Government sales for the comparable period
declined due to events in the previous year, including the termination of the
C-5 spare pylon program and completion of F-14 production deliveries.
Commercial sales aggregated 87% and government sales 13% of total sales.
Total general and administrative expenditures declined $9.2 million from
$53.0 million in fiscal 1992 to $43.8 million in fiscal 1993. The decline was
primarily the result of work force reductions, postponement of annual wage
increases, and other ongoing cost cutting efforts. General and administrative
expenses in fiscal 1993 were charged as a period expense. General and
administrative expenditures for fiscal 1992 were, in part, inventoried and
relieved through cost of sales as units were delivered. This change was made as
part of the change in application of accounting principles discussed in "--
Accounting Changes."
The Company reported an operating loss of $1.7 million for fiscal 1993
compared to an operating profit of $45.6 million for fiscal 1992. Fiscal 1993
operating income was negatively impacted by $39.9 million due to the change in
application of accounting principles relating to long-term programs and
contracts. See "--Accounting Changes." These changes will also continue to
impact results negatively in the near term, but are expected to positively
impact operating results in the long-term. Results for the year were also
adversely affected by net provisions aggregating $25.0 million for plant
closure, inventory obsolescence and other asset valuations, other costs related
to the planned consolidation process, and various items of litigation. In
addition, results reflect a reduction in anticipated sale of spare parts on the
V2500, CF6-80C, CFM56-5 and A340 programs. The Company generally attributes
recent reductions in spares sales to the surplus aircraft in the current market
place. As a result of such surplus, aircraft deliveries have declined and the
initial spares sold to support newly delivered aircraft have also declined. In
addition, airlines are maintaining lower spares levels; the existence of
surplus aircraft has reduced the need for spares supplies sufficient to keep an
airline's entire fleet in operation. Also, improved production quality appears
to have reduced spares requirements. In addition, fiscal 1993 results reflected
increased costs associated with assembly labor performance and subcontractor
changes on the PW300 program and certain out-of-production spare programs.
Operating results in fiscal 1992 were adversely impacted by a number of special
provisions approximating $50 million. Paramount was a provision for potential
losses arising as a result of the government's termination for default of the
C-5 spare pylon program. See "Notes to the Consolidated Financial Statements--
Note 8." Operating results for fiscal 1992 were also impacted by provisions
relating to the Company's investment in the Valsan 727 re-engining program,
which was negatively impacted by delayed implementation of U.S. noise
regulations, and by provisions for closure of the Company's Auburn facility and
future settlement of possible criminal and civil proceedings concerning certain
government programs. In fiscal year 1992, operating results were also impacted
by cost problems on certain "out-of production" spares programs.
In fiscal 1993, the Company achieved better labor performance than in fiscal
1992. This is attributed, in part, to the generally higher seniority level of
the Company's work force as a result of the Company's recent downsizing
activities.
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Estimates of anticipated spare part sales were reduced on the McDonnell
Douglas MD-90 program resulting in a decline of projected operating income from
this program in future years. Negotiation of a new long-term agreement on the
PW4000 program resulted in revised cash flow estimates that delayed recovery of
the Company's investment on that program.
Net interest expense was $47.9 million for the year ended July 31, 1993, as
compared to $63.4 million for the same period the previous year. The 1992
period included a charge of $18.3 million during the third quarter of fiscal
1992 for interest cost attributed to the IRS audit adjustment to the Company's
1984 and 1985 federal tax returns. The 1993 period also includes interest
expenses for income tax liabilities. Net of the interest for income tax
liabilities, interest expense in 1993 was lower than in fiscal 1992 due to
lower average borrowings and lower interest rates.
Net loss was $254.5 million for the year ended July 31, 1993, as compared to
income of $1.5 million for fiscal 1992, primarily as a result of the $224.0
million charge for the cumulative effect of the accounting changes described
under "--Accounting Changes," the effect of the accounting change in 1993 of
$39.9 million ($24.6 million after tax) and the $25.0 million ($15.4 million
after tax) special provision.
The net loss for the year ended July 31, 1993 is net of tax benefits totaling
$158.0 million. These tax benefits offset existing deferred tax liabilities at
July 31, 1992 and resulted in a net deferred tax asset of $103.0 million at
July 31, 1993.
Fiscal 1992 Compared With Fiscal 1991
Commercial sales declined during fiscal 1992 compared to fiscal 1991 due to a
reduction in deliveries on certain programs reflecting changing economic
conditions and a reduction in sales resulting from a subcontractor delivering
directly to the customer. Government sales declined due to the termination of
the C-5 spare pylon program and the completion of F-14 production deliveries.
Commercial sales aggregated 86% and government sales 14% of total sales
compared to 80% and 20% for fiscal 1991.
The Company reported an operating profit of $45.6 million for fiscal 1992
compared to an operating profit of $100.6 million for fiscal 1991. Fiscal 1992
operating results were adversely impacted by a number of third quarter special
provisions approximating $50.0 million, plus approximately $5.5 million during
the third quarter related to the state franchise tax effect of special charges.
The special provisions included charges for the termination of the Lockheed C-5
spare pylon program, the Valsan 727 re-engining program, an investigation by
government agencies concerning production of parts, and a provision for the
closing of the Auburn plant. In addition, commercial programs during fiscal
1992 benefited from some improved pricing and, based on aircraft orders and
options placed by airlines, an increase in the program quantity and spare part
sales estimates for the General Electric CF6-80C and CFM International CFM56-5
nacelle programs, which were in turn offset by a reduction in sales volume.
Government programs during fiscal 1992 continued to be adversely impacted by
disruption from redefined acceptance criteria by the government. Also of
significance was the completion of the F-14 production program and the benefit
from improved cost performance at the Space division. The Company revised its
overhead cost rates used in its program cost estimates to reflect a declining
production base anticipated in future years.
Fiscal 1992 operating results included an estimate of recovery on the KC-135
program for constructive change claims related to government redefined
acceptance criteria. Fiscal 1991 operating results included an additional
estimate of recovery on the Boeing E3/E6 program and an initial estimate of
recovery on the Lockheed C-5 production and spare pylon programs related to
government redefined acceptance criteria, as well as an estimate of recovery on
the PW4000 program related to tooling and design change activity.
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Operating results were limited by the inability to achieve profitable results
on several major programs. Among these were the V2500, MD-11 pylon and PW4000
programs, which have been impacted by delays and increased labor cost estimates
for bonding and assembly operations plus tooling and design support services.
An A320 order by United Airlines improved the market outlook for the V2500
program, although spares sales were still below original expectations delaying
recovery of the Company's program investment. Negotiations on the PW4000
contract and the resolution of major design changes for the MD-11 program
improved the financial status during the fourth quarter of fiscal 1992 of these
major programs.
Program estimates on the Airbus A340 nacelle program continued to be
negatively influenced by delays in delivery of the initial program quantity, a
reduction in anticipated spare part sales, increased start-up costs and higher
than planned bonding and assembly costs. These revised estimates indicate a
less than planned return in the future on investment for this program.
Interest expense was increased $18.3 million during the third quarter of
fiscal 1992 to reflect the interest cost of federal income tax adjustments.
These tax adjustments have offset previously expected tax deductions, and the
related interest income accrual. Interest on indebtedness was lower than for
fiscal 1991 due to lower average borrowings and lower rates.
An income tax benefit was recorded during fiscal 1992 as a result of the
pretax loss. The benefit was higher than the amount computed at statutory tax
rates due to additional benefits from tax planning items and, most importantly,
utilization of tax reserves in connection with the federal income tax interest
adjustment discussed above. The effective income tax rate, which is expressed
as a ratio of tax expense to pretax income, was substantially higher in fiscal
1992 compared to fiscal 1991 because benefits from utilization of tax reserves
and tax planning items increase the rate when there is a pretax loss.
LIQUIDITY AND CAPITAL RESOURCES
For the first six months of fiscal year 1994, net cash provided by operating
activities totaled $44.9 million compared with a use of cash of $35.6 million
for the same period of the prior year. Net cash provided by operating
activities was $78.7 million in fiscal 1993 and $110.3 million in fiscal 1992.
In recent periods, net cash provided by operating activities included one-time
receipts by the Company for design and tooling efforts and similar non-
recurring tasks. Net cash from operating activities also included accelerated
payments for delivered production hardware in the first six months of fiscal
1994, and the receipt of certain amounts that had been deferred pending
aircraft certification in fiscal 1993 and 1992. Net cash provided by operations
is subject to significant variations from period to period.
The Company's total financings (balance sheet debt plus off-balance sheet
financings) aggregated $587 million at January 30, 1994, down $56.9 million
from July 31, 1993. Total indebtedness as reflected on the Company's balance
sheet decreased by $48.2 million from $531.6 million on July 31, 1993 to $483.4
million on January 30, 1994. During the first six months of fiscal year 1994,
the Company repaid its $35 million medium term note and made the annual $12.5
million principal payment on its 9.35% senior notes.
The Company's liquidity has improved over the last year, primarily as a
result of cash flow generated from operating activities. However, as a result
of its credit rating and the financial community's concerns about the aerospace
industry, the Company has generally been unable to utilize uncommitted and
certain other credit facilities which historically have been available to it. A
bank that provided a letter of credit in support of certain Company obligations
recently extended the letter of credit for an additional year. The Company is
seeking the renewal of or replacement of another letter of credit which is
scheduled to expire in July 1994. If the Company does not obtain a renewal or
substitute letter of credit, it will be required to fund approximately $17
million of obligations currently supported by the letter of credit.
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On January 30, 1994, the Company had $50 million of borrowings under its
committed Revolving Credit Agreement, no change from borrowings of $50 million
on July 31, 1993. Upon completion of the Offerings, the Revolving Credit
Agreement will be amended to provide for a three-year commitment and will
contain revised financial covenants which were negotiated to permit the
Offerings contemplated by this Prospectus and the expected increases in
underfunded pension liabilities (which are discussed in greater detail below).
See "Risk Factors--Underfunded Pension Plans" and "Description of Certain
Financings."
The Company is a party to a $60 million accounts receivable facility under
which it sells receivables from specified customers on an on-going basis. As a
result of the slow-down in the aerospace industry, the amount of outstanding
receivables from these customers has fallen below levels which existed at the
start of the facility. As a result, the Company has deposited cash collateral
from time to time as required to support the facility and has withdrawn such
cash when it is no longer required to be deposited. At January 30, 1994, the
Company had $7 million of cash collateral on deposit.
The Company is also a party to certain equipment leases and has granted the
lessors a security interest in selected customer receivables to secure $10
million of obligations. If the parties who lease this equipment to the Company
do not assign approximately one-half of their beneficial interests in the
leased equipment to other parties by January 1995, the equipment lessors may
require the Company to prepay up to $10 million of its equipment lease
obligations.
The Company's existing debt level reflects the substantial investments made
by the Company in the late 1980s and early 1990s to design and begin production
on several major long-term programs. Except for the MD-90, the Company has
substantially completed the large investments required by these programs and
most are now well into production. The industry is expected to introduce
relatively few new programs in the next several years and, accordingly, the
Company believes that its financing requirements for new programs have been
reduced as compared to prior periods.
At July 31, 1993, the underfunded status (excess of projected benefit
obligations over plan assets) of the Company's defined benefit plans had
increased to $65.6 million. This underfunded status resulted from a combination
of factors including benefit increases, increased levels of early retirements,
less than the actuarially-assumed returns on plan assets and a reduction in the
discount rate used to calculate the present value of future pension plan
liabilities for financial reporting purposes. Considering current interest rate
levels, the Company anticipates reducing its discount rate to 7.5% for its
fiscal year 1994 valuation from the 8.5% used for its 1993 valuation, which
will substantially increase the Company's accrued pension benefit obligation.
In addition, the Company has continued to experience a higher level of early
retirements than actuarially anticipated which is also expected to
significantly increase the accrued pension benefit obligation. The Company
anticipates that the expected increases in the underfunded pension liabilities
will approximate $75 million and will result in a charge to shareholders'
equity estimated at $45 million and an estimated $30 million increase to the
Company's deferred tax asset account. The Company and its actuary are also
evaluating the extent to which the downsizing of personnel may necessitate the
expensing of unamortized pension benefit past service costs related to
terminated employees. This matter does not affect the underfunded status of the
plans but would result in a charge to earnings. The evaluation of all of these
items and the recognition of the related financial impact is expected to be
completed by the end of the third quarter of fiscal 1994. See "Risk Factors--
Underfunded Pension Plans."
The Company's required minimum annual contribution to its defined benefit
plan, which is directly impacted by the plans' funded status, has increased
from $15.3 million for calendar year 1992 to $19.0 million for calendar year
1993. The Company expects that IRS regulations will require it to increase its
annual cash contributions to the Pension Plans for several years. These
regulations are designed to
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substantially eliminate pension plan underfunding within five years. The
Company expects to have sufficient liquidity to make these increased
contributions.
The Company's principal financing agreements have covenants pertaining to
indebtedness (which is defined to include the underfunded pension liabilities),
to shareholders' equity (which would be affected by any charge to equity caused
by an increase in underfunded pension liabilities), and to the ratio of net
income to fixed charges (which would be affected by any increase in pension
expense). However, the Company and the lenders under these agreements have
agreed on revised financial covenants to accommodate the financial effect of
the pension issues described above. The revised financial covenants will become
effective upon the sale of the Securities.
On January 21, 1994, the Company announced that it had signed letters of
intent to sell its business jet product line and certain assets of a wholly
owned subsidiary, Rohr Aero Services, Inc. The revenue generated from these
operations has approximated $35 million in each of the last two fiscal years.
In preparation for the sale of the assets of Rohr Aero Services, Inc., the
Company adjusted carrying values of assets downward by $0.7 million during the
second quarter of fiscal 1994. In the aggregate, a net gain is anticipated upon
sale of these assets. In March 1994, the purchaser of these two lines of
business placed a $7.8 million deposit in escrow. One-half of this deposit is
nonrefundable under certain circumstances. The Company recently sold its
Auburn, Washington plant (which was closed in fiscal year 1993) and is seeking
to sell its Hagerstown, Maryland manufacturing facility which is excess to
projected capacity needs.
The Company's net inventory decreased to $412.2 million at January 30, 1994
from $439.7 million at July 31, 1993. Excess-over-average and production
inventory declined reflecting the increased maturity of newer programs, the
reduced sales volume and the efforts of management to control inventory levels
through shorter lead times and just-in-time contracts. These reductions were
partially offset by an increase in pre-production inventory, primarily in the
MD-90 and A340 programs and in a new application of the V2500 program. The
changes in the application of accounting principles adopted by the Company in
fiscal 1993 substantially decreased net inventory from its level at July 31,
1992. See "--Accounting Changes" and "Notes to the Consolidated Financial
Statements--Note 2."
The Company's receivables decreased from $133.2 million on July 31, 1992 to
$94.1 million at both July 31, 1993, and January 30, 1994, due to several large
receipts by the Company for tooling, design changes and similar non-recurring
tasks, as well as the receipt of certain amounts deferred pending aircraft
certification. This decrease was net of a $45 million reduction in the
receivables sales arrangement which, by itself, would have increased
receivables by $45 million. See "Notes to the Consolidated Financial
Statements--Note 3."
Capital expenditures (including expenditures funded by industrial revenue
bonds and capital leases) averaged $45 million per year over the past five
fiscal years. Capital expenditures for property, plant and equipment totaled
$2.9 million for the first six months of fiscal year 1994, down from $18.9
million in the first six months of fiscal year 1993. Capital expenditures in
the first six months of fiscal year 1993 were higher due in large part to
expenditures for new office and manufacturing facilities. In addition, the
Company has substantially curtailed its previously planned capital expenditures
for the balance of fiscal year 1994 in line with other cost cutting efforts and
anticipates such expenditures will not exceed an average of $20 million per
year over the subsequent four years. Given its substantial recent investments,
the Company believes that the amount it plans to spend on capital expenditures
over the next several years will be sufficient to meet the Company's production
requirements.
The Company's firm backlog, which includes the sales price of all undelivered
units covered by customers' orders for which the Company has production
authorization, was approximately $1.3 billion at January 30, 1994 compared to
$1.4 billion at July 31, 1993. Approximately $0.4 billion of the $1.3 billion
backlog is expected to be delivered in the remainder of fiscal year 1994.
(Sales during any period
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include sales which were not part of backlog at the end of the prior period.)
Customer orders in firm backlog are subject to rescheduling and/or termination
for customer convenience; however, in certain cases the Company is entitled to
an adjustment in contract amounts. The Company has an additional $2.7 billion
in anticipated backlog, which represents the sales price of units which the
Company expects that its customers will order under existing contracts and the
Company will deliver within seven years.
The Company believes that, after the completion of the Offerings, its
principal sources of liquidity over the next several years will be cash flow
from operations, available cash, borrowings under the Revolving Credit
Agreement and the pending asset sales. Based upon current levels of operations
and anticipated future business, the Company believes that these sources will
be adequate to meet its anticipated requirements for working capital, capital
expenditures and debt service during that period.
ENVIRONMENTAL MATTERS
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA" or "Superfund"), and under certain analogous
state laws for the cleanup of contamination resulting from past disposal of
hazardous substances at several sites to which the Company, among others, sent
such substances in the past. CERCLA requires the cleanup of sites from which
there has been a release or threatened release of hazardous substances, and
authorizes the Environmental Protection Agency ("EPA") to take any necessary
response actions at such sites, including ordering PRPs to cleanup or
contribute to the cleanup of a Superfund site. Courts have interpreted CERCLA
to impose strict, joint and several liability upon all persons liable for
response cost.
In June 1987, the U.S. District Court of Los Angeles, in U.S. et al, vs.
Stringfellow, granted partial summary judgment against the Company and 14 other
defendants on the issue of liability under CERCLA. On November 30, 1993, the
special master released his "Findings of Fact, Conclusions of Law and Reporting
Recommendations of the Special Master Regarding the State Share Fact Finding
Hearing," allocating liability between the State of California and other
parties. See "Legal and Environmental Proceedings--Stringfellow." The most
recent estimate the Company has made of its liability, assuming the court order
allocating substantial liability to the State of California is upheld, assuming
the 1989 EPA estimate of total cleanup costs is not exceeded (although the EPA
cautioned the actual costs could have a variation of 30% less or 50% higher
than its estimate), and assuming tentative allocations among the Company and
all other users of the site will approximate the final allocation of aggregate
user liability, shows a Company expenditure ranging from $5 to $8 million over
and above sums spent to date. This amount is within the sums accrued on the
books of the Company for potential offsite environmental liability. However,
the Company estimates further assume that the EPA selects a final remedial
action of moderate technology and cost, rather than one of several more radical
ones previously suggested, but apparently discarded at this point, by the EPA.
The decision on the final remedial action is still being studied and may be
made in 1994 or later.
Expenditures by the Company for cleanup of this site during fiscal 1993 were
not material, although cleanup costs for Stringfellow are expected to be
approximately $1 million during fiscal 1994. From inception to July 31, 1993,
the Company has expended approximately $2.5 million on cleanup costs for this
site. Amounts within the above estimated $5 to $8 million range of future
liability are expected to be paid for remedial work over the next several years
under agreements and consent decrees entered into between the EPA, the Company
and numerous other PRPs. Applicable law provides for continuing liability for
future remedial work beyond these agreements and consent decrees, although the
Company believes its reserves are adequate for its portion of such liability if
all of the above assumptions are correct. The Company also has claims against
its comprehensive general liability insurers for insurance reimbursement, for
past and future costs, none of which has yet been recorded in the financial
records of the Company except for sums actually paid in certain insurance
settlements and certain legal fees which the insurers have been reimbursing.
Based on the foregoing analysis, the Company believes that costs of remedial
actions for the Stringfellow site will not have a material effect on the
Company's financial condition, liquidity or results of operation.
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The Company is also involved in several other proceedings and investigations
related to waste disposal sites and other environmental matters. The Company
has made claims against its insurance carriers for certain of these items, and
has received claims acknowledgment letters reserving the rights of such
carriers. As in the case of the Stringfellow site, the insurers have alleged or
may allege defenses to coverage, although no litigation has been commenced. It
is difficult to estimate the ultimate level of environmental expenditures for
these various other environmental matters due to a number of uncertainties at
this early stage, including the complexity of the related laws and their
interpretation, alternative cleanup technologies and methods, insurance and
other recoveries, and in some cases the extent or uncertainty of the Company's
involvement. See "Legal and Environmental Proceedings" for a more detailed
discussion of the range of the Company's potential liability.
During the year ended July 31, 1993, the Company expended, for the
environmental items described above and also for other environmental matters
(including environmental protection activities in the normal operation of its
plants), a total of approximately $6 million. These expenditures covered
various environmental elements, including hazardous waste treatment and
disposal costs, environmental permits, environmental consultants, fines or
donations (which were not material, either individually or in the aggregate)
and environmental remediation (including Stringfellow), no significant part of
which was capitalized. Assuming the usage of all of these various environmental
elements remains substantially the same for fiscal 1994 as in fiscal 1993,
which the Company anticipates, costs for these elements in fiscal year 1994
should be comparable to the expenditures for fiscal 1993, except for the
indicated higher sum expected to be paid for Stringfellow remediation in fiscal
1994.
Based upon presently available information, the Company believes that
aggregate costs in relation to all environmental matters of the Company will
not have a material adverse effect on the Company's financial condition,
liquidity, results of operations or capital expenditures.
ACCOUNTING CHANGES
In the third quarter of fiscal 1993, the Company changed certain elements of
its application of accounting principles relating to long-term programs and
contracts, effective August 1, 1992. As a result of these changes, certain
costs previously carried in inventory for amortization over future deliveries
are now being expensed. These costs include certain pre-certification costs,
consisting primarily of tooling and design expenses in excess of negotiated
contractual values, that are now expensed as identified. In addition, general
and administrative costs that were previously capitalized are now being
expensed as incurred. Following a thorough review of its accounting policies,
the Company concluded there was a need, particularly in light of the current
aerospace environment, to have financial results more closely reflect near-term
program economics (cash flow and internal rate of return). As a result, these
changes generally reduce the number of production units and spares used in the
calculation of overall profit margins. While the previous methods of applying
the Company's accounting principles were in accordance with generally accepted
accounting principles (GAAP), the changed policies are preferable. The
application of these policies produces program and contract estimates that are
based on shorter delivery periods, allowing a better matching of revenues and
expenses. The cumulative effect of these changes for the periods through July
31, 1992 was a charge of $219.7 million, net of income tax benefits of $136.3
million. The effect of these changes on the year ended July 31, 1993 was to
increase the net loss before the cumulative effect of the changes in accounting
principles by $24.6 million ($1.37 per average common share), net of income tax
benefits of $15.3 million.
In accordance with Accounting Principles Board Opinion No. 20, "Accounting
Changes," pro forma amounts are shown for net loss and net loss per average
share of common stock for all prior periods presented. The pro forma amounts
presented in the Consolidated Statements of Operations reflect the retroactive
application of these accounting changes, net of income tax benefits (which were
allocated ratably over the pro forma restated periods) for each period
presented. Primarily as a result of these changes, excess-over-average
inventory decreased from $323.7 million at July 31, 1992 to $75.4 million at
July 31, 1993. Pre-production inventory also decreased from $258.4 million at
July 31, 1992 to $181.0 million at July 31, 1993, primarily as a result of the
accounting changes. See "Notes to the Consolidated Financial Statements--Note
4."
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In the third quarter of fiscal 1993, the Company also adopted, effective
August 1, 1992, SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions." The accumulated post-retirement benefit
obligation for active employees and retirees was recorded using the immediate
recognition transition option. See "Notes to the Consolidated Financial
Statements--Note 9b." This standard requires companies to accrue the expected
cost of providing health care benefits to retired employees and their
dependents during the employees' service periods. The Company previously
charged the cost of providing these benefits on a pay-as-you-go basis. The
cumulative effect of this change for the periods through July 31, 1992, was a
charge of $4.3 million, net of income tax benefits of $2.7 million. The effect
of the change on the year ended July 31, 1993 was not material.
In the third quarter of fiscal 1993, the Company also adopted, effective
August 1, 1992, SFAS No. 109, "Accounting for Income Taxes." See "Notes to the
Consolidated Financial Statements--Note 6." The cumulative effect of this
change for periods through July 31, 1992, was not material by itself. However,
under this standard, the Company recorded a substantial net deferred tax asset
as a result of the other changes in accounting principles and certain other
charges recorded in the year ended July 31, 1993. See "Notes to the
Consolidated Financial Statements--Note 6."
The combined effect of adopting the new accounting changes for the year ended
July 31, 1993 was a charge to net income of $24.6 million ($1.37 per average
common share). The cumulative effect through July 31, 1992 of adopting the new
accounting changes was a one-time charge of $224.0 million, net of income taxes
($12.50 per average common share), with a corresponding reduction in
shareholders' equity. As a result of adopting the accounting changes, combined
with the results of operations for the year ended July 31, 1993, the Company
reported a loss of $254.5 million ($14.21 per average common share).
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 112, Employers' Accounting for Post-Employment
Benefits. The new standard is effective for fiscal years beginning after
December 15, 1993 and requires employers to recognize the obligation to provide
post-employment benefits to former or inactive employees, their beneficiaries,
and covered dependents, when certain conditions are met. The Company does not
expect there to be a material adverse effect on its financial position or
results of operations in the year of adoption.
INCOME TAXES
First Six Months of Fiscal 1994
The Company provided $3.1 million for income taxes during the first six
months of fiscal year 1994, offset by a tax benefit of $2.8 million due to the
change in federal tax rates under the Omnibus Budget Reconciliation Act of
1993. The Company's deferred tax asset of $102.6 million remained substantially
unchanged from the amount at July 31, 1993 but is expected to increase by
approximately $30 million due to increased pension liability by the end of
fiscal year 1994. See "Risk Factors--Underfunded Pension Plans," "Risk
Factors--Deferred Tax Asset" and "--Liquidity and Capital Resources." Based on
currently available information, the Company believes that sufficient future
taxable income will be generated to fully utilize the increased deferred tax
asset. The Company's ability to utilize its deferred tax asset is discussed in
greater detail below.
The IRS has audited the Company's tax returns through fiscal 1985. In fiscal
1993, the IRS issued a Revenue Agent's Report challenging the Company's
adoption in 1984 of the completed contract method of accounting ("CCMA"), the
Company's tax deduction for funding liabilities related to a Voluntary Employee
Benefit Association ("VEBA") and certain other matters. The Company filed a
protest with the Appeals Office of the IRS and, subsequent to the end of the
second quarter of fiscal 1994, the IRS conceded that the Company was entitled
to use CCMA. The Company is negotiating a resolution of the remaining
adjustment issues with the IRS. The Company believes that the resolution
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of these remaining issues will not have a material adverse effect on the
Company and its financial position, even if the IRS were to prevail with
respect to all of such issues.
Fiscal 1993
In the third quarter of fiscal 1993, the Company adopted, effective August 1,
1992, SFAS No. 109, "Accounting for Income Taxes." This standard requires the
recognition of future tax benefits, predicated upon current tax law,
attributable to tax credit carryforwards, temporary differences, and NOLs that
will result in deductible amounts in the future. The value of the tax asset is
effectively reduced through the establishment of a valuation allowance if,
based on the weight of available evidence, it is "more likely than not" that
some or all of the deferred tax asset will not be realized.
When tax effected at July 31, 1993 tax rates, the Company's deductible
temporary differences, tax credit carryforwards and NOLs result in a deferred
tax asset of $103.0 million, consisting of $85.3 million for federal tax
purposes and $17.7 million for state tax purposes. Based on tax rates in effect
on July 31, 1993, the Company must generate approximately $271 million of
future taxable income (net of $233 million of taxable income that the Company
will report as a result of the automatic reversal of existing taxable temporary
differences between asset and liability values for financial reporting and
income tax purposes) prior to the expiration of the Company's NOLs in 2003
through 2008 for full realization of the net deferred tax asset. The Company
believes it will be able to generate, on average, at least $27 million in net
income for each of the next 10 years, in order to fully utilize the deferred
tax asset (assuming all temporary differences between asset and liability
values for financial reporting and income tax purposes reverse during that
period). This level of net income would be $57.6 million in excess of reported
fiscal 1993 net loss of $30.6 million before the effect of the accounting
changes.
The ultimate realization of the Company's deferred tax asset is dependent
upon the generation of sufficient future taxable income during the available
federal and state NOL carryforward periods. Although the Company has reported
taxable losses during recent fiscal years primarily as a result of the
significant non-recurring events described below, management expects that a
sufficient level of taxable income will result in years subsequent to fiscal
1993 and prior to the expiration of the NOLs to realize the deferred tax asset
recorded at July 31, 1993. The Company's long-term contracts and programs
require long range sales and profit forecasts, but also provide the Company
opportunities to generate future taxable income necessary to realize the
deferred tax asset recorded. Following is a summary of the positive evidence
which leads the Company to believe that a valuation allowance is not necessary,
as it is more likely than not that the deferred tax assets will be realized:
. During fiscal years 1990 through 1993, there were a number of highly
unusual and unpredictable events and other industry factors that caused
the Company to have poor financial results. These items are generally
described below.
The aerospace industry was experiencing unprecedented growth in the
late 1980s and through 1991. The Company was required to deliver its
products more rapidly and was involved in several new product
development efforts for a number of engine nacelles and pylons. The
Company added a significant number of engineers to handle design
changes for new products under development, and experienced even
greater engineering demands due mostly to difficulties in changing the
PW4000 nacelle from the Airbus A300/A310 configuration to the new MD-
11 configuration and in developing the MD-11 pylon.
The Company's rapid expansion of its work force, introduction of new
programs and start-up of satellite facilities were extremely
disruptive and cost consuming. As the Company worked to produce
initial units under new programs, a substantial portion of work was
being performed by relatively inexperienced employees. Additionally,
there were significant start-up costs in relocating production among
facilities. The Company also experienced difficulties on its
government programs as a result of disagreements over redefined
acceptance criteria.
33
<PAGE>
. The conditions leading to an expanding work force, transfers to satellite
plants and heavy use of engineers on new programs have drastically
changed. Currently, the Company and the industry are in a downturn with
orders being delayed and/or cancelled. The Company has been downsizing
and will continue to do so in response to the market. Management has
implemented and will continue to make significant cost reductions in
response to the industry downturn in order to enhance overall
profitability. Additionally, the Company should be able to utilize its
resources in a more balanced and stable manner. Engineering needs have
been drastically reduced as most of the programs that were in the
development stage throughout the late 1980s and early 1990s have been
introduced to the market. Significant design costs for new product
development are not anticipated over the next several years.
. The Company's direct sales of spare parts to the airlines are expected to
increase as nacelle programs on which the Company sells spare parts
directly to the airlines mature. Generally, the Company earns a higher
margin on the direct sales of spare parts to airlines than it does on the
sales of spare parts to prime contractors (for resale to the airlines).
Prices for direct spare part sales are higher than prices for spare parts
sold to prime contracts, in part, because of additional costs related to
the technical and customer support activities provided to the airlines.
. The Company's assets present significant opportunities to accelerate
taxable income into the NOL carryforward period. Tax planning strategies
such as leveraged lease transactions, the sale-leaseback of certain
property, the revision of depreciation methods for tax purposes and
reductions in foreign sales corporation commissions could generate
taxable income of approximately $16 million, $32 million, $28 million and
$35 million, respectively.
The following table shows the taxable income that will need to be generated
over the next 20 years in order to realize the deferred tax asset:
<TABLE>
<CAPTION>
5-YEAR TIME INTERVAL
---------------------------------------
1994-98 1999-2003 2004-08 2009 & BEYOND
------- --------- ------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
NOLs................................... $ 0 $27 $159 $ 0
Tax credits............................ 0 14 8 0
Future deductible temporary differ-
ences................................. 0 0 0 296
--- --- ---- ----
Total.............................. $ 0 $41 $167 $296
=== === ==== ====
</TABLE>
Future deductible temporary differences begin to reverse in fiscal 1994.
Taxable income needed to realize the portion of the deferred tax asset related
to future deductible temporary differences will need to be generated before the
end of the 15-year period following the reversal of those temporary
differences.
The availability of the Company's NOLs may be limited under the Tax Reform
Act of 1986 as a result of changes that may occur in the ownership of the
Company's stock in the future, principally relating to a change in control.
Management has considered this factor in reaching its conclusion that it is
"more likely than not" that future taxable income will be sufficient to realize
fully the deferred tax asset reflected on the Balance Sheet.
34
<PAGE>
BUSINESS
GENERAL
The Company designs, develops, manufactures, sells and supports complete
nacelle and pylon systems for large aircraft engines. The Company has over 50
years of experience in the aerospace industry and is the leading independent
supplier of nacelle and pylon systems to the world's major commercial airframe
and engine manufactures ("OEMs"). Rohr manages projects from the early design
stage through production and systems integration to lifetime customer support.
In addition, the Company has the right to provide customer and product support
directly to approximately 145 airlines around the world, including on-site
field services and the sale of spare parts.
Nacelles are aerodynamic structures which surround and attach jet engines to
aircraft. A nacelle system generally includes the nose cowl or inlet, fan cowl,
nozzle systems, thrust reverser and engine build-up. Pylons (sometimes referred
to as struts) are structures that attach the jet engines to the aircraft.
Nacelle and pylon systems are highly engineered, critical to fuel efficiency
and integral to all of the key interfaces between the jet engine and the
airframe.
The Company believes that it is competitively well-positioned in its core
business. Management estimates that the Company supplied, by value,
approximately 45% of the nacelle systems and 25% of the pylons for all large
commercial aircraft produced worldwide in 1993, including products represented
on the Boeing 737, 747, 757 and 767, the Airbus A300, A310, A320, A321, A330
and A340, and the McDonnell Douglas MD-80, and MD-11. The Company attributes
its strong market position to its leading technologies, its focus on a narrow
product line and its competitive cost structure. Management believes that this
market position is protected by (i) long-term contracts including some life-of-
program agreements, (ii) substantial costs for the airframe or engine OEMs to
change supply sources, (iii) significant up-front design, development, tooling
and certification costs which must be borne before production on a program may
begin and (iv) a strong reluctance by airlines to support different nacelle
systems manufactured by more than one supplier in their fleets.
MARKETS
Commercial Airline Industry
Commercial airlines' demand for new aircraft is highly dependent upon
consumer demand for air travel, stability of fuel and ticket prices,
replacement of older aircraft (which is influenced by the time required for,
and the economics of, compliance with noise and maintenance regulations), the
availability of temporarily deactivated aircraft, and the financial
capabilities of the airlines and leasing companies to accept ordered aircraft
and to exercise aircraft purchase options. Such demands and capabilities
historically have been related to the stability and health of the United States
and world economies. Since the production of aircraft can take up to two years,
production in the aircraft manufacturing industry (including production by
subcontractors such as the Company) can lag behind changes in the general
economy.
In 1990 through 1992, airlines' passenger capacity increased rapidly as the
commercial aircraft industry produced record numbers of aircraft, peaking with
830 aircraft in 1991. During this same period, the United States and world
economies experienced recession and slow growth, United States scheduled
airlines reported operating losses averaging approximately $2 billion per year,
while non-United States scheduled airlines reported significantly reduced
profits. In 1991, United States and world airline passenger traffic decreased
by 1.9% and 2.8%, respectively. This was the first year in the history of the
industry that world airline passenger traffic had decreased. As a result of
these conditions, orders for new aircraft slowed substantially and some
existing orders and options for new commercial aircraft were cancelled or
rescheduled to later dates.
35
<PAGE>
In 1993, United States scheduled airlines achieved approximately $1 billion
of operating profit. In addition, world airline passenger traffic grew by 6.9%
in 1992 and 4.5% in 1993. Industry analysts have predicted that worldwide
airline passenger traffic will grow approximately 5% to 6% per year over the
long-term.
The following table sets forth the worldwide revenue passenger miles ("RPMs")
and the percentage growth in RPMs, as reported in the March 1993 Boeing Current
Market Outlook--World Market Demand and Airplane Supply Requirements, and the
number of commercial aircraft (over 100 passengers), as reflected in Boeing
World Jet Airplane Inventory Year-End 1992 (after adjustment for deliveries of
aircraft to the military), delivered during each of the last 15 calendar years.
<TABLE>
<CAPTION>
COMMERCIAL
AIRCRAFT
PERCENT (OVER 100
WORLD RPMS GROWTH PASSENGERS)
YEAR (IN BILLIONS) IN RPMS DELIVERED
---- ------------- ------- -----------
<S> <C> <C> <C>
1979................................... 645.4 12.0% 407
1980................................... 652.0 1.0 442
1981................................... 662.4 1.6 431
1982................................... 683.7 3.2 287
1983................................... 714.9 4.6 320
1984................................... 771.2 7.9 265
1985................................... 831.1 7.8 346
1986................................... 888.0 6.8 393
1987................................... 983.9 10.8 418
1988................................... 1061.2 7.9 511
1989................................... 1097.6 3.4 563
1990................................... 1165.7 6.2 671
1991................................... 1133.6 (2.8) 830
1992................................... 1211.8 6.9 785
1993................................... 1298.7(a) 4.5(a) 628(b)
</TABLE>
- --------
(a) Estimated by the Company based upon data for the first eight months of
fiscal 1993 as reported by The Airline Monitor.
(b) Based upon Company estimates.
Commercial Aircraft Manufacturing Industry
As shown above, aircraft deliveries have been declining. The industry
delivered 830 new commercial transport aircraft in 1991, 785 in 1992 and 628 in
1993. In response to the deferral and cancellation of orders from their
customers, airframe and engine manufacturers have rescheduled future production
levels, laid off workers, shortened employee work periods, and passed
production slowdowns on to their suppliers, including the Company. Although
aircraft order backlog remains relatively high, excess capacity currently
exists in the airline industry due to the high number of deliveries in the
early 1990s, unused aircraft which were previously delivered and the weakened
condition of the airline industry. In connection with the current contraction
in the commercial aircraft industry, subcontractors such as the Company have
been experiencing pressures from their customers to reduce prices. The Company,
in turn, is exerting similar pressure on its own suppliers to reduce prices and
thus enable the Company to manufacture products at lower costs. The Company's
commercial airline customers have also reduced their spare parts inventory
levels. The Company expects that orders for and deliveries of commercial
aircraft will continue to be affected through calendar 1995 by the adverse
United States and world economic conditions which existed in recent periods.
36
<PAGE>
Government Sales
The Company's government business is declining as a result of the completion
of older production programs and, in the case of the Titan rocket motor casing
program, reduced demand. Government business represented 12% of the Company's
sales for the six months ended January 30, 1994, as compared to 13% in fiscal
1993, 14% in fiscal 1992 and 20% in fiscal 1991.
CONTRACTS
Most of the Company's major commercial contracts establish a firm unit price,
subject to cost escalation, over a number of years or, in certain cases, over
the life of the related program. Life-of-program agreements generally entitle
the Company to work as a subcontractor in the program during the entire period
the customer produces its aircraft or engine. While the customer retains the
right to terminate these long-term and life-of-program arrangements, there are
generally significant costs for doing so.
The Company's long-term contracts generally contain escalation clauses for
revising prices based on published indices which reflect increases in material
and labor costs. Furthermore, in almost all cases, when a customer orders
production schedule revisions (outside of a range provided in the contract) or
design changes, the contract price is subject to adjustment. These long-term
contracts provide the Company with an opportunity to obtain increased profits
if the Company can improve production efficiencies over time, and the potential
for significant losses if it cannot produce the product for the agreed upon
price.
The Company's other commercial contracts generally provide a fixed price for
a specified number of units which, in many cases, are to be delivered over a
specified period of time. Under these contracts, prices are re-negotiated for
each new order. As a result, the Company has the opportunity to negotiate price
increases for subsequent units ordered if production costs are higher than
expected. The Company's customers, however, may seek price reductions from the
Company in connection with any new orders they place.
On its longer-term contracts, the Company bases initial production prices on
estimates of the average cost for a portion of the units which it and its
customer believe will be ordered. Generally, production costs on initial units
are substantially higher during the early years of a new contract or program,
when the efficiencies resulting from learning are not yet fully realized, and
decline as the program matures. Learning typically occurs on a program as tasks
and production techniques become more efficient through repetition of the same
manufacturing operation and as management implements actions to simplify
product design and improve tooling and manufacturing techniques. If the
customer orders fewer than the expected number of units within a specified time
period, certain of the Company's contracts have repricing clauses which
increase the prices for units that have already been delivered. However, other
contracts do not include such repricing provisions and force the Company to
bear certain market risks. The Company analyzed the potential market for the
products under such contracts and agreed to prices based on its estimate of the
average costs for the units it expected to deliver under the program.
Many of the Company's contracts have provided for the recovery of a specified
amount of nonrecurring, pre-production costs, consisting primarily of design
and tooling costs. In some cases, a significant portion of such pre-production
costs have been advanced by the customer. However, in negotiating some
contracts, the Company has agreed to defer recovery of pre-production costs and
instead to recover a certain amount of such costs with the sale of each
production unit over an agreed number of production units plus spare
equivalents. In addition, on some of these contracts, based on its analysis of
the potential market for the products covered by such contracts, the Company
agreed to amortize pre-production costs over a number of units which was larger
than the anticipated initial fabrication orders without the protection of a
repricing clause or guaranteed quantities of orders. On
37
<PAGE>
other commercial contracts, the Company receives advance payments with orders,
or other progress or advance payments, which assist the Company in meeting its
working capital requirements for inventories. In government contracts, the
Company receives progress payments for both pre-production and inventory costs.
To reduce its pre-production and inventory requirements and market risks, the
Company has subcontracted substantial portions of several of its programs. See
"--Subcontractors."
In accordance with practices in the aircraft industry, most of the Company's
commercial orders and contracts are subject to termination at the convenience
of the customer and on many programs the tooling and design prepared by the
Company are either owned by the customer or may be purchased by it at a nominal
cost. The contracts generally provide, upon termination of firm orders, for
reimbursement of costs incurred by the Company, plus a reasonable profit on the
work performed. The costs of terminating an entire contract or program can be
significantly greater for the customer than the costs of terminating specific
firm orders. All of the Company's government contracts are subject to
termination at the convenience of the government. In such a situation, the
Company is entitled to recover the costs it incurred prior to termination, plus
a reasonable profit on the work performed. If a government contract is
terminated for default, the government's remedies against the Company are
similar to those for breach of a commercial contract.
PRODUCTS
General
The Company designs and manufactures nacelle systems, nacelle components,
pylons, non-rotating components for jet engines, and other components for
commercial, military and business aircraft. A nacelle system generally includes
the nose cowl or inlet, fan cowl, nozzle systems, thrust reverser and EBU. The
nacelle houses electrical, mechanical, fluid and pneumatic systems together
with various panels, firewalls and supporting structures; the aircraft engine
(which is provided by the customer); and engine equipment such as electrical
generators, starters, fuel pumps and oil coolers (which are purchased or
customer-furnished). The Company also performs EBU by assembling nacelle
systems and the related electrical, mechanical, fluid and pneumatic systems
onto core aircraft engines.
The following page contains a picture of major propulsion system components,
including the nacelle system, jet engine and pylon.
38
<PAGE>
PROPULSION SYSTEM COMPONENTS
39
<PAGE>
During fiscal 1993, sales to the commercial (including business jets) and
government (military and space) aerospace industries were approximately 87% and
13% of sales, respectively.
Commercial
The Company manufactures nacelle systems (including thrust reversers),
nacelle components and related parts for commercial aircraft pursuant to the
customer's design or to the Company's design based on the customer's
specifications. In addition, beginning in approximately 1985, the Company
expanded its role and became a systems integrator for nacelle systems on
several programs, with responsibility for the integration and management of the
design, tooling, manufacture and delivery of the complete nacelle system.
Approximately 85% of the existing commercial aircraft fleet contain one or more
Company products as part of their nacelle, thrust reverser or pylon systems.
The following tables identify all of the large commercial aircraft currently
in production or committed to production, list all of the engine options
available on such aircraft, and identify with an "X" the components which the
Company delivers on each aircraft and engine combination.
CURRENT NARROW-BODY AIRCRAFT
<TABLE>
<CAPTION>
NACELLE
- -------------------------------------------------------------------------------------
NOSE FAN CORE NOZZLE THRUST
AIRCRAFT ENGINE COWL COWL COWL & PLUG EBU REVERSER PYLON
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing 737-3/4/500 CFM56-3 X X .
- -------------------------------------------------------------------------------------
Boeing 737-700 CFM56-7 * * .
- -------------------------------------------------------------------------------------
Boeing 757 RB211-535 X . X X X
------------------------------------------------------
PW2037 X
- -------------------------------------------------------------------------------------
McDonnell Douglas MD-80/-87 JT8D-209/-217 X X . . X X X
- -------------------------------------------------------------------------------------
McDonnell Douglas MD-90 V2500 X X . X X X
- -------------------------------------------------------------------------------------
Airbus A319 CFM56-5 X X . X X X
------------------------------------------------------
V2500 X X . X X X
- -------------------------------------------------------------------------------------
Airbus A320 CFM56-5 X X . X X X
------------------------------------------------------
V2500 X X . X X X
- -------------------------------------------------------------------------------------
Airbus A321 CFM56-5 X X . X X X
------------------------------------------------------
V2500 X X . X X X
- -------------------------------------------------------------------------------------
British Aerospace BAe 146 ALF502
- -------------------------------------------------------------------------------------
Fokker 100 RR TAY
</TABLE>
* The Company is negotiating with Boeing to supply these components under a
directed procurement.
. This nacelle configuration does not contain this component.
40
<PAGE>
CURRENT WIDE-BODY AIRCRAFT
<TABLE>
<CAPTION>
NACELLE
- ------------------------------------------------------------------------------
NOSE FAN CORE NOZZLE THRUST
AIRCRAFT ENGINE COWL COWL COWL & PLUG EBU REVERSER PYLON
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing 747 CF6-80C X X X
---------------------------------------------------
PW4000
---------------------------------------------------
RB211-524G X
- ------------------------------------------------------------------------------
Boeing 767 CF6-80C X X X
---------------------------------------------------
PW4000
---------------------------------------------------
RB211-524H X
- ------------------------------------------------------------------------------
Boeing 777 GE90 X
---------------------------------------------------
PW4084
---------------------------------------------------
TRENT 800
- ------------------------------------------------------------------------------
Airbus A300 CF6-80C X X X X
---------------------------------------------------
PW4000 X X . X X X
- ------------------------------------------------------------------------------
Airbus A310 CF6-80C X X X X
---------------------------------------------------
PW4000 X X . X X X
- ------------------------------------------------------------------------------
Airbus A330 CF6-80E X X X X
---------------------------------------------------
PW4168
---------------------------------------------------
TRENT 700 X
- ------------------------------------------------------------------------------
Airbus A340 CFM56-5C2 X X . X X X
- ------------------------------------------------------------------------------
McDonnell Douglas MD-11 CF6-80C2 X X X X X
---------------------------------------------------
PW4000 X X . X X X X
</TABLE>
. This nacelle configuration does not contain this component.
41
<PAGE>
Principal Programs
- ------------------
The following descriptions provide more information on certain of the
Company's major programs. For more detailed financial data (including the
amounts of pre-production and excess-over average inventories at January 30,
1994) for certain programs, see "Notes to the Consolidated Financial
Statements--Note 4."
A340
The Company's 1989 contract with CFM International, the manufacturer of the
jet engine used on the Airbus A340, is a life-of-program contract. The Company
has delivered 182 production units to CFM International through January 30,
1994. The Company's contract establishes prices for the entire contract period,
subject to adjustment based on labor and material cost changes in the industry,
for each nacelle delivered. If the Company does not recover a contractually
specified amount of its nonrecurring costs by June 1997, CFM International will
reimburse it for the unamortized portion of such costs (and, correspondingly,
the Company will reimburse its subcontractors for the unamortized portions of
their investments, to contractually specified amounts, in nonrecurring tooling
and design). Although the contract provides for the recovery of recurring costs
over 600 units, CFM International only guaranteed the recovery of such costs
for the first 200 units. Accordingly, if the Company sells fewer than 600
units, it would not have manufactured enough units to bring its costs down to
anticipated levels and in such case would not recover all of its recurring
manufacturing costs. This is the only nacelle installed on the A340 aircraft.
The Company acts as the systems integrator on this program and has
subcontracted most of the A340 nacelle production to third parties. Generally,
the Company's subcontractors have assumed the market risk associated with the
failure to sell sufficient units to permit full recovery of all of their
manufacturing costs if less than 600 units are delivered. The Company performs
engine build-up for the CFM International engine used with this nacelle at its
factory in Toulouse, France. The Company has the right to sell A340 nacelle
spare parts directly to the airlines.
CF6-80C
Under the contract for the CF6-80C nacelle program entered in 1982 with
General Electric, the Company supplies the nacelle system, excluding the thrust
reverser, nozzle and plug, for installation with the General Electric CF6-80C
engine on the Airbus A300 and A310 and the McDonnell Douglas MD-11. In total,
the Company has delivered 1,499 production units through January 30, 1994. This
is a life-of-program agreement, although General Electric retains the right to
seek bids on the design and production of significantly modified CF6-80C
components. In addition, since 1983, the Company has sold CF6-80C nacelle
components directly to Boeing (under a license agreement with General Electric)
for installation with General Electric engines on Boeing 747 and 767 aircraft.
The Company's contract with Boeing runs through 1995; Boeing has an option to
renew the contract at that time. The sales prices to General Electric and
Boeing are established for the life of the program, subject to adjustment based
on material and labor cost changes in the industry. The Company has the right
to sell CF6-80C spare parts directly to the airlines. Although the Company
subcontracts some portion of this contract, most of the production effort is
performed by the Company.
CFM56
The Company acts as a systems integrator to provide the nacelle system to
Airbus for the CFM International engine installed on the A320 and A321 aircraft
and to be installed on the future A319 aircraft. Since entering the contract in
1984, the Company has delivered 626 production CFM56 nacelles through January
30, 1994. As on other programs in which the Company acts as systems integrator,
the Company subcontracts a major portion of the CFM56 nacelle system effort to
third parties. The Company also manufactures the inlet barrels for the nacelle.
It also performs engine build-up for this engine and nacelle combination at its
factory in Toulouse, France and intends to perform
42
<PAGE>
engine build-up for a version of this engine and nacelle combination at its
factory in Hamburg, Germany. The Company's sales prices to Airbus are
determined for a combined total of 2,000 units, subject to adjustment based on
labor and material cost changes in the industry. The Company has the right to
sell CFM56 nacelle system spare parts directly to airlines.
MD-11
Under its 1988 contract with McDonnell Douglas for the MD-11 pylon, the
Company supplies the wing and tail pylons that attach the General Electric CF6-
80C and Pratt & Whitney PW4000 nacelles onto the McDonnell Douglas MD-11 jumbo
jet. In total, the Company has delivered 364 production units through January
30, 1994. The contract entitles the Company to supply the first 900 pylons
(i.e. 300 shipsets) required by McDonnell Douglas. The contract establishes
prices for the units to be delivered, subject to adjustment based on labor and
material cost changes in the industry. On the basis of its market analysis of
demand for the MD-11 aircraft, the Company accepted certain market risks with
respect to the engineering, development and flight test costs on the MD-11
pylon program. The Company subcontracts the wing pylon structure and
aerodynamic pylon fairings. The Company's subcontractor assumed the market risk
associated with the pre-production costs for the subcontracted work. The
Company produces the tail pylon structure, installs all electrical, hydraulic
and pneumatic systems on the wing and tail pylons and provides pylon product
support (including the sale of spare parts) directly to the airlines who
purchase the MD-11.
MD-90
The Company acts as a systems integrator for the nacelle used with the
International Aero Engines V2500 engine on the McDonnell Douglas MD-90, an
aircraft currently undergoing flight certification. The Company has delivered
only the initial certification units on this program. The first production
units are scheduled for delivery in mid-1994. As with other programs on which
it acts as a systems integrator, the Company subcontracts a substantial portion
of the MD-90 nacelle effort to third parties, retaining production of the
nozzle and other parts and engine build-up services. The Company's 1990
contract with International Aero Engines specifies that the Company shall be
the sole source for the first 750 MD-90 nacelles. The Company's contract
establishes prices, subject to adjustments based on labor and material cost
changes in the industry, for MD-90 nacelles through the year 2010. This is the
only engine and nacelle combination used on the MD-90. Based upon its analysis
of the market for the MD-90, the Company accepted certain market risks in the
contract for this nacelle. As a result, if the Company sells fewer MD-90
nacelles than it assumed for pricing purposes, it would not receive sufficient
payments from International Aero Engines to offset its pre-production costs and
would not receive retroactive price increases to compensate it for production
costs on delivered units that are higher than expected average production costs
over the life of the program. The Company's subcontractors on the MD-90 nacelle
have assumed those market risks associated with pre-production and higher-than-
average initial production costs on the components they manufacture. The
Company has the right to sell MD-90 nacelle spare parts directly to the
airlines.
PW4000
Under the PW4000 nacelle program, the Company produces substantially the
entire nacelle system, including thrust reverser (except for the tail fan cowl
for the MD-11, which is subcontracted). An existing contract was amended in
1985 to include this program, and the Company has delivered 556 production
units to its customer, Pratt & Whitney, through January 30, 1994. The Company
is currently developing design changes intended to result in cost savings on
this program. The PW4000 nacelle is installed on the Airbus A300 and A310 and
the McDonnell Douglas MD-11. The Company has the right to produce PW4000
nacelles through 2002 and has negotiated prices, subject to adjustment based on
cost changes in the industry, through the 1,117th unit (or through the year
2002,
43
<PAGE>
if sooner). The contract provides for an equitable price adjustment if 500
units are not delivered after January 1993 and prior to December 31, 2002. The
Company sells PW4000 spare parts to Pratt & Whitney, which remarkets them to
the airlines.
RB211-535
Since entering a production contract with Rolls-Royce in 1978, the Company
has delivered approximately 708 production units of the RB211-535 nacelle
through January 30, 1994. The Company manufactures substantially all of the
components under this program, which includes the fan cowl, nozzle and plug and
thrust reverser for installation on Boeing 757 aircraft. Under the contract,
the Company has the right to produce the nacelle through the earlier of January
2001 or the delivery of 1,000 units. The Company's contract gives it the right
to compete to produce variations of RB211-535 nacelle components for
installation on other aircraft. It is possible that the RB211-535 engine and
nacelle may be installed as replacement equipment on the Tupolov 204 to improve
its performance and efficiency. The Company's contract with Rolls-Royce
establishes prices for the entire contract period, subject to adjustment based
on labor and material cost changes in the industry. The Company has the right
to sell RB211-535 nacelle spare parts directly to the airlines.
V2500
The Company also acts as a systems integrator on the nacelle it provides for
the International Aero Engines V2500 engine. It subcontracts a major portion of
the V2500 nacelle effort to third parties. The Company manufactures the thrust
reverser inner fixed structure and the nozzle and plug, and performs engine
build-up for this engine and nacelle combination at its factories in Toulouse,
France and Hamburg, Germany. This engine and nacelle combination is installed
on the Airbus A320 and A321 aircraft. Since entering the contract in 1985, the
Company has delivered 327 production V2500 nacelles to International Aero
Engines through January 30, 1994. The Company's sales prices to International
Aero Engines are established for the entire contract period, subject to
adjustment based on labor and material cost changes in the industry. Based upon
its analysis of the market for this engine and nacelle combination, the Company
accepted certain market risks in the contract for this nacelle. As a result, if
the Company sells fewer V2500 nacelles than it assumed for pricing purposes, it
may not receive sufficient payments from International Aero Engines to offset
its pre-production costs (primarily tooling and design). In addition, the
Company would have delivered units at prices below the expected average
production costs over the life of the program and may not receive retroactive
price increases on the delivered units to reflect their actual costs. The
Company's subcontractors on the V2500 nacelle have assumed those market risks
associated with pre-production and higher-than-average initial production costs
for the components they manufacture. The contract, which was entered into in
March of 1985, provides that it may be terminated by either party upon two
years' written notice, but not earlier than ten years from the contract date.
In accordance with that provision, the Company has notified International Aero
Engines that it will not continue the program under the current contractual
terms for orders received after mid-year 1995. The Company and International
Aero Engines are discussing possible alternative contractual arrangements under
which the Company would continue on this program. The Company has the right to
sell V2500 nacelle spare parts directly to the airlines.
Government (Military and Space)
For military aircraft, the Company manufactures nacelles for the Lockheed
Corporation ("Lockheed") C-130 propjet transport aircraft and nacelle
components for re-engining of existing Boeing KC-135 military aerial refueling
tankers. For the U.S. space program, the Company is delivering solid fuel
rocket motor nozzles and insulated casings for boosters which are used on the
Titan Space Launch Vehicle.
44
<PAGE>
Spare Parts
The Company sells spare parts for both commercial and military aircraft,
including those for aircraft in use but no longer in production. Such sales
were approximately $227 million in fiscal 1991, $192 million in fiscal 1992,
$169 million in fiscal 1993 and $66 million in the first six months of fiscal
1994. The Company generally attributes recent reductions in spares sales to the
surplus aircraft in the current marketplace. As a result of such surplus,
aircraft deliveries have declined and the initial spares sold to support newly
delivered aircraft have also declined. In addition, airlines are maintaining
lower spares levels; the existence of surplus aircraft has reduced the need for
spares supplies sufficient to keep an airline's entire fleet in operation.
Also, improved production quality appears to have reduced spares requirements.
Historically, the Company has sold spare parts for commercial programs to
airframe or engine manufacturers which then resold them to the end user.
However, in recent years, under certain programs, the Company has acquired the
right from its customers to sell spare parts directly to airlines (although on
certain programs royalty payments to its customers are required). The contracts
that grant these rights to the Company generally require that the Company
provide technical and product support directly to the airlines. Thus, the
Company has the right to provide customer and product support directly to
approximately 145 airlines worldwide. The Company's direct sales of spare parts
to the airlines are expected to increase in the future as nacelle programs on
which the Company sells spare parts directly to the airlines mature and as the
aircraft using those nacelles age. Generally, the Company earns a higher margin
on the direct sale of spare parts to airlines than it does on the sale of spare
parts to prime contractors (for resale to the airlines). Prices for direct
spare part sales are higher than prices for spare parts sold to prime
contractors, in part, because of additional costs related to the technical and
customer support activities provided to the airlines. The Company's direct
sales of spare parts as a percentage of total sales of spare parts were 48.7%,
36.6%, 27.4% and 18.8% in the first half of fiscal 1994 and in fiscal 1993,
1992 and 1991, respectively.
PROGRAM FUNDING
The highly competitive nature of the aerospace market has required the
Company to commit substantial financial resources, largely for working capital,
to participate with its customers on certain long-term programs. Those working
capital requirements consist primarily of nonrecurring pre-production costs
such as design and tooling, recurring costs for inventories and accounts
receivable.
In some cases, a significant portion of the pre-production costs have been
advanced by the customer. However, in negotiating some contracts, the Company
has agreed to defer recovery of pre-production costs and instead to recover a
certain amount of such costs with the sale of each production unit over an
agreed number of production units plus spares equivalents. On some commercial
contracts, the Company receives advance payments with orders, or other progress
or advance payments, which assist the Company in meeting its working capital
requirements for inventories. In government contracts, the Company receives
progress payments for both pre-production and inventory costs. To reduce both
its pre-production funding requirements and the build-up of program
inventories, the Company has entered into agreements with subcontractors to
provide a portion of the program funding needs and has subcontracted to these
entities substantial portions of many of its programs. See "--Subcontractors."
Advances and progress payments have varied in the past and are subject to
change in the future based on changes in both commercial and government
procurement practices and governmental regulations. Any future change could
affect the Company's need for program funding.
Accounts receivable balances vary in accordance with various payment terms
and other factors including the periodic receipt of large payments from
customers for reimbursement of nonrecurring costs or for amounts which had been
deferred pending aircraft certification.
45
<PAGE>
Given the large number of major commercial aircraft programs introduced since
1985, and the present industry environment, the Company expects few new
programs to be introduced within the next several years and, accordingly, the
Company believes that its financing requirements for new programs have been
reduced as compared to prior periods.
The Company's primary sources of program funding have been funds generated
from operations and borrowings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
MANUFACTURING
The Company's products are manufactured and assembled at its facilities in
the United States and Europe by an experienced workforce. The Company considers
its facilities and equipment generally to be in good operating condition and
adequate for the purpose for which they are being used. In addition, it has a
substantial number of raw material suppliers and numerous subcontractors to
produce components, and in some cases, major assemblies.
The Company has state-of-the-art capabilities, and one of the largest
capacities in the aircraft industry, for metal and composite bonding of
lightweight honeycomb panels used in its nacelles, pylons and thrust reversers.
In its bonding process, the Company uses autoclaves (industrial ovens), which
are up to 20 feet in diameter and 35 feet long, to cure adhesives and
composites under controlled pressures up to 20 atmospheres and temperatures up
to 850 degrees Fahrenheit. The Company also employs other heavy equipment, such
as fluid forming presses which use highly pressurized oil to form sheet metal
against single-sided dies at pressures up to 20,000 pounds per square inch and
other traditional hydraulic forming equipment, to create the highly specialized
parts used in its products. The Company uses state-of-the-art superplastic
forming to heat metal until it is pliable and then to form it under gas
pressure into a complex part; utilizes advanced laser cutting in a variety of
applications; and has established modern assembly operations in its satellite
plants.
The Company's European final assembly sites, which are located adjacent to
the Company's major European customer, Airbus, allow the Company to respond
quickly to this customer's needs. The Company believes that these European
sites provide it with advantages in obtaining certain contracts with Airbus
because they allow the Company to perform a portion of the required work in
Europe.
PRINCIPAL CUSTOMERS
Rohr conducts substantial business with each of the three major commercial
airframe manufacturers: Boeing, Airbus and McDonnell Douglas. In addition, Rohr
conducts business with each of the major commercial jet engine manufacturers:
General Electric, Rolls-Royce, Pratt & Whitney, CFM International (a
corporation jointly owned by General Electric and Societe Nationale d'Etude et
de Construction de Moteurs d'Aviation) and International Aero Engines (a
corporation owned by Rolls-Royce, Pratt & Whitney, Fiat Aviazione, SpA,
Japanese Aero Engines Corporation and MTU Motoren und Turbinen Union Munchen
GmbH). With respect to government (military and spares) sales, the Company's
major customers include Boeing, Lockheed, United Technologies Corporation
(Chemical Systems Division) and the United States government.
46
<PAGE>
The Company's direct sales to its major customers, including related program
spares, expressed as a percentage of total sales, during the following periods
are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JULY 31,
----------------------- ----------------
JANUARY 30, JANUARY 31,
1994 1993 1993 1992 1991
----------- ----------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pratt & Whitney....................... 17% 19% 17% 15% 16%
General Electric...................... 16 12 14 12 12
International Aero Engines............ 15 8 9 7 4
CFM International..................... 9 8 8 2 --
McDonnell Douglas..................... 8 13 11 18 14
Boeing................................ 8 11 11 15 14
Rolls-Royce........................... 8 6 8 7 8
Lockheed.............................. 4 2 3 3 3
Airbus Industrie...................... 2 8 6 8 12
U.S. Government*...................... 1 1 1 2 4
Grumman............................... 0 0 0 1 6
Other................................. 12 12 12 10 7
--- --- --- --- ---
100% 100% 100% 100% 100%
</TABLE>
- --------
* Total sales to the U.S. Government (including direct sales and indirect
sales through prime contractors) accounted for 12%, 11%, 13%, 14% and 20%
for the first six months in fiscal 1994 and 1993, and in fiscal 1993,
1992 and 1991, respectively.
The Company's percentage of total sales by customer varies from period to
period based upon the mix of products delivered in such periods.
Commercial products sold by the Company to jet engine manufacturers are
ultimately installed on aircraft produced by one of the three major commercial
airframe manufacturers. Sales to foreign customers accounted for 23%, 25%,
25%, 22% and 21% for the first six months of fiscal 1994 and 1993, and for
fiscal 1993, 1992 and 1991, respectively.
BACKLOG
The Company's backlog is significant to its business because the production
of most Company products involves a long lead time from order to shipment
date. Firm backlog represents the sales price of all undelivered units for
which the Company has fabrication authority. Firm backlog includes units
ordered by a customer although the Company and the customer have not yet
agreed upon a sales price. In such cases, the Company records in backlog an
amount it believes (based upon all available information) is a reasonable
price estimate. The Company also reports anticipated backlog, which represents
the sales price of units which the Company expects (based upon all available
information) that its customers will order under existing contracts and the
Company will deliver within the next seven years.
The Company's firm backlog at January 30, 1994, was approximately $1.3
billion, compared to $1.4 billion at July 31, 1993. Of such backlog,
approximately $0.4 billion is scheduled for delivery on or before July 31,
1994, with the balance to be delivered in subsequent periods. A portion of the
Company's expected sales from January 30, 1994, through July 31, 1994, is not
included in firm backlog. Anticipated backlog approximated $2.7 billion at
January 30, 1994 compared to $2.6 billion at July 31, 1993.
All of the Company's firm and anticipated backlog is subject to termination
or rescheduling at the customer's convenience. The Company's contracts
generally provide for reimbursement of costs incurred, plus a reasonable
profit on such costs, with respect to any firm orders that are terminated.
Historically, it has been rare for a customer to cancel units in firm backlog
because of its obligations to the Company with respect to such units and its
obligations to suppliers of components other than nacelles and pylons, who
frequently are producing concurrently components for use with the units
ordered from the Company.
47
<PAGE>
MARKET SHARE AND COMPETITION
The Company believes that, based upon its estimates of market values, it
supplied approximately 45% of the nacelle, thrust reverser and engine build-up
products (approximately 70% excluding products produced by Boeing for its own
aircraft), and over 25% of the jet engine pylons (approximately 90% excluding
pylons produced by Boeing and a partner of Airbus for Boeing and Airbus
aircraft, respectively), delivered to the commercial aircraft market in 1993.
The Company's share of these market segments includes the value of products
produced by the Company's subcontractors and is subject to fluctuation each
year depending upon the mix of aircraft models delivered to customers.
Approximately 85% of the existing commercial aircraft fleet contain one or more
Company products on their nacelle, thrust reverser or pylon systems. The
Company sells products and services to the three major commercial airframe
manufacturers, to the five major jet engine manufacturers and, in the case of
spare parts and certain product support services, to a substantial number of
airlines. The Company's commercial products represented 87% of its business in
the fiscal year ended July 31, 1993. Market discussions and references to
aircraft production exclude consideration of the markets in the former U.S.S.R.
Over the next several years, the Company expects its key subcontractors to
produce components and, in some cases, major assemblies, representing
approximately one-third of the value of the products and services to be
delivered by the Company during such period. See "Subcontractors."
The Company's principal competition is Boeing (which in addition to being a
Company customer also manufactures nacelle systems and pylons for its own
aircraft), other significant aerospace corporations who have development and
production experience with respect to portions of the nacelle system and the
companies to whom the Company has subcontracted various components and who
could (and have) bid on contracts in competition with the Company. See "--
Subcontractors." Military aerospace contractors are also potential competitors,
as excess capacity created by reductions in defense spending could cause some
of these contractors to look to expand in commercial markets.
The Company believes that its capabilities and technology, which range from
research and development through component design and testing, flight
certification assistance, component production and integration and airframe
production line assistance, contribute significantly to its market position.
The Company also believes that its contractual rights to participate on
programs for long periods of time or, in some cases, over the life of programs
also contribute to the maintenance of its market position. See "--Contracts."
Even with respect to its shorter term contracts, the Company is very likely
to continue working as a subcontractor for the prime contractors well beyond
the end of the existing shorter term contracts. The Company has long standing
relationships with all of its significant customers. The Company's continued
participation on existing programs provides cost advantages to the prime
contractors because it avoids the cost of disassembling, moving, reassembling
and recalibrating the customized tooling used to manufacture aerospace products
which would be necessary if a program were transferred to a new subcontractor
at the end of a short-term contract. In addition, the delays inherent in such
transfer are likely to disrupt the prime contractor's own production schedule
as the flow of deliveries from the subcontractor is interrupted during the
transfer. It is also generally more expensive for a new subcontractor to begin
producing products in the middle of an existing program than it is for the
Company to continue producing the required products. A new subcontractor's
employees must learn program specific tasks with which the Company's employees
will already be familiar. See "Contracts." As a result of all of these factors,
it is very unusual for a prime contractor to shift a major aerospace
subcontract from one manufacturer to another at the end of a short-term
contract.
Competitive factors include price, quality of product, design and development
capability, ability to consistently achieve scheduled delivery dates,
manufacturing capabilities and capacity, technical
48
<PAGE>
expertise of employees, the desire or lack thereof of airframe and engine
manufacturers to produce certain components in-house, and the willingness, and
increasingly the ability, of the Company and other nacelle manufacturers to
accept financial and other risks in connection with new programs.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are designed to improve its
existing products and manufacturing processes, to enhance the competitiveness
of its new products, and to broaden the Company's aerospace product base.
Most of its product development is funded through regular production
contracts. The Company developed the world's first all composite nacelle and
its large cascade thrust reverser technology under such contracts. The Company
also performs self-funded research and development through which it developed
proprietary products which control noise and prevent ice formation on nacelles.
The Company seeks research and development contracts from the U.S. government
and from commercial customers in targeted areas of interest such as composite
materials and advanced low-cost processing and joining of new materials. From
time to time, the Company also enters into joint research and development
programs with its customers, such as its existing laminar flow nacelle study,
which seeks to significantly reduce the aerodynamic drag of nacelles and
thereby reduce fuel consumption.
PATENTS AND PROPRIETARY INFORMATION
The Company has obtained patents and developed proprietary information which
it believes provide it with a competitive advantage. For example, the Company
holds patents on the DynaRohr family of honeycomb sound attenuation structures,
the state-of-the-art RohrSwirl system which prevents ice formation on the
leading edges of nacelles and bonding processes for titanium and other metals.
In addition, the Company has developed proprietary information covering such
matters as nacelle design, sound attenuation, bonding of metallic and advanced
composite structures, material specifications and manufacturing processes. The
Company protects this information through invention agreements and
confidentiality agreements with its employees and other third parties. Although
the Company believes that its patents and proprietary information allow it to
produce superior products, it also believes that the loss of any such patent or
disclosure of any item of proprietary information would not have a material
adverse effect on the Company.
RAW MATERIALS AND SUPPLIERS
The principal raw materials used by the Company are sheet, plate, rod, bar,
tubing, and extrusions made of aluminum, steel, Inconel and titanium;
electrical wire; rubber; adhesives; and advanced composite products. The
principal purchased components are aircraft engine equipment, custom machined
parts, sheet metal details, and castings and forgings. All of these items are
procured from commercial sources. Supplies of raw materials and purchased parts
historically have been adequate to meet the requirements of the Company.
However, from time to time, shortages have been encountered, particularly
during high industry production and demand. While the Company endeavors to
assure the availability of multiple sources of supply, there are many instances
in which, either because of a customer requirement or the complexity of the
item, the Company may rely on a single source. The failure of any of these
single source suppliers or subcontractors to meet the Company's needs could
seriously delay production on a program. The Company monitors the delivery
performance, product quality and financial health of its critical suppliers,
including all of its single source suppliers. Over the last ten years, which
includes the period from 1987 through 1991 when the Company's sales grew
rapidly, there have been occasions of periodic, short-term delays from
suppliers, but none of these delays has had a material adverse effect on the
Company or its ability to deliver products to its customers.
49
<PAGE>
SUBCONTRACTORS
Both to reduce the burden and risk of program investments, and also in some
cases to participate in foreign programs, the Company has subcontracted the
design, development and production of substantial portions of several of its
major contracts to other foreign and domestic corporations. In return, those
companies provided a portion of the investment and assumed a portion of the
risk associated with various of the Company's contracts. See "--Products--
Commercial," "--Market Share and Competition" and "--Program Funding."
The Company's performance and ultimate profitability on these programs is
dependent on the performance of its subcontractors, including the timeliness
and quality of their work, as well as the ability of the Company to monitor and
manage its subcontractors.
EMPLOYEES
At January 30, 1994, the Company had approximately 5,150 full-time employees,
of whom approximately 1,710 were represented by the International Association
of Machinists and Aerospace Workers, and approximately 190 were represented by
the International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America. Collective bargaining agreements between the
Company and these labor unions expire on February 11, 1996 and October 29,
1995, respectively. The Company considers its relationship with its employees
generally to be satisfactory.
PROPERTIES
All owned and leased properties of the Company are generally well maintained,
in good operating condition, and adequate and sufficient for the Company's
business. The Company's properties are substantially utilized; however, due to
the downturn in the aerospace industry, the Company has excess manufacturing
capacity. All significant leases (except for leases associated with industrial
revenue bond financings) are renewable at the Company's option on substantially
similar terms, except for increases of rent which must be negotiated in some
cases. See "Notes to the Consolidated Financial Statements--Note 8."
50
<PAGE>
The following table sets forth the location, principal use, approximate size
and acreage of the Company's major production facilities. Those which are
owned by the Company and it subsidiaries are owned free of material
encumbrances, except as noted below:
<TABLE>
<CAPTION>
OWNED LEASED
----------------------- -----------------------
APPROXIMATE APPROXIMATE
TYPE OF SQUARE FEET APPROXIMATE SQUARE FEET APPROXIMATE
FACILITY(1) OF FACILITY ACREAGE OF FACILITY ACREAGE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Alabama
Fairhope(2)(3)........ A,B 123,000 70.6 -- --
Foley(2).............. A,B 341,000 163.7 -- --
Arkansas
Arkadelphia(4)........ A,B 225,000 65.2 -- --
Heber Springs(2)...... A,B 161,000 70.5 -- --
Sheridan(2)........... A,B 155,000 79.4 -- --
California
Chula Vista........... A,B,C,D 2,789,000 98.5 215,000 78.4
Moreno Valley......... A,B,C 244,000 37.5 -- --
Riverside............. A,B,C,D 1,150,000 75.3 152,000 15.1
France
Toulouse/St. Martin... A,B 132,000 7.0 18,000 3.2
Toulouse/Gramont(2)... A,B 170,000 23.0 -- --
Germany
Hamburg............... A,B 28,000 5.3 -- --
Maryland
Hagerstown(3)(5)...... A,B 423,000 56.8 6,200 --
Texas
San Marcos............ A,B 169,000 55.0 -- --
Washington
Auburn(6)............. A,B 87,000 23.8 -- --
--------- ----- ------- ----
Approximate Totals.... 6,197,000 831.6 391,200 96.7
========= ===== ======= ====
</TABLE>
- --------
(1) The letters indicated for each location describe the principal activities
conducted at that location: A-Office; B-Manufacturing; C-Warehouse; and D-
Research and Testing.
(2) Subject to a capital lease.
(3) The Company is in the process of selling or seeking to sell this facility.
(4) The completion of construction of this facility has been deferred.
(5) The Company has announced that it will close this facility.
(6) The Company has sold this facility.
51
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and positions of the directors and officers of the Company
are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James J. Kerley............. 71 Chairman of the Board
Robert H. Rau............... 57 President, Chief Executive Officer and Director
Wallace Barnes.............. 68 Director
Wallace W. Booth............ 71 Director
Prof. Eugene E. Covert...... 68 Director
Wayne M. Hoffman............ 71 Director
Dr. D. Larry Moore.......... 57 Director
Robert M. Price............. 63 Director
Dr. William P. Sommers...... 60 Director
Dr. Jack D. Steele.......... 69 Director
John R. Johnson............. 56 Senior Vice President, Programs and Support
Graydon A. Wetzler.......... 52 Senior Vice President, Operations
Richard W. Madsen........... 55 Vice President, General Counsel and Secretary
Alvin L. Majors............. 53 Vice President and Controller
Ronald M. Miller............ 49 Vice President and Treasurer
</TABLE>
MR. KERLEY became Chairman of the Board, Chief Executive Officer and Chief
Financial Officer on January 7, 1993. On April 19, 1993, he relinquished the
title of Chief Executive Officer and on October 31, 1993, he relinquished the
title of Chief Financial Officer when he ceased being an employee of the
Company. He chairs the Finance Committee of the Company's Board of Directors,
is a member of its Nomination and Management Succession Committee, and, as the
non-employee Chairman of the Board, serves on all other committees of the Board
as an ad-hoc, non-voting, member. He retired as Vice Chairman of Emerson
Electric Company, St. Louis, Missouri, at the end of 1985, and from its Board
of Directors in February 1987, positions he had held since September 1981. He
also served as the Chief Financial Officer at Emerson Electric Company from
September 1981 to March 1984 and as the Chief Financial Officer of Monsanto
Company from September 1971 to August 1981. He has served on the Board of
Directors of approximately 25 publicly held companies during his career and
currently serves as a director of Sterling Chemicals, Inc.; Kellwood Company;
ESCO Electronics Corporation, Borg Warner Automotive, Inc. and DTI Industries,
Inc. He has been a director of Rohr since October 1980, and previously served
as a director from June 1976 to February 1980.
MR. RAU was elected President and Chief Executive Officer of the Company in
April 1993. Prior to joining the Company, Mr. Rau was an Executive Vice
President of Parker Hannifin Corporation and for the past ten years served as
President of the Parker Bertea Aerospace segment of Parker Hannifin. Parker
Bertea designs and produces a broad line of hydraulic, fuel and pneumatic
systems and components for commercial, military and general aviation aircraft.
He joined Parker Hannifin in 1969, and held positions in finance, program
management and general management. Mr. Rau has extensive experience in the
aerospace industry. In addition, Mr. Rau is a member of the Board of Governors
of the Aerospace Industries Association. He was appointed a director of the
Company in April 1993.
MR. BARNES has been the Chairman of Barnes Group Inc. since March 1977, was
Chief Executive Officer from 1977 to 1991, and served as President of that
company from 1964 to 1977. Barnes Group, headquartered in Bristol, Connecticut,
is a publicly traded Fortune 500 company with three groups involved in
automotive maintenance and repair parts, precision springs and custom metal
parts, and aerospace components for gas turbine engines. He was appointed a
director of the Company in February 1989. He is also a director of Aetna Life &
Casualty Co., Loctite Corporation, Rogers Corp., and BGI. He serves on the
Audit and Ethics Committee of the Company's Board of Directors, its
Compensation and Benefits Committee and its Technology Committee.
52
<PAGE>
MR. BOOTH retired as Chairman of the Board of Ducommun Incorporated, Los
Angeles, California, in December 1988. From June 1978 until July 1988 he served
as Chairman of the Board, President and Chief Executive Officer and a director
of that company. Mr. Booth has been a director of Rohr since February 1982. He
is also a director of Litton Industries, Inc.; First Interstate Bank of
California; and Navistar International Corporation. He is a Trustee of the
University of Chicago. Mr. Booth is also a director of the Children's Bureau
Foundation of Southern California. He serves on the Compensation and Benefits
Committee of the Company's Board of Directors and its Finance Committee.
PROFESSOR COVERT has been a Professor in the Department of Aeronautics and
Astronautics of the Massachusetts Institute of Technology, Cambridge,
Massachusetts, since 1968, and from 1985 to 1990, he served as Department Head.
Professor Covert is also a consultant to a number of major corporations as well
as to agencies of the United States and foreign governments. He is a director
of Allied-Signal Corp. and Physical Sciences, Inc., and a member of the
American Institute of Aeronautics and Astronautics. He has been a director of
Rohr since December 1986, and serves on the Audit and Ethics Committee of the
Company's Board of Directors and its Technology Committee.
MR. HOFFMAN is the former Chairman of Tiger International, Inc., and Flying
Tiger Line, Los Angeles, California, having served in those positions beginning
in September 1967 until his retirement in March 1986. Between March 1978 and
August 1985, he also served as Chief Executive Officer and from August 1973 to
August 1985, he served as President of Tiger International, Inc. He is also a
director of SunAmerica, Inc., and trustee of Aerospace Corporation. He has been
a director of Rohr since December 1982, and serves on the Audit and Ethics
Committee of the Company's Board of Directors and its Nomination and Management
Succession Committee.
DR. MOORE has been the President and Chief Operating Officer of Honeywell,
Inc., a provider of electronic automation and control systems located in
Minneapolis, Minnesota, since April 1993. From December 1990, until assuming
his current position, he served as Executive Vice President and Chief Operating
Officer of that company. Dr. Moore has been employed by Honeywell, Inc., since
December 1986 having also served as President of its Space Aviation Division.
Dr. Moore was appointed a director of the Company on December 7, 1991. He is
also a director of Honeywell, Inc.; the General Aviation Manufacturing
Association; the Aerospace Industries Association; the National Association of
Manufacturers; and Abbott Northwestern Hospital in Minneapolis, Minnesota. He
serves on the Finance Committee of the Company's Board of Directors and its
Nomination and Management Succession Committee.
MR. PRICE has been a business consultant to a number of major American
corporations since January 1990, when he retired as Chairman of Control Data
Corporation (now renamed Ceridian), Minneapolis, Minnesota. He was named
President and Chief Operating Officer of Control Data Corporation in 1980, and
Chairman and Chief Executive Officer in 1986, continuing as President until
1988. He is also a director of International Multifoods, Premark International,
and Public Service Co. of New Mexico. Additionally, he is a Chairman of the
Alpha Center for Public and Private Initiatives and serves on the boards of the
Minnesota Opera, the Minneapolis United Way, and the Duke University's Fuqua
School of Business Board of Visitors. He was appointed a director of the
Company on June 7, 1991. He serves on the Compensation and Benefits Committee
of the Company's Board of Directors and its Technology Committee.
DR. SOMMERS has served as the President and Chief Executive Officer of SRI
International since January 1994. SRI International is one of the world largest
contract research firms, employing more than 2,000 professionals engaged in
research in areas including engineering, science and technology, business and
policy. Prior to joining SRI International, Dr. Sommers was Executive Vice
President of Iameter, Inc., a firm specializing in health care quality and cost
control. From 1973 until joining Iameter in 1972, he served as a Senior Vice
President, director and member of the Office of the Chairman of Booz.Allen &
Hamilton, Inc., San Francisco, California, having served in other senior
management positions with that firm since 1963. Dr. Sommers has extensive
experience as a management
53
<PAGE>
consultant to some of the world's largest technology-based manufacturing and
service firms. He was appointed a director of the Company on September 9, 1992.
He is a member of the board of trustees of the Kemper Mutual Funds and a
director of Therapeutic Discovery Corp. He serves on the Finance Committee of
the Company's Board of Directors and its Technology Committee.
DR. STEELE is the former Chairman, Board Services Division, Korn Ferry
International, Los Angeles, California, a position he assumed in June 1987.
From 1975 to 1986, he was the Dean, School of Business Administration,
University of Southern California, Los Angeles, California. He has held
professorships at Texas Tech University, the University of Kansas, Stanford
University, and Harvard University. He is an author in the marketing and
business fields and a consultant to a number of major American corporations. He
is also a director of Glendale Federal Bank; Storage Properties, Inc.; and
Public Storage, Inc. He has been a director of Rohr since December 1976, and
serves on the Finance Committee of the Company's Board of Directors and its
Nomination and Management Succession Committee.
MR. JOHNSON has served as Senior Vice President, Programs and Support since
March 1, 1993. Prior to that and since April 1982, he has served in other
senior management positions. He joined the Company in September 1979.
MR. WETZLER has served as Senior Vice President, Operations since January
1994. Prior to that and since April 1986, he has served as Vice President of
Technology, Assembly Plant Operations and Information Systems at various times.
He has been an employee of the Company since 1979.
MR. MADSEN has served as Vice President, General Counsel and Secretary since
December 5, 1987. Prior to that and since August 1979, he served as Secretary
and Corporate Counsel and has been an employee of the Company since 1974.
MR. MAJORS has served as Vice President and Controller (Chief Accounting
Officer) since May 1989. Prior to that and since December 1987, he served as
the Company's Controller. Prior to that and since 1971, he has served in other
senior management positions. He has been an employee of the Company since 1971.
MR. MILLER has served as Vice President and Treasurer since May 1989. Prior
to that and since December 1987, he served as the Company's Treasurer and has
been an employee of the Company since February 1969.
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LEGAL AND ENVIRONMENTAL PROCEEDINGS
C-5 LITIGATION
During fiscal year 1992, the U.S. Air Force filed a termination notice for
alleged default under the C-5 spare pylon contract, and the Company then
commenced the appeal process to convert the termination to one for convenience
of the government. Contemporaneously, the Company filed a notice of breach of
contract with the government on the C-5 spare pylon contract. The Company also
filed a variety of actions before the Armed Services Board of Contract Appeals
("ASBCA") requesting payment of sums owed the Company due to the government's
imposition of redefined acceptance criteria under the C-5 pylon program and the
KC-135 re-engining program. The Company also recorded special provisions for
this matter in prior periods.
Following the end of the Company's fiscal 1994 second quarter, the Company
and the U.S. Air Force settled all of these disputes. The most significant
aspects of this settlement were:
(1) The C-5 spare pylon contract will be converted to termination for
government convenience, and the Company will retain approximately $27.3
million of unliquidated progress payments previously made by the U.S. Air
Force.
(2) The Company will retain most of the C-5 spare pylon work-in-process
and raw material inventories.
(3) The Company will provide a warranty on certain, specified C-5 pylon
panels which will end for each panel seven years after the original
delivery date for such panel to the Air Force. The original delivery dates
for the warranted panels range from 1989 to 1991. The Company has
established a reserve for this warranty obligation.
U.S. ATTORNEY INVESTIGATION
Contemporaneously with the C-5 settlement with the U.S. Air Force discussed
above, the Company and the United States Attorney for the Central District of
California settled the civil and criminal aspects of an investigation, which
had been on-going since 1990, concerning the production of parts, the recording
of information which is a part of that production process, and the testing
practices utilized by the Company on many programs. The Company cooperated
fully in the investigation and does not believe there was any adverse effect on
the safety or utilization of its products. The Company recorded special
provisions in prior periods reflecting its assessment of the ultimate costs
which it believed would be incurred. Under this settlement the Company paid $4
million to the U.S. Attorney's office for the civil claims. In connection with
this settlement, a recently unsealed qui tam lawsuit filed by former employees
against the Company on behalf of the U.S. Government with respect to certain of
the activities that had been under investigation has been dismissed with
prejudice. With regard to the criminal aspects of this matter, the Company
admitted making eight false statements and paid approximately $3.7 million in
fines. In connection with this matter, the Company is also engaged in
discussions with government officials who have the discretion to temporarily
suspend or to debar the Company from entering into government contracts in the
future. The discussions are designed to demonstrate that the Company is a
presently-responsible contractor and that it should be entitled to continue to
be eligible to receive additional governmental contracts.
RECEIVABLES AND INVENTORIES
Accounts receivable and inventories include estimated recoveries on
constructive change claims the Company has asserted against the United States
Navy with respect to the F-14 and E3/E6 programs because of costs the Company
incurred as a result of government imposed redefined acceptance criteria.
Management believes that the amounts reflected in the financial statements are
a reasonable estimate of the amount for which these matters will be settled.
The resolution of these
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matters may take several years. See "Notes to the Consolidated Financial
Statements--Note 3." The Company is vigorously pursuing these claims and
believes, based on currently available information, that the ultimate
resolution will not have a material adverse effect on the financial position or
results of operations of the Company.
STRINGFELLOW SITE
In June 1987, the U.S. District Court of Los Angeles, in U. S. et al. vs.
Stringfellow (United States District Court for the Central District of
California, Civil Action No. 83-2501 (JMI)), granted partial summary judgment
against the Company and 14 other defendants on the issue of liability under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). This suit alleges that the defendants are jointly and severally
liable for all damage in connection with the Stringfellow hazardous waste
disposal site in Riverside County, California. In June 1989, a federal jury and
a special master appointed by the federal court found the State of California
also liable for the cleanup costs. On November 30, 1993, the special master
released his "Findings of Fact, Conclusions of Law and Reporting
Recommendations of the Special Master Regarding the State Share Fact Finding
Hearing." In it, he allocated liability between the State of California and
other parties. As this hearing did not involve the valuation of future tasks
and responsibilities, the order did not specify dollar amounts of liability.
The order, phrased in percentages of liability, recommended allocating
liability on the CERCLA claims as follows: 65% to the State of California and
10% to the Stringfellow entities, leaving 25% for the
generator/counterclaimants (including the Company) and other users of the site
(or a maximum of up to 28% depending on the allocation of any Stringfellow
entity orphan share). On the state law claims, the special master recommended a
95% share for the State of California, and 5% for the Stringfellow entities,
leaving 0% for the generator/counterclaimants. The special master's finding is
subject to a final decision and appeal. The Company and other defendants for
the Stringfellow site, which include numerous companies with assets and equity
significantly larger than the Company, are jointly and severally liable for the
cleanup. Notwithstanding this, CERCLA liability is sometimes allocated among
hazardous waste generators who used a waste disposal site based on the volume
of hazardous substances they disposed at the site. The Company is the second
largest generator of wastes by volume disposed at the site, although it and
certain other generators have argued the final allocation of cleanup costs
among generators should not be determined solely by volume. The largest volume
generator of wastes disposed at the Stringfellow site has indicated it is
significantly dependent on insurance to fund its share of any cleanup costs,
and that it is in litigation with certain of its insurers. The Company and the
other generators of wastes disposed at the Stringfellow site, which include
numerous companies with assets and equity significantly greater than the
Company, are jointly and severally liable for the share of cleanup costs for
which the generators, as a group, may ultimately be responsible. The Company
intends to continue to vigorously defend this matter and believes, based upon
currently available information, that the ultimate resolution will not have a
material adverse effect on the financial position or results of operations of
the Company.
The Company has claims against its comprehensive general liability insurers
for reimbursement of its cleanup costs at the site. These claims are the
subject of separate litigation, although the insurers nevertheless are paying
substantially all of the Company's costs of defense in the CERCLA and State
actions against the generators of wastes disposed at the site. Certain of these
insurance policies have pollution exclusion clauses which are being argued as a
defense and the insurers are alleging various other defenses to coverage. The
Company has entered settlements with some of the insurance carriers and is
engaged in settlement discussions with certain others. The Company intends to
continue to vigorously defend this matter and believes, based upon currently
available information, that the ultimate resolution will not have a material
adverse effect on the financial position, liquidity or results of operations of
the Company.
SEC INQUIRY
In 1990, the Division of Enforcement of the Securities and Exchange
Commission (the "Enforcement Division") began conducting an informal inquiry
regarding various Company production
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programs, program and contract estimates at completion and related accounting
practices. Following the filing of a registration statement with the
Commission, the Company received on August 17, 1993, and shortly thereafter
responded to, a request for documents from the Enforcement Division concerning
its decision to change its accounting practices relating to long-term programs
and contracts, and its previous practice of capitalizing pre-certification and
certain general and administrative costs. There have been no further comments
from the Enforcement Division since that date. The Enforcement Division's
request for documents indicated that the inquiry "should not be construed as an
indication by the Commission or its staff that any violation of the law has
occurred; nor should it be considered a reflection on any person, entity, or
security." The Company cooperated fully with the Enforcement Division's
requests and cannot predict the ultimate result of the inquiry or its impact,
if any, on the Company. The Company has been advised by the Division of
Corporation Finance of the Commission that because the Company's use of program
accounting is based in significant part on practices which it believes are
generally followed and/or accepted, rather than on the basis of authoritative
literature, the Staff is not in a position presently to object or concur with
the Company's utilization of such accounting method. The Staff informed the
Company last August that it intends to survey practice and conduct other
inquiries regarding generally accepted practices relating to long-term
contracts and program accounting. The Company has not received any indication
from the Commission of the likely outcome of this survey. By declaring
effective the Registration Statement of which this Prospectus is a part, the
Commission is not passing upon the adequacy or accuracy of the information
contained herein including, without limitation, the appropriateness of the
Company's accounting methods and practices.
MARYLAND CONSENT ORDER
In December 1989, the Maryland Department of the Environment ("MDE") served
the Company with a Letter and Consent Order No. CO-90-093. The Consent Order
calls for investigation and remediation of chemicals detected in soil and
ground water at the Company's bonding facility in Hagerstown, Maryland. The
Company and MDE subsequently negotiated a mutually acceptable Consent Order
under which the Company has developed a work plan to determine the nature and
extent of the pollution at the bonding plant. The Company had acquired the
bonding plant from Fairchild Industries, Inc. ("Fairchild"), in September 1987
and Fairchild had agreed to retain responsibility for and to indemnify the
Company against any claims and fees in connection with any hazardous materials
or pollutants released into the environment at or near the bonding plant or any
other property before the closing date of the sale. In October 1990, after
initially-unsuccessful negotiations with Fairchild, the Company filed a lawsuit
in the United States District Court for the Central District of California
requesting, among other things, a declaration that it is entitled to
indemnification under the Purchase and Sale Agreement for the costs associated
with conducting the work requested by MDE. On March 11, 1993, the Company and
Fairchild executed a settlement agreement pursuant to which Fairchild
substantially reimbursed the Company for past costs relating to environmental
investigations at the bonding plant. The parties agreed to dismiss the lawsuit
and agreed on a procedure to perform the work required under the MDE Consent
Order. Based on currently available information, the Company believes that the
resolution of this matter will not have a material adverse effect on the
financial position or results of operation of the Company.
PROPOSITION 65 MATTERS
On March 23, 1992, a Deputy Attorney General for the State of California
advised the Company that it may be subject to suit pursuant to Proposition 65
on the basis of data contained in a health risk assessment ("HRA") of the
Company's Chula Vista facility conducted pursuant to the Air Toxics Hot Spots
Act, also known as California Assembly Bill AB-2588. Proposition 65 requires
manufacturers who expose any person to a chemical resulting in an increased
risk of cancer to issue a clear and reasonable warning to such person and
imposes substantial penalties for non-compliance. AB-2588 requires
manufacturers to inventory their air emissions and to submit an HRA to assess
and quantify health risks associated with those emissions. On April 9, 1993,
representatives of the Company met with the Deputy
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Attorney General to discuss this matter and agreed to supply certain requested
data to the government. The Company is presently working on the procedures
required to produce this data. Based on currently available information, the
Company believes that the resolution of this matter will not have a material
adverse effect on the financial position or results of operation of the
Company.
RIO BRAVO SITE
In January 1993, the Department of Toxic Substances Control of the State of
California Environmental Protection Agency ("DTSC") notified the Company and
approximately 25 other individuals and companies that the DTSC expected a
payment of approximately $1.1 million within thirty days of its notice. The
demand for payment, which is joint and several, was for expenses allegedly
incurred by DTSC personnel in the oversight of the cleanup of the Rio Bravo
deep injection well disposal site in Shafter, California. The cleanup is
currently being conducted by a group of cooperating potentially responsible
parties ("PRPs"), including the Company ("the Cooperating PRPs"). The DTSC
advised that failure to pay said sum within the specified time limit would
result in a referral of the matter to its legal office for collection. The
Company was further advised that it could submit objections to this action by
contacting DTSC's Cost Recovery Unit. In February 1993, the Cooperating PRP
group wrote to DTSC and advised them, among other things, of the Cooperating
PRPs' continuing efforts at the site and suggested that DTSC seek recovery of
the oversight funds from the non-cooperating PRPs. Since the demand of the DTSC
was joint and several, and would arguably cover all generators including the
non-cooperating PRPs, none of the $1.1 million demanded by the DTSC has been
allocated to the Cooperating PRPs. Some PRPs estimate the potential cost of
cleanup to be approximately $7 million and the Company's share (based on
estimated, respective volumes of discharge into such site by all generators,
all of which cannot now be known with certainty) could approximate $450,000.
The Company and other PRPs could face joint and several liability for the
entire amount of clean-up costs, regardless of Cooperating PRP or non-
cooperating PRP status. Based on currently available information, the Company
believes that the resolution of this matter will not have a material adverse
effect on the financial position or results of operation of the Company.
CHATHAM SITE
The Company previously reported that the DTSC informed the Company and
approximately 100 other individuals and companies that DTSC considered the
recipients to be potentially PRPs liable for cleanup at the Chatham Brothers
Barrel Yard Site located in Escondido, California (the "Chatham Site"). By
letter dated April 13, 1993, DTSC again notified the Company that it believed
the Company was one of a number of companies who were liable for the cleanup of
the Chatham Site. After a thorough review of the Company's records and
information possessed by DTSC, and interviews of present and former Company
employees, the Company remains convinced that it has no relationship whatsoever
with the Chatham Site and, therefore, is not liable for the cleanup of that
site. In addition, the Company has discussed this matter with a group of PRPs
for the Chatham Site and has indicated its lack of involvement with the site.
If the Company fails to persuade DTSC that it is not a PRP with regard to the
Chatham Site, the Company could face joint and several liability for the
amounts involved. The potential cost of cleanup for the Chatham Site is
estimated by some PRPs to be approximately $30 million. If suit is filed
against the Company, the Company intends to defend vigorously this matter.
Based on currently available information, the Company believes that the
resolution of this matter will not have a material adverse effect on the
financial position or results of operation of the Company.
SCAQMD COMPLIANCE
The Company's Riverside, California facility is working along with the
California Aerospace Group ("CAG") to meet the South Coast Air Quality
Management District ("SCAQMD") compliance deadline for adhesive bonding
primers. The deadline for compliant primers was originally January 1, 1992. It
has been extended and is now set for January 1, 1997. The Company and the CAG
continue to work with
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manufacturers of adhesive bonding primers to see if a compliant primer can be
developed and tested, and although no compliant primers currently exist, five
potential candidates have been identified for extensive testing. The Company
believes the ultimate resolution of the matter will not have a material adverse
impact on the financial condition or results of operations of the Company.
CASMALIA SITE
During the third quarter of fiscal year 1993, Region IX of the United States
Environmental Protection Agency ("EPA") named the Company as a first-tier
generator of hazardous wastes that were transported to the Casmalia Resources
Hazardous Waste Management Facility (the "Casmalia Site") in Casmalia,
California. Approximately 80 other companies and individuals have also been
identified as first-tier generators. First-tier generators are the top 82
generators by volume of waste disposed of at the Casmalia Site. The size of
this group was chosen by the EPA. The EPA has given the first-tier generators a
list of work-related elements needing to be addressed in a good faith offer to
investigate and remediate the site. The first-tier generators believe a
collaborative approach early in the site cleanup and closure process offers all
parties an opportunity to help determine a technical course of action at this
site before the EPA has made final decisions on the matter. The Company has
joined approximately 49 other companies in the Casmalia Resources Site Steering
Committee which recently made a good faith offer to the EPA. The Company could
be found jointly and severally liable for the total amount of cleanup cost. The
Company does not yet know the ability of all other PRPs at this site, which
include companies of substantial assets and equity, to fund their allocable
share. Some PRPs have made preliminary estimates of cleanup costs at this site
of approximately $60 to $70 million and the Company's share (based on
estimated, respective volumes of discharge into such site by all generators,
all of which cannot now be known with certainty) could approximate $1,750,000.
Based on currently available information, the Company believes that the
resolution of this matter will not have a material adverse effect on the
financial position or results of operation of the Company.
CHULA VISTA SITE
From time to time, various environmental regulatory agencies request that the
Company conduct certain investigations on the nature and extent of pollution,
if any, at its various facilities. For example, such a request may follow the
spill of a reportable quantity of certain chemicals. At other times, the
request follows the removal, replacement or closure of an underground storage
tank pursuant to applicable regulations. At present, the Company's Chula Vista
facility is conducting certain investigations pursuant to discussions with the
San Diego County Department of Health Services, Hazardous Materials Management
Division and the San Diego Regional Water Quality Control Board. The Company
intends to cooperate fully with the various regulatory agencies.
GENERAL
In addition to the litigation discussed above, from time to time the Company
is a defendant in lawsuits involving claims based on the Company's alleged
negligence or strict liability as a manufacturer in the design or manufacture
of various products and also claims based upon environmental protection laws.
The Company believes that in those types of cases now pending, or in claims
known by the Company to be asserted against it whether or not reduced to a
legal proceeding, it either has no material liability or any such liability is
adequately covered by its reserves or its liability insurance, subject to
certain deductible amounts. The Company is aware that various of its insurers
may assert, and in some such cases have asserted, that their insurance coverage
does not provide protection against punitive damages in any specific lawsuit.
While there can be no assurances that the Company will not ultimately be found
liable for material punitive damages, the Company does not now believe that it
has an exposure to any material liability for punitive damages.
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DESCRIPTION OF CERTAIN FINANCINGS
The following is a summary of certain terms of the Company's principal
financing agreements, effective on the Closing Date of the sale of the
Securities.
REVOLVING CREDIT AGREEMENT
Effective upon the completion of the Offerings, the Company's unsecured
Revolving Credit Agreement with a group of banks will provide the following
loan commitments during the indicated periods:
<TABLE>
<CAPTION>
PERIOD COMMITMENT
------ ------------
<S> <C>
Through October 24, 1995..................................... $110 million
October 25, 1995 to April 24, 1996........................... $100 million
April 25, 1996 to October 24, 1996........................... $ 90 million
October 25, 1996 to April 24, 1997........................... $ 80 million
</TABLE>
This Revolving Credit Agreement is immediately available for borrowing (or to
support the issuance of up to $30 million of letters of credit). Borrowings
under this agreement incur interest at an annual rate equal to one of the
following at the Company's option: (1) prime rate plus 0% to 2.25%; (2) London
Interbank Offered Rate plus 0.75% to 3.25%; (3) or a Domestic Money Market Bid
Rate plus 0.875% to 3.375%; or (4) competitive bid. The weighted average
interest rate for borrowings under this credit agreement was 5.22% per annum
during the second quarter of fiscal 1994. The agreement provides a facility fee
payable on a monthly basis, at the rate of 0.35% to 0.75% on each lender's
total commitment. The specific interest rate and facility fee payable at any
time is based upon the Company's credit rating and various other factors.
Effective upon the completion of the Offerings, the Revolving Credit
Agreement will require the Company to maintain Consolidated Tangible Net Worth
(as defined) of $125 million plus 50% of positive consolidated net income
beginning on August 1, 1994. At January 30, 1994, the Company's Consolidated
Tangible Net Worth was $184.6 million. Consolidated Tangible Net Worth is
expected to decrease in the third quarter of fiscal 1994 in connection with
anticipated increases in the Company's underfunded pension liabilities. See
"Risk Factors--Underfunded Pension Plans." The agreement will also require the
Company to maintain a ratio of Consolidated Net Income Available for Fixed
Charges for each period of 365 days to Fixed Charges (each as defined) for such
period, after completion of the offering, at least equal to the following:
<TABLE>
<CAPTION>
MINIMUM
PERIOD RATIO
------ -------
<S> <C>
Through July 31, 1994............................................. 1.40:1
August 1, 1994 through July 31, 1995.............................. 1.55:1
August 1, 1995 through July 31, 1996.............................. 1.90:1
August 1, 1996 and thereafter..................................... 2.00:1
</TABLE>
For purposes of this test, Consolidated Net Income Available for Fixed
Charges is calculated without regard to the cumulative effect through May 2,
1993, of the accounting changes adopted by the Company effective August 1,
1992, and $38 million of provisions and charges taken by the Company in the
third quarter of fiscal 1993. For the 365-day period ended at January 30, 1994,
the Company's ratio of Consolidated Net Income Available for Fixed Charges to
Fixed Charges was 2.04:1.
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Effective upon the completion of the Offerings, the Revolving Credit
Agreement will also require the Company to maintain a ratio of Debt (as
defined) to Consolidated Tangible Net Worth not to exceed the following:
<TABLE>
<CAPTION>
MAXIMUM
PERIOD RATIO
------ -------
<S> <C>
Through July 31, 1994............................................. 5.60:1
August 1, 1994 through July 31, 1995.............................. 5.00:1
August 1, 1995 through July 31, 1996.............................. 4.10:1
August 1, 1996 and thereafter..................................... 3.20:1
</TABLE>
In calculating this ratio, Debt includes the Company's underfunded pension
liabilities, but does not include the Company's off-balance sheet financings.
See "Capitalization." At January 30, 1994, the Company's ratio of Debt to
Consolidated Tangible Net Worth was 2.82:1.
Other covenants in the Revolving Credit Agreement prohibit the Company from
adding collateral to or otherwise supporting its existing debt, accelerating
the maturity of such debt, or revising any covenant or other term of such debt
to make it materially more restrictive for the Company or any of its
subsidiaries.
9.35% SENIOR NOTES DUE 2000 AND 9.33% SENIOR NOTES DUE 2002
The Company's 9.35% senior notes due 2000 mature on January 29, 2000 and
require principal payments of $12.5 million in January of each year until
repaid. The Company's 9.33% senior notes due 2002 mature on December 15, 2002
and require principal payments of approximately $8.9 million in December of
each year commencing in 1996 until repaid. With respect to each of these issues
of senior notes, the Company may make principal prepayments at its option,
which may include a premium for yield adjustment. The holders of these notes
can require the Company to purchase the remaining principal amount of the
respective notes, plus accrued interest and premium for yield adjustment, in
the event of certain changes in control or ownership of the Company. A covenant
in the agreements governing these two issuances of senior notes prohibits the
Company from amending its Revolving Credit Agreement to reduce the amount or
availability of the bank's commitment to lend to the Company under such
agreement. Other covenants in these senior note agreements are substantially
similar to the covenants in the Revolving Credit Agreement.
9.25% SUBORDINATED DEBENTURES
The Company's 9.25% subordinated debentures mature in 2017. These debentures
are subject to mandatory annual sinking-fund payments of $7.5 million beginning
March 1998. The Company may redeem an additional $15 million on each sinking-
fund date. The subordinated debentures are redeemable at the Company's option,
at 106.5% of the outstanding principal amount at May 2, 1993, declining
annually to 100.5% in 2006, plus accrued interest. However, no such redemption
may be effected prior to March 1997, directly or indirectly, from borrowed
money having an interest cost of less than 9.25% per annum. These debentures
will be subordinated to the Senior Notes and pari passu with the Convertible
Subordinated Notes.
7% CONVERTIBLE SUBORDINATED DEBENTURES
The Company's 7% convertible subordinated debentures mature in 2012. These
debentures are convertible prior to maturity, unless previously redeemed, at a
conversion price of $43 per share, subject to adjustment under certain
conditions. The debentures are redeemable at the option of the Company, in
whole or in part, at a redemption price of 102.8% declining annually to 100.7%
in 1996, together with accrued interest to the date of redemption. Annual
sinking-fund payments of 5% of the aggregate principal amount of the debentures
originally issued are to be applied to the redemption of debentures
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at 100% of principal amount plus accrued interest, commencing October 1998. The
Company has the option of delivering repurchased debentures to the sinking-fund
in lieu of cash. The mandatory sinking-fund is calculated to retire 70% of the
aggregate principal amount of the debentures originally issued prior to
maturity. The debentures are subordinated to all existing or future senior debt
of the Company and rank on equal terms with the Company's outstanding 9.25%
subordinated debentures due 2017. These debentures will be subordinated to the
Senior Notes and pari passu with the Convertible Subordinated Notes.
ACCOUNTS RECEIVABLE FACILITY
The Company is a party to an accounts receivable facility under which it
sells all of its accounts receivable from specified customers through a
subsidiary to a trust on an on-going basis. Investors purchased beneficial
interests in the trust for $60 million, which was paid indirectly to the
Company for the accounts receivable initially transferred to the trust. The
Company sells additional accounts receivable through its subsidiary to the
trust to maintain the investor's beneficial interest at $60 million. The
Company's subsidiary holds the residual beneficial interest in the trust. Under
the arrangement, the Company acts as an agent for the trust by performing all
record keeping and collection functions with respect to the accounts receivable
that have been sold. The investors' beneficial interest in the trust is
reflected as a decrease in accounts receivable. The cost associated with the
sale of accounts receivable under the facility is 7.57% per year (calculated as
a percentage of the investors' $60 million beneficial interest) and is
reflected as a reduction in sales. As a result of the slow-down in the
aerospace industry, the amount of outstanding receivables owned by the trust
has fallen below levels which existed at the start of the facility. If the
outstanding receivables owned by the trust fall below levels required to
support the investors' $60 million beneficial interest in the trust, the
Company may deposit certain receivables collections and the proceeds of
receivables sales in a reserve fund or may allow receivables collections to
reduce the investors' interest in the trust. From time to time the Company has
deposited amounts into the reserve fund and has withdrawn such amounts when
they are no longer required to be deposited. The Company does not believe any
changes in the receivables facility resulting from a decrease in the total
amount of receivables sold to the trust or in the outstanding receivables
balance will have a material adverse effect on the Company's liquidity or
financial condition.
SALE-LEASEBACK TRANSACTIONS
The Company is also a party to a group of sale-leaseback transactions
pursuant to which it sold furniture and certain significant items of the
equipment utilized in its manufacturing processes for approximately $52.3
million and leased such furniture and equipment back from the investors who
purchased it. The Company has granted the equipment lessors a security interest
in all of the Company's accounts receivable from a particular customer and/or
cash securing $10 million of obligations. At January 30, 1994, the balance of
these accounts receivable was $15.8 million. The security interest will be
released at such time as the existing equipment lessors assign approximately
one-half of their beneficial interests in the leased equipment. If such
assignments do not occur by January 1995, the existing equipment lessors may
apply the collateral against the Company's then remaining lease obligations.
The Company's leases are treated as operating leases for financial reporting
purposes. The costs of the lease transactions average approximately 6.8%
annually over the term of the leases (calculated as a percentage of the $52.3
million sales price of the leased furniture and equipment). The agreements
governing the equipment lease transactions contain the same consolidated
tangible net worth, fixed charge coverage ratio and debt to consolidated
tangible net worth ratio covenants as are in the Revolving Credit Agreement.
The agreements governing these transactions permit the Company to purchase the
investors' interest in the equipment before the investors can repossess upon a
default by the Company, subject to certain time limitations. The investors'
repossession of any substantial portion of such equipment would have a material
adverse effect on the Company's ability to meet its production contract
commitments.
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DESCRIPTION OF SENIOR NOTES
The Senior Notes will be issued under an indenture to be dated as of May 15,
1994 (the "Indenture") between the Company and IBJ Schroder Bank & Trust
Company, a New York banking corporation, as trustee (the "Trustee"), a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The terms of the Senior Notes will include those
stated in the Indenture and those made a part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "TIA"), as in effect on the
date of the Indenture. The Senior Notes will be subject to all such terms, and
holders of the Senior Notes are referred to the Indenture and the TIA for a
statement of such terms. The following is a summary of important terms of the
Senior Notes and does not purport to be complete. Reference should be made to
all provisions of the Indenture, including the definitions therein of certain
terms and all terms made a part of the Indenture by reference to the TIA.
Certain definitions of terms used in the following summary are set forth under
"--Certain Definitions" below.
As used in this section, the "Company" means Rohr, Inc., but not any of its
Subsidiaries, unless the context requires otherwise.
GENERAL
The Senior Notes will be general unsecured senior obligations of the Company,
will mature on , 2003 and will be limited to an aggregate principal
amount of $100,000,000. The Senior Notes will be issued in denominations of
$1,000 and integral multiples of $1,000 in fully registered form. The Senior
Notes are exchangeable and transfers thereof will be registrable without charge
therefor, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge in connection therewith.
The Senior Notes will accrue interest at a rate of % per annum from
, 1994, or from the most recent interest payment date to which
interest has been paid or duly provided for, and accrued and unpaid interest
will be payable semi-annually on May 15 and November 15 of each year beginning
November 15, 1994. Interest will be paid to the Person in whose name each
Senior Note is registered at the close of business on the May 1 or November 1
immediately preceding the relevant interest payment date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. Interest on
overdue principal and (to the extent permitted by law) on overdue installments
of interest will accrue at a rate equal to % per annum.
Initially, the Trustee will act as paying agent and registrar of the Senior
Notes. The Company may change any paying agent and registrar without notice.
OPTIONAL REDEMPTION
The Senior Notes will be subject to redemption at any time on or after
, 1999, and prior to maturity at the option of the Company, in whole
or in part, for cash on not less than 30 days', nor more than 60 days', prior
written notice, mailed by first class mail to each holder at its last address
as it appears in the register of the Senior Notes, at the following redemption
prices (expressed as percentages of the principal amount), plus accrued and
unpaid interest to the date fixed for redemption, if redeemed during the
twelve-month period beginning on of each year indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999..................................................... %
2000..................................................... %
2001 and thereafter...................................... 100.00%
</TABLE>
If less than all of the Senior Notes are to be redeemed, the Trustee will
select the Senior Notes to be redeemed by lot or pro rata or by any other
method that the Trustee considers fair and appropriate.
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The Trustee may select for redemption a portion of the principal of any Senior
Note that has a denomination larger than $1,000. Senior Notes and portions
thereof will be redeemed in the amount of $1,000 or integral multiples of
$1,000. The Trustee will make the selection from Senior Notes outstanding and
not previously called for redemption.
Provisions of the Indenture that apply to Senior Notes called for redemption
also apply to portions of Senior Notes called for redemption. If any Senior
Note is to be redeemed in part, the notice of redemption will state the portion
of the principal amount to be redeemed. Upon surrender of a Senior Note that is
redeemed in part only, the Company will execute and the Trustee will
authenticate and deliver to the holder a new Senior Note equal in principal
amount to the unredeemed portion of the Senior Note surrendered. On and after
the redemption date, unless the Company shall default in the payment of the
redemption price, interest will cease to accrue on the principal amount of the
Senior Notes or portions thereof called for redemption and for which funds have
been set apart for payment.
CHANGE OF CONTROL
Following a Change of Control (as defined below), the Company shall comply
with each of the procedures set forth in the Indenture in respect of such
event, and pursuant to the Indenture shall make an offer (a "Change of Control
Offer") to purchase all Senior Notes then outstanding at a purchase price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the "Change of Control Offer Payment Date" (as defined
below). Notice of a Change of Control shall be mailed by or at the direction of
the Company to the holders of Senior Notes as shown on the register of such
holders maintained by the registrar not less than 15 days nor more than 30 days
after the date of such Change of Control (the "Change of Control Date") at the
addresses as shown on the register of holders maintained by the registrar, with
a copy to the Trustee and the paying agent. The Change of Control Offer shall
remain open until a specified date (the "Change of Control Offer Termination
Date") which is at least 20 business days from the date such notice is mailed.
During the period specified in such notice, holders of Senior Notes may elect
to tender their Senior Notes in whole or in part in integral multiples of
$1,000 in exchange for cash. Payment shall be made by the Company in respect of
Senior Notes properly tendered as set forth herein on a specified business day
(the "Change of Control Offer Payment Date") which shall be no earlier than 3
business days after the applicable Change of Control Offer Termination Date and
no later than 60 days after the applicable Change of Control Date.
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the Board of Directors of the Company): (a)
an event or series of events by which any Person or other entity or group of
Persons or other entities acting in concert as determined in accordance with
Section 13(d) of the Exchange Act, whether or not applicable (a "Group of
Persons"), shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases, merger or otherwise (i) be or
become, directly or indirectly, the beneficial owner (within the meaning of
Rule 13d-3 and 13d-5 under the Exchange Act, whether or not applicable) of 50%
or more of the combined voting power of the then outstanding Voting Stock of
the Company or (ii) have or has the ability to elect, directly or indirectly, a
majority of the members of the Board of Directors of the Company or other
equivalent governing body thereof, (b) the stockholders of the Company shall
approve any Plan of Liquidation of the Company (whether or not otherwise in
compliance with the provisions of the Indenture), (c) individuals who at the
beginning of any period of two consecutive calendar years constituted the Board
of Directors of the Company (together with any new directors whose election or
appointment by the Board of Directors of the Company or whose nomination for
election by the Company's stockholders was approved by a vote of at least a
majority of the members of the Board of Directors of the Company then still in
office who either were members of the Board of Directors of the Company at the
beginning of such period or whose election, appointment or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board
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of Directors of the Company then in office, or (d) the direct or indirect sale,
lease, exchange or other transfer, in one transaction or a series of related
transactions, of all or substantially all of the property or assets of the
Company to any Person or Group of Persons (whether or not otherwise in
compliance with the provisions of the Indenture).
If an offer is made to redeem Senior Notes as a result of a Change of
Control, the Company will be required to comply with all tender offer rules
under state and Federal securities laws, including, but not limited to, Section
14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent
applicable to such offer.
None of the provisions relating to a purchase upon a Change of Control is
waivable by the Board of Directors of the Company or the Trustee. In the event
that the Company were required to purchase outstanding Senior Notes pursuant to
a Change of Control Offer, the Company expects that it would need to seek
third-party financing to the extent it does not have available funds to meet
its purchase obligations. However, there can be no assurance that the Company
would be able to obtain such financing. The occurrence of a Change of Control
would constitute an event of default under the Revolving Credit Agreement and
the agreements governing the Company's 9.33% Senior Notes and 9.35% Senior
Notes, and would permit the holders of that Indebtedness to declare all amounts
outstanding thereunder to be immediately due and payable. In addition, in the
event of any Change of Control, the Company may not, and may not permit any of
its Subsidiaries to, purchase, redeem or otherwise acquire any Indebtedness
subordinated or junior to the Senior Notes pursuant to any analogous provisions
relating to such Indebtedness prior to the payment in full in cash or Cash
Equivalents of all Senior Notes, together with accrued and unpaid interest
thereon, with respect to which the Change of Control Offer was accepted.
However, in the event of a Change of Control, the Company would be required to
make an offer to purchase all Convertible Subordinated Notes then outstanding
at a purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of such purchase. On January
30, 1994, after giving pro forma effect to the Offerings and the use of
proceeds therefrom, there would have been $157.8 million outstanding of Pari
Passu Indebtedness (excluding the Senior Notes). See "Capitalization." The
Company could, in the future, enter into certain transactions, including
certain recapitalizations of the Company, that would not constitute a Change of
Control with respect to the Senior Notes, but would increase the amount of
Indebtedness outstanding at such time.
Failure by the Company to purchase the Senior Notes when required constitutes
an Event of Default with respect to the Senior Notes. See "--Events of
Default."
The Change of Control provision of the Senior Notes may in certain
circumstances make more difficult or discourage a takeover of the Company and
thus the removal of incumbent management. The Change of Control provision is
not, however, the result of management's knowledge of any specific effort to
obtain control of the Company by means of a merger, tender offer, solicitation
or otherwise, or part of a plan by management to adopt a series of anti-
takeover provisions.
CERTAIN COVENANTS
The Indenture will contain, among others, the covenants set forth below.
There can be no assurance that these covenants would afford the holders of the
Senior Notes any protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction that may adversely
affect the holders of the Senior Notes.
Limitation on Indebtedness
The Company shall not, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) other than Permitted Indebtedness, unless (a)
no Default or Event of Default shall have occurred and be continuing at the
time of the proposed incurrence thereof or shall occur as a result of
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such proposed incurrence thereof and (b) after giving effect to such proposed
incurrence, the Company's Consolidated Fixed Charge Coverage Ratio would be
greater than 2.0-to-1.0 on or prior to July 31, 1996, and 2.25-to-1.0 on or
after August 1, 1996.
Limitation on Subsidiary Indebtedness and Preferred Stock
The Company shall not permit any Subsidiary to, directly or indirectly, incur
any Indebtedness or issue any Preferred Stock other than, without duplication:
(a) Indebtedness or Preferred Stock issued to and held by the Company or a
Wholly Owned Subsidiary of the Company, provided that (i) such Indebtedness is
not subordinated to any other Indebtedness of such Subsidiary and (ii) any
subsequent issuance or transfer of Capital Stock of a Wholly Owned Subsidiary
of the Company (the "Obligee Subsidiary") to whom a Subsidiary of the Company
is indebted (the "Obligor Subsidiary") that results in such Obligee Subsidiary
ceasing to be a Wholly Owned Subsidiary of the Company or any subsequent
transfer of such Indebtedness or Preferred Stock of such Obligor Subsidiary by
such Obligee Subsidiary (other than to the Company or another Wholly Owned
Subsidiary of the Company) shall be deemed in each case to be the incurrence of
such Indebtedness or the issuance of such Preferred Stock by each Obligor
Subsidiary owing to or issued to, as the case may be, such Obligee Subsidiary
to the extent outstanding as of such date; (b) Indebtedness or Preferred Stock
of a Subsidiary of the Company which represents the assumption by such
Subsidiary of Indebtedness or Preferred Stock of another Subsidiary of the
Company in connection with a merger of such Subsidiaries; (c) Indebtedness or
Preferred Stock of any Person (other than a Person that has acquired, directly
or indirectly, assets from the Company other than in the ordinary course of
business) existing at the time such corporation becomes a Subsidiary of the
Company, provided that (i) such Indebtedness or Preferred Stock was not
incurred or issued as a result of or in connection with or in anticipation of
such Person becoming a Subsidiary of the Company, (ii) immediately after giving
effect to such Person becoming a Subsidiary of the Company (as if such
Indebtedness and Preferred Stock were incurred and issued on the first day of
the Reference Period) the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under "--Limitation on Indebtedness" above
(assuming a market rate of interest with respect thereto) and (iii) the total
of the aggregate principal amount of Indebtedness and the aggregate liquidation
value of Preferred Stock of such Person outstanding on the date it becomes a
Subsidiary of the Company, plus the total of the aggregate principal amount of
Indebtedness and the aggregate liquidation value of Preferred Stock of such
other Persons incurred under this clause (c) (but only to the extent such debt
or Preferred Stock remains outstanding on the date of determination) does not
exceed 10% of the Consolidated Net Worth of the Company; (d) Indebtedness and
Preferred Stock of any Subsidiary of the Company, provided that (i) immediately
after giving effect thereto (as if the incurrence or issuance thereof occurred
on the first day of the Reference Period) the Company could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under "--Limitation
on Indebtedness" above (assuming a market rate of interest with respect
thereto), and (ii) the total of the aggregate principal amount of the
Indebtedness and the aggregate liquidation value of Preferred Stock proposed to
be issued and incurred by such Subsidiary plus the total of the aggregate
principal amount of Indebtedness and the aggregate liquidation value of
Preferred Stock incurred and issued by all Subsidiaries of the Company under
this clause (d) does not exceed, when added to Indebtedness of the Company
incurred under clause (f) of the definition of "Permitted Indebtedness," 10% of
Consolidated Net Worth; (e) Permitted Indebtedness incurred by any Subsidiary
of the Company under clauses (a) and (g) of the definition of "Permitted
Indebtedness"; (f) Indebtedness or Preferred Stock that is Permitted
Refinancing Indebtedness incurred or issued to Refinance any Indebtedness or
Preferred Stock incurred or issued by a Subsidiary of the Company prior to the
Issue Date or in accordance with the Indenture; or (g) Indebtedness of the
Company's non-U.S. Subsidiaries under any working capital or other revolving
credit facilities in an aggregate amount not to exceed $5 million at any one
time.
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Limitation on Restricted Payments
The Company shall not, and shall not permit or cause any of its Subsidiaries
to, directly or indirectly, make any Restricted Payment unless, at the time of
such proposed Restricted Payment, and on a pro forma basis immediately after
giving effect thereto:
A. no Default or Event of Default has occurred and is continuing;
B. the aggregate amount expended for all Restricted Payments subsequent
to the Issue Date, would not exceed the sum of:
(1) 50% of aggregate Consolidated Net Income of the Company (or if
such Consolidated Net Income is a loss, minus 100% of such loss) earned
on a cumulative basis during the period beginning on May 2, 1994 and
ending on the last date of the Company's fiscal quarter immediately
preceding such proposed Restricted Payment; plus
(2) 100% of the aggregate Net Equity Proceeds received by the Company
from any Person (other than from a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date of Qualified Capital
Stock of the Company (excluding (a) any Qualified Capital Stock of the
Company paid as a dividend on any Capital Stock of the Company or of
any of its Subsidiaries or as interest on any Indebtedness of the
Company or of any of its Subsidiaries, (b) the issuance of Qualified
Capital Stock upon the conversion of, or in exchange for, any Capital
Stock of the Company or of any of its Subsidiaries and (c) any
Qualified Capital Stock of the Company with respect to which the
purchase price thereof has been financed directly or indirectly using
funds (i) borrowed from or advanced by the Company or any of its
Subsidiaries, unless and until and to the extent such borrowing or
advance is repaid or(ii) contributed or guaranteed by the Company or by
any of its Subsidiaries (including, without limitation, in respect of
any employee stock ownership or benefit plan) unless and until such
guarantee terminates; and
C. The Company would be able to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under "--Limitation on
Indebtedness" above (assuming a market rate of interest with respect
thereto).
The foregoing provisions of this covenant will not prevent: (a) the payment
of any dividend within 60 days after the date of its declaration if at such
date of declaration the payment of such dividend would comply with the
provisions set forth above, provided that (i) such dividend will be deemed to
have been paid as of its date of declaration for the purposes of this covenant
and (ii) at the time of payment of such dividend no other Default or Event of
Default shall have occurred and be continuing or would result therefrom, (b) if
no Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof, the purchase, redemption, retirement or
acquisition of any shares of Capital Stock of the Company or of any Subsidiary
or any Indebtedness of the Company that is subordinated to the Senior Notes
solely by conversion into, in exchange for or with or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary of
the Company) of shares of Qualified Capital Stock of the Company and neither
such purchase, redemption, retirement, or acquisition, conversion or exchange
nor the proceeds of any such sale will be included in any computation made
under clause (B)(2) above, or (c) the making of a Permitted Payment. The
amounts expended pursuant to clauses (a) and (c) (with respect to those items
identified in clauses (a)(i), (d), (e) or (f) of the definition of Permitted
Payments) of this paragraph will be included in computing the amounts available
for Restricted Payments for purposes of the immediately preceding paragraph.
For purposes of this covenant a distribution to holders of the Company's
Capital Stock of (a) shares of Capital Stock of any of its Subsidiaries or (b)
other assets of the Company or of any of its Subsidiaries, without, in either
case, the receipt of equivalent consideration therefor shall be deemed to be
the equivalent of a cash dividend equal to the excess of the Fair Market Value
of the shares or other assets being so distributed at the time of such
distribution over the consideration, if any, received therefor.
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Limitation on Sale of Assets
The Company will not, and will not permit any of its Subsidiaries to,
consummate any Asset Sale unless such Asset Sale is for at least Fair Market
Value and at least 80% of the consideration therefrom received by the Company
or such Subsidiary is in the form of cash or Cash Equivalents.
Following any Asset Sale, an amount equal to the Net Cash Proceeds of such
Asset Sale shall be applied by the Company or such Subsidiary within 365 days
of the date of the Asset Sale, at its election, to either: (a) the payment of
Pari Passu Indebtedness with an equal and concurrent reduction in the
commitment related to such Pari Passu Indebtedness, if applicable, provided any
Net Cash Proceeds which are applied on such pro rata basis to reduce
Indebtedness under the Revolving Credit Agreement shall result in a permanent
reduction of the borrowing availability thereunder; or (b) make any Permitted
Program Investment or any other investment in capital assets usable in the
Company's or its Subsidiaries' lines of business or in an asset or business in
the same line of business as the Company; or (c) a combination of payment and
investment permitted by the foregoing clauses (a) and (b). On the earlier of
(A) the 366th day after the date of an Asset Sale or (B) such date as the Board
of Directors of the Company or of such Subsidiary determines (as evidenced by a
written resolution of said Board of Directors) not to apply an amount equal to
the Net Cash Proceeds relating to such Asset Sale as set forth in the
immediately preceding sentence (each of (A) and (B), an "Asset Sale Offer
Trigger Date"), the Company would be obligated to apply or cause its Subsidiary
to apply an amount equal to the aggregate amount of Net Cash Proceeds which
have not been applied on or before such Asset Sale Offer Trigger Date as
permitted in clauses (a), (b) and (c) of the immediately preceding sentence
(each an "Asset Sale Offer Amount") to make an offer to purchase for cash (the
"Asset Sale Offer") from all holders of Senior Notes on a pro rata basis that
amount of Senior Notes equal to the Asset Sale Offer Amount at a price equal to
100% of the principal amount of the Senior Notes to be repurchased, plus
accrued and unpaid interest thereon to the date of repurchase. Notwithstanding
the foregoing, if an Asset Sale Offer Amount is less than $10 million, the
application of such Asset Sale Offer Amount to an Asset Sale Offer may be
deferred until such time as such Asset Sale Offer Amount plus the aggregate
amount of all Asset Sale Offer Amounts arising subsequent to such Asset Sale
Offer Trigger Date from all Asset Sales by the Company and its Subsidiaries
aggregates at least $10 million, at which time the Company or such Subsidiary
shall apply all Asset Sale Offer Amounts that have been so deferred to make an
Asset Sale Offer (the first date the aggregate of all such deferred Asset Sale
Offer Amounts is equal to $10 million or more shall be deemed to be an "Asset
Sale Offer Trigger Date").
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company as an entirety to a Person in a transaction
permitted under "--Merger, Consolidation, Etc." below, the successor Person
shall be deemed to have sold the properties and assets of the Company not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
Each Asset Sale Offer will be mailed to the holders of the Convertible
Subordinated Notes at the addresses shown on the register of holders maintained
by the registrar, with a copy to the Trustee and the paying agent, within ten
days following the applicable Asset Sale Offer Trigger Date, and shall comply
with each of the procedures for notice set forth in the Indenture. Each Asset
Sale Offer shall remain open until a specified date (the "Asset Sale Offer
Termination Date") which is at least 20 business days from the date such Asset
Sale Offer is mailed. During the period specified in the Asset Sale Offer,
holders may elect to tender their Senior Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. Payment shall be made by the Company
(or applicable subsidiary) in respect of Senior Notes properly tendered
pursuant to this section on a specified business day which shall be no earlier
than three business days after the Asset Sale Offer Termination Date and no
later than 60 days after such applicable Asset Sale Offer Trigger Date. To the
extent holders properly tender Senior Notes in an amount exceeding the Asset
Sale Offer Amount, Senior Notes of tendering holders will be repurchased on a
pro rata basis (based on amounts tendered). An Asset Sale Offer shall remain
open for a period of 20 business days or such longer period as may be required
by law.
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If an offer is made to repurchase the Senior Notes pursuant to an Asset Sale
Offer, the Company will and will cause its Subsidiaries to comply with all
tender offer rules under state and federal securities laws, including, but not
limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to
the extent applicable to such offer.
Any event which would require the Company or its Subsidiary to offer to
purchase Senior Notes after an Asset Sale would also require the Company to
repay amounts outstanding under its Revolving Credit Agreement, and to offer to
repay its 9.33% Senior Notes due 2002 and 9.35% Senior Notes due 2000. The
Company's and the Subsidiaries' ability to repurchase the Senior Notes in an
Asset Sale Offer may also be restricted or otherwise limited by the terms of
other then-existing borrowing agreements and by the Company's financial
position.
Limitation on Liens
The Company may not, and may not permit any of its Subsidiaries to,
voluntarily or involuntarily, create, incur, or assume any Liens upon any of
their respective properties or assets, whether owned on the Issue Date or
acquired thereafter, or on any income or profits therefrom, or assign or
otherwise convey any right to receive income or profits thereon, securing any
Indebtedness of the Company or of any of its Subsidiaries other than, without
duplication: (a) Liens granted by the Company securing Indebtedness of the
Company that is incurred in accordance with the Indenture and that is Pari
Passu Indebtedness; provided that the Senior Notes are secured on an equal and
ratable basis to such Liens, (b) Liens granted by the Company securing
Indebtedness of the Company incurred in accordance with the Indenture and that
is subordinated to the Senior Notes; provided that the Senior Notes are secured
by Liens ranking prior to such Liens, (c) Liens existing on the Issue Date to
the extent and in the manner such Liens are in effect on the Issue Date, (d)
Permitted Liens, (e) Liens relating to other Indebtedness and Sale-Leaseback
Financings in an aggregate amount not to exceed at any one time 10% of the
Company's Consolidated Net Worth, (f) Liens in respect of Acquired Indebtedness
incurred by the Company in accordance with "--Limitation on Indebtedness" above
and in respect of Acquired Indebtedness incurred by a Subsidiary of the Company
in accordance with clause (d) of "--Limitation on Subsidiary Indebtedness and
Preferred Stock" above, provided that the Lien in respect of such Acquired
Indebtedness secured such Acquired Indebtedness at the time of the incurrence
of such Acquired Indebtedness by the Company or by one of its Subsidiaries and
such Lien and the Acquired Indebtedness were not incurred by the Company or any
of its Subsidiaries or by the Person being acquired or from whom the assets are
proposed to be acquired in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by the Company or by one of its
Subsidiaries, and provided, further that such Liens in respect of such Acquired
Indebtedness do not extend to or cover any property or assets of the Company or
of any of its Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or of one of its Subsidiaries, (g) Liens granted by
a corporation, which Liens are in existence at the time such corporation
becomes a Subsidiary of the Company, provided that such Liens were not created
by such corporation in connection with or in anticipation of such corporation
becoming a Subsidiary of the Company, and provided further that such liens do
not extend to or cover any property or assets of the Company or any of its
Subsidiaries other than the property or assets of such acquired corporation
prior to the time it became a Subsidiary of the Company and (h) Liens in
respect of New Indebtedness that is Permitted Refinancing Indebtedness incurred
to Refinance any of the Indebtedness set forth in clauses (a), (b), (c), (e),
(f) and (g) above, provided that such Liens in respect of such New Indebtedness
are no less favorable to the holders of the Senior Notes than the Liens in
respect of the Indebtedness being Refinanced and such Liens in respect of New
Indebtedness do not extend to or cover any properties or assets of the Company
or of any of the Company's Subsidiaries other than the property or assets that
secured the Indebtedness being Refinanced.
Limitation on Sale and Leaseback Transactions
The Indenture will provide that the Company will not, and will not permit any
of its Subsidiaries to, enter into any sale and leaseback transaction, provided
that the Company (and not a Subsidiary of the
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Company) may enter into such a sale and leaseback transaction if (a) with
respect to any such transaction involving the incurrence of Capitalized Lease
Obligations, the Company could have (i) incurred Indebtedness in an amount
equal to the debt relating to such sale and leaseback transaction pursuant to
the Consolidated Fixed Charge Coverage Ratio test set forth in the covenant
entitled "--Limitation on Indebtedness" and (ii) incurred a Lien to secure such
Indebtedness pursuant to the covenant entitled "--Limitation on Liens," (b) the
proceeds of such sale and leaseback transaction are at least equal to the Fair
Market Value of the property that is the subject of such sale and leaseback
transaction and (c) the Company shall apply or cause to be applied the proceeds
of such transaction in compliance with the covenant entitled "--Limitation on
Sale of Assets."
Limitation on Payment Restrictions Affecting Subsidiaries
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or become (after the Issue Date) subject to or
allow to become effective any consensual encumbrance or restriction of any kind
(a) on the ability of any such Subsidiary to (i) pay dividends, in cash or
otherwise, or make other payments or distributions on its Capital Stock or any
other equity interest or participation in, or measured by, its profits, owned
by the Company or by any of its Subsidiaries, or make payments on any
Indebtedness owed to the Company or to any of its Subsidiaries, (ii) make loans
or advances to the Company or to any of its Subsidiaries or (iii) transfer any
of their respective property or assets to the Company or to any of its
Subsidiaries or (b) on the ability of the Company or any of its Subsidiaries to
receive or retain any such (i) dividends, payments or distributions, (ii) loans
or advances or (iii) transfer of property or assets, except for such
encumbrances or restrictions existing under or by reason of (1) customary
provisions restricting subletting, transfer or assignment of any lease
governing a leasehold interest of the Company or of any of its Subsidiaries,
(2) applicable law, (3) reasonable covenants set forth in the agreements
governing the formation of a joint venture otherwise permitted by this
Indenture, (4) Acquired Indebtedness incurred in accordance with this
Indenture, provided that such encumbrance or restriction in respect of such
Acquired Indebtedness is not applicable to any Person, or the property of any
Person, other than the Person, or the property of the Person, so acquired and
that such Acquired Indebtedness was not incurred by the Company or any of its
Subsidiaries or by the Person being acquired in connection with or anticipation
of such acquisition, (5) with respect to clause (a)(iii) and (b)(iii) above,
purchase money obligations for property acquired in the ordinary course of
business, (6) Indebtedness outstanding immediately after the Issue Date (as in
effect on the Issue Date), or (7) customary provisions in instruments or
agreements relating to a Lien permitted to be created, incurred or assumed
pursuant to the provisions of "--Limitations on Liens" which restrict the
transfer of the property or assets subject to such Lien, (8) customary
provisions in any agreement otherwise permitted under this Indenture which (i)
provide that transactions between the Company and its Subsidiaries be no less
favorable to any such Subsidiary than could be obtained from an unaffiliated
third party, and (ii) do not have any material adverse effect on the ability of
such Subsidiary to pay dividends to the Company or otherwise advance cash,
directly or indirectly, to the Company on terms no less favorable to any such
Subsidiary than could be obtained from unaffiliated third party or (9) any new
Indebtedness that is Permitted Refinancing Indebtedness incurred to Refinance
any of the Indebtedness set forth in clauses (4), (5) and (6) above to the
extent such encumbrance or restriction in respect of the New Indebtedness is no
less favorable to the holders of the Senior Notes and no more restrictive than
such encumbrances or restrictions contained in the Indebtedness being
Refinanced as of the date of such Refinancing and do not extend to or cover any
other Person or the property of any other Person other than the Person in
respect of whom such encumbrance or restriction relating to the Indebtedness
being Refinanced applied.
Limitation on Transactions with Affiliates
The Company shall not, nor shall the Company permit any of its Subsidiaries
to, (a) sell, lease, transfer or otherwise dispose of any of its property or
assets to, (b) purchase any property or assets
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from, (c) make any Investment in or (d) enter into or amend any contract,
agreement or understanding with or for the benefit of, any Affiliate of the
Company or of any Subsidiary of the Company (an "Affiliate Transaction"), other
than Affiliate Transactions that, in its reasonable judgment are necessary or
desirable for the Company or such Subsidiary in the conduct of its business and
that (i) a majority of the members of the Board of Directors of the Company
reasonably and in good faith determines are in the best interests of the
Company or such Subsidiary and (ii) are on terms (which terms are in writing)
that are fair and reasonable to the Company or the Subsidiary and that are no
less favorable to the Company or such Subsidiary than those that could be
obtained in a comparable arm's length transaction by the Company or such
Subsidiary from an unaffiliated party, as determined reasonably and in good
faith by the Board of Directors of the Company, provided that if the Company or
any Subsidiary of the Company enters into an Affiliate Transaction or series of
Affiliate Transactions involving or having an aggregate value of more than $10
million such Affiliate Transaction shall, prior to the consummation thereof,
have been approved by a majority of the disinterested directors of the Company
(or by a majority of the disinterested directors on any committee of director's
authorized to consider such matter; provided that the delegation of such matter
to such committee has been approved by a majority of disinterested directors of
the Company), and, provided further, that with respect to any such transaction
or series of related transactions that involve an aggregate value of more than
$20 million the Company or such Subsidiary shall, prior to the consummation
thereof, obtain a favorable opinion as to the fairness to itself of such
transaction or series of related transactions from a financial point of view
from an Independent Financial Advisor and file the same with the Trustee. The
foregoing restriction shall not apply to (x) any transaction between Wholly
Owned Subsidiaries of the Company, or between the Company and any Wholly Owned
Subsidiary of the Company if such transaction is not otherwise prohibited by
the terms of the Indenture and (y) any Restricted Payment made in accordance
with "--Limitation on Restricted Payments" above. Notwithstanding the
foregoing, the term "Affiliate Transaction" shall not include any contract,
agreement or understanding with or for the benefit of, or a plan for the
benefit of, any or all employees of the Company or its Subsidiaries (in their
capacity as such) that has been approved by the Company's Board of Directors or
a disinterested committee thereof, or a stock issuance to directors pursuant to
plans approved by stockholders of the Company.
REPORTS
So long as any Senior Note is outstanding, the Company shall file with the
Commission and, within 15 days after it files them with the Commission, file
with the Trustee and thereafter promptly mail or promptly cause the Trustee to
mail to the holders of the Senior Notes at their addresses as set forth in the
register of the Senior Notes, copies of the annual reports and of the
information, documents and other reports which the Company is required to file
with Commission pursuant to Section 13 or 15(d) of the Exchange Act or which
the Company would be required to file with the Commission if the Company then
had a class of securities registered under the Exchange Act. In addition, the
Company shall cause its annual report to stockholders and any quarterly or
other financial reports furnished to its stockholders generally to be filed
with the Trustee no later than the date such materials are mailed or made
available to the Company's stockholders, and thereafter mailed promptly to the
holders of the Senior Notes at their addresses as set forth in the register of
Senior Notes.
MERGER, CONSOLIDATION, ETC.
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets
to, any Person or adopt a Plan of Liquidation unless: (a) either (i) the
Company shall be the surviving or continuing corporation or (ii) the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or the Person which acquires by conveyance, transfer or lease the
properties and assets of the Company substantially as an entirety or, in the
case of a Plan of Liquidation, the Person to which all or substantially all of
the assets of the Company have been transferred (1) shall be a corporation
organized and validly existing under the laws of the United
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States or any State thereof or the District of Columbia and (2) shall expressly
assume, by supplemental indenture executed and delivered to the Trustee, the
due and punctual payment of the principal of, and premium, if any, and interest
on all of the Senior Notes and the performance of every covenant of the Senior
Notes and the Indenture on the part of the Company to be performed or observed;
(b) immediately after giving effect to such transaction and any assumption
contemplated by clause (a)(ii)(2) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction), the Company (in the case
of clause (i) of the foregoing clause (a)) or such Person (in the case of
clause (ii) thereof) (i) shall have a Consolidated Net Worth (immediately after
the transaction but prior to any purchase accounting adjustments relating to
such transaction) equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction and (ii) shall be able to incur
(assuming a market rate of interest with respect thereto) at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under "--Limitation
on Indebtedness" above, provided that in determining the "Consolidated Fixed
Charge Coverage Ratio" of the resulting transferee or surviving Person, such
ratio shall be calculated as if the transaction (including the incurrence of
any Indebtedness or Acquired Indebtedness) occurred on the first day of the
Reference Period; (c) immediately before and after giving effect to such
transaction and any assumption contemplated by clause (a)(ii)(2) above
(including giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred in connection with or in respect of the
transaction) no Default or Event of Default shall have occurred and be
continuing; (d) the Company or such Person shall have delivered to the Trustee
(i) an officers' certificate and an opinion of counsel (which may be in-house
counsel of the Company), each stating that such consolidation, merger,
conveyance, transfer or lease or Plan of Liquidation and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with the provisions of the Indenture and that all conditions
precedent in the Indenture relating to such transaction have been satisfied and
(ii) a certification from the Company's independent certified public
accountants stating that the Company has made the calculations required by
clause (b) above in accordance with the terms of the Indenture; and (e) neither
the Company nor any Subsidiary of the Company nor such Person, as the case may
be, would thereupon become obligated with respect to any Indebtedness
(including Acquired Indebtedness), nor any of its property or assets subject to
any Lien, unless the Company or such Subsidiary or such Person, as the case may
be, could incur such Indebtedness (including Acquired Indebtedness) or create
such Lien under the Indenture (giving effect to such Person being bound by all
the terms of the Indenture).
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of
the Company, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Upon any such consolidation, merger, sale, assignment, conveyance, lease or
transfer in accordance with the foregoing, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
assignment, conveyance, lease or transfer is made will succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such successor had been named as the
Company therein, and thereafter (except in the case of a sale, assignment,
transfer, lease, conveyance or other disposition) the predecessor corporation
will be relieved of all further obligations and covenants under the Indenture
and the Senior Notes.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
a. default in the payment of principal of, or premium, if any, on, the
Senior Notes when due at maturity, upon repurchase, upon acceleration or
otherwise, including, without limitation, failure of the Company to
repurchase the Senior Notes on the date required pursuant to "--Certain
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Covenants--Limitation on Sale of Assets" above or following a Change of
Control or failure to make any optional redemption payment when due; or
b. default in the payment of any installment of interest on the Senior
Notes when due (including any interest payable in connection with any
optional redemption payment) and continuance of such default for more than
30 days; or
c. failure to observe, perform or comply with any of the provisions
described under "--Change of Control," "Certain Covenants--Limitation on
Indebtedness," "Certain Covenants--Limitation on Subsidiary Indebtedness
and Preferred Stock," "Certain Covenants--Limitation on Restricted
Payments," "--Certain Covenants--Limitation on Liens," "--Certain
Covenants--Limitation on Sale of Assets" and "--Merger, Consolidation,
Etc." above and the failure to remedy such failure prior to the receipt of
written notice from the Trustee or the holders of at least 25% in aggregate
principal amount of the then outstanding Senior Notes; or
d. default (other than default set forth in clauses (a), (b) and (c)
above) in the performance of, or breach of, any other covenant or warranty
of the Company in the Indenture or the Senior Notes and failure to remedy
such default or breach within a period of 60 days after the receipt of
written notice from the Trustee or the holders of at least 25% in aggregate
principal amount of the then outstanding Senior Notes; or
e. (i) failure to pay at maturity or default in the obligation to pay
when due the principal of, interest on, (but only to the extent any such
failure to pay interest is not fully cured prior to the expiration of the
grace period provided in such Indebtedness on the date such interest
payment was initially due) or any other payment obligation on any other
Indebtedness (other than the Senior Notes) of the Company or of any
Subsidiary of the Company, whether such Indebtedness exists on the Issue
Date or shall be incurred thereafter, having, individually or in the
aggregate, an outstanding principal amount of $15 million or more or (ii)
any other Indebtedness (other than the Senior Notes) of the Company or of
any Subsidiary of the Company, whether such Indebtedness exists on the
Issue Date or shall be incurred thereafter, having individually or in the
aggregate an outstanding principal amount of $15 million or more, is
declared due and payable prior to its stated maturity; or
f. entry by a court of competent jurisdiction of one or more judgments or
orders against the Company or any Subsidiary of the Company or any of their
respective property or assets in an aggregate amount in excess of $15
million and that are not covered by insurance written by third parties,
which judgments or orders have not been vacated, discharged, satisfied or
stayed pending appeal within 60 days from the entry thereof; or
g. certain events of bankruptcy, insolvency or reorganization involving
the Company or any Material Subsidiary of the Company.
If an Event of Default (other than an Event of Default specified in clause
(g) above) occurs and is continuing, then and in every such case the Trustee,
by written notice to the Company, or the holders of not less than 25% in
aggregate principal amount of the then outstanding Senior Notes, by written
notice to the Company and the Trustee, may declare the unpaid principal of,
premium, if any, and accrued and unpaid interest on, all the Senior Notes then
outstanding to be due and payable. Upon such declaration such principal
amount, premium, if any, and accrued and unpaid interest will become
immediately due and payable, notwithstanding anything contained in the
Indenture or the Senior Notes to the contrary. If an Event of Default
specified in clause (g) above occurs, all unpaid principal of, and premium, if
any, and accrued and unpaid interest on, the Senior Notes then outstanding
will automatically become due and payable without any declaration or other act
on the part of the Trustee or any holder of Senior Notes.
Holders of the Senior Notes may not enforce the Indenture or the Senior
Notes except as provided in the Indenture. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request,
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order or direction of any of the holders of Senior Notes, unless such holders
have offered to the Trustee an indemnity satisfactory to it against any loss,
liability or expense. Subject to all provisions of the Indenture and applicable
law, the holders of a majority in aggregate principal amount of the then
outstanding Senior Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. If a Default or Event of Default
occurs and is continuing and is known to the Trustee, the Indenture requires
the Trustee to mail a notice of Default or Event of Default to each holder of
Senior Notes within 60 days of the occurrence of such Default or Event of
Default, provided, however, that the Trustee may withhold from such holders
notice of any continuing Default or Event of Default (except a Default or Event
of Default in the payment of principal of or interest on the Senior Notes) if
it determines that withholding notice is in their interest. The holders of a
majority in aggregate principal amount of the Senior Notes then outstanding by
notice to the Trustee may rescind any acceleration of the Senior Notes and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and premium, if any, and interest on the Senior Notes which has
become due solely by virtue of such acceleration) have been cured or waived and
if the rescission would not conflict with any judgment or decree of any court
of competent jurisdiction. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
The holders of a majority in aggregate principal amount of the Senior Notes
then outstanding may, on behalf of the holders of all the Senior Notes, waive
any past Default or Event of Default under the Indenture and its consequences,
except Default or an Event of Default in the payment of principal of or
premium, if any, or interest on the Senior Notes (other than the non-payment of
principal of and premium, if any, and interest on the Senior Notes which has
become due solely by virtue of an acceleration which has been duly rescinded,
as provided above), or in respect of a covenant or provision of the Indenture
which cannot be modified or amended without the consent of all holders of
Senior Notes.
Under the Indenture, two officers of the Company are required to provide a
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default or
Event of Default) that has occurred and, if applicable, describe such Default
or Event of Default and the status thereof. In addition, for each fiscal year,
the Company's independent certified public accountants are required to certify
to the Trustee that they have reviewed the terms of the Indenture and the
Senior Notes as they relate to accounting matters and whether, during the
course of their audit examination, any Default or Event of Default has come to
their attention, and specifying the nature and period of existence of any such
Default or Event of Default.
AMENDMENT, SUPPLEMENT AND WAIVER
The Indenture (including the terms and conditions of the Senior Notes) may be
modified or amended by the Company and the Trustee, without the consent of the
holders of any Senior Notes, for the purposes of (a) adding to the covenants of
the Company for the benefit of the holders of Senior Notes; (b) surrendering
any right or power conferred upon the Company; (c) evidencing the succession of
another Person to the Company and the assumption by such successor of the
covenants and obligations of the Company thereunder and in the Senior Notes as
permitted by the Indenture; or (d) curing any ambiguity or correcting or
supplementing any defective provision contained in the Indenture or making any
changes in any other provisions of the Indenture which the Company and the
Trustee may deem necessary or desirable and which, in either case, will not
adversely affect the interests of the holders of Senior Notes.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the then outstanding Senior Notes, to enter into any
supplemental indenture for the purpose of adding, changing or eliminating any
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of the provisions of the Indenture, or of modifying in any manner the rights of
the holders under the Indenture, provided that no such supplemental indenture
may without the consent of the holder of each outstanding Senior Note affected
thereby: (a) reduce the amount of Senior Notes whose holders must consent to an
amendment or waiver; (b) reduce the rate of, or extend the time for payment of,
interest, including defaulted interest, on any Senior Note; (c) reduce the
principal of or premium on or change the fixed maturity of any Senior Note or
alter the redemption provisions with respect thereto; (d) make the principal
of, or premium, if any, or interest on, any Senior Note payable in money other
than as provided for in the Indenture and the Senior Notes; (e) waive
continuing default in the payment of the principal of or premium, if any, or
interest on, or redemption or repurchase payment with respect to, any Senior
Notes, including, without limitation, a continuing failure to make payment when
required upon a Change of Control or after an Asset Sale Offer Trigger Date;
(f) after the Company's obligation to purchase the Senior Notes arises under
the Indenture amend, modify or change the obligation of the Company to make or
consummate a Change of Control Offer in the event of a Change of Control or an
Asset Sale Offer in the event of an Asset Sale Offer Trigger Date or waive any
default in the performance thereof or modify any of the provisions or
definitions with respect to any such offers; or(g) make any change in
provisions relating to waivers of defaults, the ability of holders to enforce
their rights under the Indenture or the matters discussed in these clauses (a)
through (g).
DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("legal
defeasance") except for (i) the rights of holders of outstanding Senior Notes
to receive payments in respect of the principal of, premium, if any, and
interest on such Senior Notes when such payments are due, (ii) the Company's
obligations with respect to the Senior Notes concerning issuing temporary
Senior Notes, registration of Senior Notes, mutilated, destroyed, lost or
stolen Senior Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the legal defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("covenant defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Senior Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Senior Notes.
In order to exercise either legal defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Senior Notes, cash in U.S. dollars, non-callable government
securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of the Chief Financial Officer of the Company expressed in a
written certificate delivered to the Trustee, to pay the principal of, premium,
if any, and interest on the outstanding Senior Notes on the stated maturity or
on the applicable redemption date, as the case may be, of such principal or
installment of principal of, premium, if any, or interest on the outstanding
Senior Notes; (ii) in the case of legal defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the IRS a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of the outstanding Senior Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such legal
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such legal
defeasance had not occurred; (iii) in the case of covenant defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the
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United States reasonably acceptable to the Trustee confirming that the holders
of the outstanding Senior Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same time as would have been the case if such covenant defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit ; (v) such legal defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a
default under any material agreement or instrument (other than the Indenture)
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound; (vi) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company shall have delivered
to the Trustee an officer's certificate stating that the deposit was not made
by the Company with the intent of preferring the holders of Senior Notes over
the other creditors of the Company with the intent of defeasing, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent provided for
relating to the legal defeasance or the covenant defeasance have been complied
with.
GOVERNING LAW
The Indenture will provide that the Senior Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the continuance of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture, and
use the same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
The Indenture and the TIA contain certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received in respect
of any such claim as security or otherwise. Subject to the TIA, the Trustee
will be permitted to engage in other transactions, provided that if the Trustee
acquires any conflicting interest as described in the TIA it must eliminate
such conflict or resign.
CERTAIN DEFINITIONS
"Acquired Indebtedness" of any specified Person means Indebtedness of any
other Person and its Subsidiaries existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person or assumed by the
specified Person in connection with the acquisition of assets from such other
Person including, without limitation, Indebtedness of such other Person and its
Subsidiaries incurred in connection with or in anticipation of (a) such other
Person and its Subsidiaries being merged with or into or becoming a Subsidiary
of such specified Person or (b) such acquisition by the specified Person.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, the referent Person, as the case may be, or any Person who
beneficially owns (within the meaning of Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly, 10% or more of the equity
interests of the referent
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Person or warrants, options or other rights to acquire or hold more than 10% of
any class of equity interests of the referent Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct or cause the direction of management or policies of the
referent Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Asset Sale" means any sale, lease, transfer, exchange or other disposition
by the Company or any Subsidiary (or series of related sales, leases,
transfers, exchanges or dispositions) in excess of $1,000,000, including,
without limitation, dispositions pursuant to merger, consolidation or sale and
leaseback transactions, of (a) shares of Capital Stock of a Subsidiary of the
Company (pro-rated to the extent of the Company's interest therein), (b) all or
substantially all of the properties and assets of any division or line of
business of the Company or any Subsidiary of the Company or (c) any other
property or assets of the Company (pro-rated to the extent of the Company's
interest therein), or of any Subsidiary of the Company (pro-rated to the extent
of the Company's interest therein) (each referred to for purposes of this
definition as a "disposition") by the Company or by any of its Subsidiaries
(other than (i) dispositions by the Company to a Wholly Owned Subsidiary of the
Company or by a Subsidiary of the Company to the Company or to a Wholly Owned
Subsidiary of the Company, (ii) sales or other dispositions of inventory in the
ordinary course of business, (iii) any disposition of properties or assets that
is consummated in accordance with the provisions of "--Merger, Consolidation,
Etc." above,(iv) any disposition of any account receivable pursuant to the
Pooling and Servicing Agreement,(v) dispositions by the Company or any
Subsidiary of the Company of the business jet product line, the overhaul and
repair business, as conducted by Rohr Aero Services, Inc. and Rohr Aero
Services Europe on the Issue Date, the Hagerstown, Maryland plant and the
Auburn, Washington plant, in each case, including related assets, (vi) the
disposition by the Company or any Subsidiary of the Company of interests owned
on the Issue Date in two trusts which own an Airbus A300 aircraft and a
McDonnell Douglas DC10 aircraft, respectively and (vii) the disposition of
Building 107 (at the Company's facility in Chula Vista, California) to (a) any
pension plan of the Company or (b) to any other Person if the net proceeds of
such disposition are delivered to any pension plan referred to in clause (a) of
this definition, in either case resulting in the full satisfaction (or in case
the full amount of such net proceeds are so delivered and shall be insufficient
to effect such full satisfaction, the partial satisfaction) of the Company's
funding liabilities with respect to any such pension plan or plans).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or security, the quotient obtained by dividing (a) the sum of the
product of (i) the number of years from such date to the date of each
successive scheduled principal or redemption payment of such Indebtedness or
security multiplied by (ii) the amount of such principal or redemption payment
by (b) the sum of all such principal or redemption payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock, including
each class of Common Stock or Preferred Stock of such Person, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock (but excluding any debt security that is exchangeable for or convertible
into such capital stock).
"Capitalized Lease Obligation" means any obligation under a lease that is
required to be classified and accounted for as capital lease obligation under
GAAP and, for purposes of the Indenture, the amount of such obligations at any
date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP. The Stated Maturity of such obligation
shall be the date of the last payment of rent or any other amount due under
such lease prior to the first date upon which such lease may be terminated by
the lessee without penalty.
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"Cash Equivalents" means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within three years from the date of acquisition thereof, (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having a long-term rating of at least
A from either Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's") or a short-term rating of at least A-1 from S&P or P-
1 from Moody's, (c) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's, (d) certificates of deposit,
bankers' acceptances, time deposits, eurocurrency deposits or similar types of
investments routinely offered by commercial banks and maturing within one year
from the date of acquisition thereof issued by any commercial bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any United States branch of a foreign bank having at
the date of acquisition thereof combined capital and surplus of not less than
$500 million, (e) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (a) above
entered into with any commercial bank meeting the qualifications specified in
clause (d) above or with investment banks reporting to the Market Reports
Division of the Federal Reserve Bank ("FRB") meeting the FRB's capital criteria
and having a long-term rating of at least A from either S&P or Moody's and (f)
investments in money market funds which invest substantially all their assets
in securities of the types described in clauses (a) through (e) above.
"Change of Control" has the meaning assigned to it under "--Change of
Control."
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of any Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person,
the ratio of (a) the aggregate amount of EBITDA of such Person for the four
full fiscal quarters ending on or immediately prior to the date of the
transaction (the "Transaction Date") giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period
being referred to herein as the "Four Quarter Period") to (b) the aggregate
Consolidated Fixed Charges of such Person for such Four Quarter Period. For
purposes of this definition, if the Transaction Date occurs prior to the first
anniversary of the Issue Date, EBITDA and Consolidated Fixed Charges shall be
calculated, in the case of the Company, after giving effect on a pro forma
basis as if the issuance of the Securities and the application of the net
proceeds therefrom occurred on the first day of the Four Quarter Period. In
addition to and without limitation of the foregoing, for purposes of this
definition, EBITDA and Consolidated Fixed Charges shall be calculated after
giving effect on a pro forma basis for the period of such calculation to (x)
the incurrence or retirement, as the case may be, of any Indebtedness
(including Acquired Indebtedness) of such Person or of any of its Subsidiaries
during the period commencing on the first day of the Four Quarter Period to and
including the Transaction Date (the "Reference Period"), including, without
limitation, the incurrence of the Indebtedness giving rise to the need to make
such calculation, as if such incurrence or retirement, as the case may be,
occurred on the first day of the Reference Period and (y) the EBITDA
attributable to any Person, business, property or asset acquired or divested
during the Reference Period (provided that with respect to any such
acquisition, only to the extent the EBITDA of such Person is otherwise
includable in the referent Person's EBITDA) as if such transaction occurred on
the first day of the Reference Period. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i)
interest on Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so
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determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date; (ii) if interest on any Indebtedness actually incurred on
the Transaction Date may be optionally determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate or other rates, then the interest rate in effect on the Transaction Date
will be deemed to have been in effect during the entire Reference Period; and
(iii) notwithstanding the foregoing, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by Interest Rate
Protection Agreements, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum of, without duplication, the amounts for such period, taken as
a single accounting period, of (a) Consolidated Interest Expense and (b) the
product of (i) the amount of all dividend requirements, whether in cash or
otherwise (except dividends payable in shares of Common Stock) paid, accrued
or scheduled to be paid or accrued during such period multiplied by (ii) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated Federal, state, local and
foreign tax rate (expressed as a decimal number between 1 and 0) of such
Person (as reflected in the audited consolidated financial statements of such
Person for the most recently completed fiscal year).
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense (without deduction of interest
income) of such Person and its Consolidated Subsidiaries for such period, on a
consolidated basis, as determined in accordance with GAAP, including all
amortization of original issue discount, the interest component of Capitalized
Lease Obligations, net cash costs under all Interest Rate Protection
Agreements (including amortization of fees), all capitalized interest, the
interest portion of any deferred payment obligations for such period and cash
contributions to any employee stock ownership plan to the extent such
contributions are used by such employee stock ownership plan to pay interest
or fees to any Person (other than the referent Person or one of its Wholly
Owned Subsidiaries) in connection with loans incurred by such employee stock
ownership plan to purchase capital stock of the referent Person, but net of
any amortization of any debt issuance costs. If the Person for whom this
calculation is being made or any of its Subsidiaries directly or indirectly
guarantees Indebtedness of a third person, the calculation shall give effect
to the incurrence of such guaranteed Indebtedness as if such Person or
Subsidiary of such Person had directly incurred or to otherwise assumed such
guaranteed Indebtedness as of the first day of the Reference Period.
"Consolidated Net Income" means, with respect to any Person for any period,
the consolidated net income (or deficit) of such Person and its Consolidated
Subsidiaries for such period, on a consolidated basis, as determined in
accordance with GAAP consistently applied, provided that the net income of any
other Person (other than a Subsidiary) in which the referent Person or any
Subsidiary of the referent Person has a joint interest with a third party
(which interest does not cause the net income of such other Person to be
consolidated into the net income of the referent Person in accordance with
GAAP) shall be included only to the extent of the lesser of (a) such net
income that has been actually received by the referent Person or Wholly Owned
Subsidiary of the referent Person in the form of cash dividends or similar
cash distributions (subject to, in the case of a dividend or other
distribution to a Wholly Owned Subsidiary of the referent Person, the
limitations set forth in clause (i)(1) of the next proviso hereof) or (b) the
net income of such other Person (which in no event shall be less than zero);
provided further that there shall be excluded (i)(1) the net income (but not
loss) of any Subsidiary of the referent Person to the extent that the
declaration or payment of dividends or similar distributions by such
Subsidiary is not permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Subsidiary, (2) the net income of any Person
acquired in a pooling of interests transaction accrued prior to the date it
became a Subsidiary of the referent Person and (3) all gains and losses
resulting from the cumulative effect of any accounting change pursuant to the
application of Accounting Principles Board Opinion No. 20, as amended, or any
successor thereto; (ii) any gain (but not loss), net of any related provisions
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for taxes, realized upon the sale or to other disposition (including, without
limitation, dispositions pursuant to Sale-Leaseback Financings) of any property
or assets which are not sold or otherwise disposed of in the ordinary course of
business and upon the sale or other disposition of any Capital Stock of any
Subsidiary of the referent Person; (iii) any gain arising from the acquisition
of any securities, or the extinguishment, under GAAP, of any Indebtedness of
the referent Person; (iv) any extraordinary gain (but not extraordinary loss)
net of any related provision for taxes on any such extraordinary gain; (v) any
amounts paid or accrued as dividends on Preferred Stock of such Person or
Preferred Stock of any Subsidiary of such Person; (vi) income or loss
attributable to discontinued operations; and (vii) in the case of a successor
to the Company by consolidation or merger or as a transferee of the Company's
assets, any earnings of the successor corporation prior to such consolidation,
merger or transfer of assets.
"Consolidated Net Worth" of a Person at any date means the Consolidated
Stockholders' Equity of such Person less (a) the amount of any gain resulting,
directly or indirectly, from the extinguishment, retirement or repurchase of
any Indebtedness of such Person or of any of its Subsidiaries, (b) any
revaluation or other write-ups subsequent to the Issue Date in the book value
of any asset owned by such Person or a Consolidated Subsidiary and (c) any
amounts attributable to the cost of treasury stock and the principal amount of
any promissory notes receivable from the sale of Capital Stock of such Person
or of any of its Subsidiaries. Notwithstanding any of the foregoing, net
deferred income tax assets recorded in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), shall
be calculated without regard to any valuation allowance with respect to such
net deferred tax asset recorded by the Company in accordance with SFAS 109.
"Consolidated Stockholders' Equity" as of any date means with respect to any
Person the amount by which the assets of such Person and of its Subsidiaries on
a consolidated basis exceed (a) the total liabilities of such Person and of its
Subsidiaries on a consolidated basis plus (b) any redeemable Preferred Stock
(including Disqualified Capital Stock) of such Person or any redeemable
Preferred Stock (including Disqualified Capital Stock) of any Subsidiary of
such Person issued to any Person other than to such Person or to a Wholly Owned
Subsidiary of such Person, in each case determined in accordance with GAAP.
"Consolidated Subsidiary" of any Person means a Subsidiary which for
financial reporting purposes is or, in accordance with GAAP, should be,
accounted for by such Person as a consolidated Subsidiary.
"Consolidated Tax Expense" means, with respect to any Person for any period,
the aggregate of the U.S. Federal, state and local tax expense attributable to
taxes based on income and foreign income tax expenses of such Person and its
Consolidated Subsidiaries for such period (net of any income tax benefit),
determined in accordance with GAAP.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values to
or under which the Company or any of its Subsidiaries is a party or a
beneficiary on the date of the Indenture or becomes a party or a beneficiary
thereafter.
"Default" means any event that is, or after notice or passage of time or both
would be, an Event of Default.
"Disqualified Capital Stock" means any Capital Stock that, other than solely
at the option of the issuer thereof, by its terms (or by the terms of any
security into which it is convertible or exchangeable) is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased, in whole or in part, or has, or upon the happening of an event
or the passage of time would have, a redemption or similar payment due on or
prior to the first anniversary of the Maturity
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Date of the Senior Notes or is convertible into or exchangeable for debt
securities at the option of the holder thereof at any time prior to such
Maturity Date.
"EBITDA" for any Person means for any period for which it is to be determined
the sum of, without duplication, the amounts for such period, taken as a single
accounting period, of (a) Consolidated Net Income of such Person for such
period, plus (b) only to the extent Consolidated Net Income has been reduced
thereby, (i) Consolidated Tax Expense of such Person paid or accrued in
accordance with GAAP for such period, (ii) Consolidated Interest Expense of
such Person for such period,(iii) depreciation and amortization expenses
(including, without limitation, amortization of capitalized debt issuance
costs) of such Person and its Consolidated Subsidiaries for such period; all as
determined on a consolidated basis in conformity with GAAP consistent with
those principles applied in the preparation of the audited financial statements
of such Person and its Consolidated Subsidiaries on the Issue Date; provided
that if a Person has any Subsidiary that is not a Wholly Owned Subsidiary,
EBITDA of such Person shall be reduced by an amount equal to (1) the
Consolidated Net Income of such Subsidiary for such period multiplied by (2)
the quotient of (A) the number of shares of outstanding Common Stock of such
Subsidiary not owned on the last day of such period by such Person or by any
Wholly Owned Subsidiary of such Person that is not subject to any encumbrance
or restriction on the payment of dividends to such Person divided by (B) the
total number of shares of outstanding Common Stock of such Subsidiary on the
last day of such period.
"Existing Indebtedness" has the meaning set forth in the definition of
Permitted Refinancing Indebtedness.
"Fair Market Value" or "fair value" means, with respect to any asset or
property or Capital Stock, the price which could be negotiated in an arm's-
length, free market transaction, for cash, between an informed and willing
seller and an informed, willing and able buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined by the Board of Directors of the Company acting reasonably and in
good faith and shall be evidenced by a written resolution of said Board of
Directors (certified by the Secretary or Assistant Secretary of the Company)
delivered to the Trustee, provided that if the aggregate non-cash consideration
to be received by the Company or any of its Subsidiaries from any Asset Sale
shall exceed $10,000,000 then Fair Market Value shall be determined by an
Independent Financial Advisor.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurable" and "incurring" shall have meanings
correlative to the foregoing), provided that the accrual of interest (whether
such interest is payable in cash or in kind) and the accretion of original
issue discount shall not be deemed an incurrence of Indebtedness, provided,
further that (a) any Indebtedness or Disqualified Capital Stock of a Person
existing at the time such Person becomes (after the Issue Date) a Subsidiary
(whether by merger, consolidation, acquisition or otherwise) of the Company
shall be deemed to be incurred by such Subsidiary at the time it becomes a
Subsidiary of the Company and (b) any amendment, modification or waiver of any
document pursuant to which Indebtedness was previously incurred shall be deemed
to be an incurrence of Indebtedness unless such amendment, modification or
waiver does not (i) increase the principal or premium thereof or interest rate
thereon (including by way of original issue discount), (ii) change to an
earlier date the
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Stated Maturity thereof or the date of any scheduled or required principal
payment thereon or the time or circumstances under which such Indebtedness may
or shall be redeemed, (iii) if such Indebtedness is subordinated to the Senior
Notes, modify or affect, in any manner adverse to the holders, such
subordination, (iv) if the Company is the obligor thereon, provide that a
Subsidiary of the Company not already an obligor thereon shall be an obligor
thereon or (v) violate, or cause the Indebtedness to violate, the provisions
described under "--Certain Covenants--Limitation on Liens" and "--Certain
Covenants--Limitation on Payment Restrictions Affecting Subsidiaries" above.
"Indebtedness" means, with respect to any Person, at any date, any of the
following, without duplication, (a) any liability, contingent or otherwise, of
such Person (i) for borrowed money (whether or not the recourse of the lender
is to the whole of the assets of such Person or only to a portion thereof),
(ii) evidenced by a note, bond, debenture or similar instrument or (iii) for
the payment of money relating to a Capitalized Lease Obligation or other
obligation (whether issued or assumed) relating to the deferred purchase price
of property but excluding advances, deposits, partial and progress payments,
unpaid wages and related employee obligations, trade accounts payable and
accrued liabilities in each case arising in the ordinary course of business
that are not overdue by 180 days or more or are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted; (b)
all conditional sale obligations and all obligations under any title retention
agreement (even if the rights and remedies of the seller under such agreement
in the event of default are limited to repossession or sale of such property);
(c) reimbursement obligations of such Person with respect to letters of credit
and all obligations of such Person in respect of any banker's acceptance or
similar credit transaction entered into in the ordinary course of business; (d)
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on any asset or property (including, without limitation, leasehold
interests and any other tangible or intangible property) of such Person,
whether or not such Indebtedness is assumed by such Person or is not otherwise
such Person's legal liability, provided that if the obligations so secured have
not been assumed in full by such Person or are otherwise not such Person's
legal liability in full, the amount of such Indebtedness for the purposes of
this definition shall be limited to the lesser of the amount of such
Indebtedness secured by such Lien or the Fair Market Value of the assets or
property securing such Lien; (e) all Indebtedness of others guaranteed
(including all dividends of other Persons the payment of which is guaranteed),
directly or indirectly, by such Person or that is otherwise its legal liability
or which such Person has agreed to purchase or repurchase or in respect of
which such Person has agreed contingently to supply or advance funds; (f) all
Disqualified Capital Stock issued by such Person (other than such Disqualified
Capital Stock owned by the referent Person or by any Wholly Owned Subsidiary of
the referent Person, provided that if any Wholly Owned Subsidiary of the
referent Person shall cease to be a Wholly Owned Subsidiary of the referent
Person or shall transfer such Disqualified Capital Stock (other than to the
referent Person or another Wholly Owned Subsidiary of the referent Person) the
date on which such Wholly Owned Subsidiary so ceases to be a Wholly Owned
Subsidiary of the referent Person or so transfers such Disqualified Capital
Stock shall be deemed to be the issuance of such Disqualified Capital Stock by
the Subsidiary issuer thereof) with the amount of Indebtedness represented by
such Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any; and (g) all obligations under Currency
Agreements and Interest Rate Protection Agreements. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture. The amount of Indebtedness of any Person
at any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence
of the contingency giving rise to the obligation, of any contingent obligations
at such date, provided that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the full
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amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP.
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable and
good faith judgment of the Board of Directors of the Company, qualified to
perform the task for which such firm has been engaged and disinterested and
independent with respect to the Company and its Affiliates.
"Interest Rate Protection Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect a Person or any of its Subsidiaries against
fluctuations in interest rates to or under which such Person or any of its
Subsidiaries is a party or a beneficiary on the Issue Date or becomes a party
or a beneficiary thereafter.
"Investment" by any Person means (a) any direct or indirect loan, advance or
other extension of credit or capital contribution to (by means of transfers of
cash or other property (valued at the Fair Market Value thereof as of the date
of transfer) to others or payments for property or services for the account or
use of others, or otherwise), (b) any direct or indirect purchase or
acquisition of Capital Stock, bonds, notes, debentures, or other securities or
evidences of Indebtedness issued by any other Person (whether by merger,
consolidation, amalgamation or otherwise and whether or not purchased directly
from the issuer of such securities or evidences of Indebtedness), (c) any
direct or indirect guarantee or assumption of the Indebtedness of any other
Person and (d) all other items that would be classified as investments
(including, without limitation, purchases of assets outside of the ordinary
course of business) on a balance sheet of such Person prepared in accordance
with GAAP. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Issue Date" means the date on which the Senior Notes are originally issued
under the Indenture.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, easement, restriction, covenant, right-of-way, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property of such Person, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, including any sale and leaseback transaction, any option or other
similar agreement to sell, in each case securing obligations of such Person and
any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statute or statutes) of any jurisdiction other
than to reflect ownership by a third party of property leased to the referent
Person or any of its Subsidiaries under a lease that is not in the nature of a
conditional sale or title retention agreement).
"Material Subsidiary" means, at any date of determination, any Subsidiary of
the Company that, together with its Subsidiaries, (i) for the most recent
fiscal year of the Company accounted for more than five percent of the
consolidated revenues of the Company or (ii) as of the end of such fiscal year,
was the owner of more than five percent of the consolidated assets of the
Company, all as set forth on the most recently available consolidated financial
statements of the Company and its Consolidated Subsidiaries for such fiscal
year prepared in conformity with generally accepted accounting principles as
then in effect.
"Maturity Date" means , 2003.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations
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(to the extent corresponding to the principal, but not interest, component
thereof) when received in the form of cash or Cash Equivalents (except to the
extent such obligations are financed or sold with recourse to the Company or
any Subsidiary of the Company) and proceeds from the conversion of other
property received when converted to cash or Cash Equivalents, net of (a)
reasonable third-party brokerage commissions and other reasonable third-party
fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (b) provisions for all taxes as a result
of such Asset Sale computed on a consolidated basis reflecting the consolidated
results of operations of the Company and its Subsidiaries, taken as a whole,
(c) payments made to repay Indebtedness or any other obligation outstanding at
the time of such Asset Sale that was incurred in accordance with the Indenture
and that either (i) is secured by a Lien incurred in accordance with the
Indenture on the property or assets sold or (ii) is required to be paid as a
result of such sale, in each case to the extent actually repaid in cash and (d)
appropriate amounts to be provided by the Company or any Subsidiary of the
Company as a reserve against liabilities associated with such Asset Sale,
including without limitation pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
determined in conformity with generally accepted accounting principles as then
in effect. For purposes of this definition and "--Certain Covenants--Limitation
on Sale of Assets," "cash" means U.S. dollars or such money as is freely and
readily convertible into U.S. dollars.
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net proceeds received by
the Company, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in other property
(valued as determined reasonably and in good faith by the Board of Directors of
the Company, as evidenced by a written resolution of said Board of Directors,
at the Fair Market Value thereof at the time of receipt) and (b) in the case of
any exchange, exercise, conversion or surrender of any outstanding Indebtedness
of the Company or any Subsidiary for or into shares of Qualified Capital Stock
of the Company, the amount of such Indebtedness (or, if such Indebtedness was
issued at an amount less than the stated principal amount thereof, the accrued
amount thereof as determined in accordance with generally accepted accounting
principles as then in effect) as reflected in the consolidated financial
statements of the Company prepared in accordance with generally accepted
accounting principles as then in effect as of the most recent date next
preceding the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder of such Indebtedness of
the Company or to any Wholly Owned Subsidiary of the Company upon such
exchange, exercise, conversion or surrender) and less any and all payments made
to the holders of such Indebtedness, and all other expenses incurred by the
Company in connection therewith, in the case of each of clauses (a) and (b) to
the extent consummated after the Issue Date, provided that the exchange,
exercise, conversion or surrender of any Indebtedness outstanding on the Issue
Date, including the Convertible Subordinated Notes, which is subordinated
(whether pursuant to its terms or by operation of law) to the Senior Notes
shall not be or be deemed to be included in Net Equity Proceeds.
"New Indebtedness" has the meaning set forth in the definition of Permitted
Refinancing Indebtedness.
"Pari Passu Indebtedness" means the Senior Notes and any Indebtedness under
the Company's Revolving Credit Agreement, its 9.33% Senior Notes due 2002, its
9.35% Senior Notes due 2000, and any other Indebtedness permitted under the
Indenture which is pari passu in right of payment with the Senior Notes.
"Permitted Indebtedness" means, without duplication, (a) Indebtedness of the
Company and its Subsidiaries remaining outstanding immediately after the Issue
Date after giving effect to the consummation of the transactions described in
the Prospectus under "Use of Proceeds" above;(b) $110 million of Indebtedness
of the Company evidenced by or arising under the Revolving Credit Agreement;
(c) Indebtedness of the Company evidenced by or arising under the Senior Notes
and the
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Indenture; (d) Permitted Refinancing Indebtedness incurred by the Company or by
any of its Subsidiaries; (e) unsecured Indebtedness of the Company to a Wholly
Owned Subsidiary of the Company, provided that (i) any Indebtedness of the
Company to a Wholly Owned Subsidiary of the Company shall be evidenced by an
intercompany promissory note that is subordinated in right of payment to the
payment and performance of the Company's obligations under the Indenture and
the Senior Notes and (ii) any subsequent issuance or transfer of Capital Stock
of a Wholly Owned Subsidiary of the Company (the "Creditor Subsidiary") that
results in such Creditor Subsidiary ceasing to be a Wholly Owned Subsidiary of
the Company or any subsequent transfer of Indebtedness owing from the Company
to such Creditor Subsidiary (other than a transfer to another Wholly Owned
Subsidiary of the Company) shall be deemed in each case to constitute the
incurrence of Indebtedness by the Company to the extent of any such
Indebtedness then outstanding; (f) Indebtedness of the Company in an aggregate
principal amount not to exceed, when added to Indebtedness and Preferred Stock
of Subsidiaries of the Company incurred under clause (d) of "Certain
Covenants--Limitation on Subsidiary Indebtedness and Preferred Stock" above,
10% of Consolidated Net Worth of the Company, provided, however, that no
Default or Event of Default shall have occurred and be continuing at the time
of or as a consequence of the incurrence of such Indebtedness; and (g)
Indebtedness (1) of the Company or of any Subsidiary of the Company in respect
of bankers' acceptances provided in the ordinary course of business, (2) of the
Company under Currency Agreements and Interest Rate Protection Agreements which
are entered into for the purpose of protection against risk of currency or
interest rate fluctuations affecting the Company or any of its Subsidiaries in
its ordinary course of business that are related to payment obligations of the
Company or any of its Subsidiaries otherwise permitted under the Indenture,
provided that in the case of Currency Agreements or Interest Rate Protection
Agreements that relate to other Indebtedness, such Currency Agreements or
Interest Rate Protection Agreements do not increase the obligations of the
Company outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates, as applicable, or by reason
of fees, indemnities and compensation payable thereunder, and (3) of the
Company or any of the Subsidiaries of the Company in respect of letters of
credit issued in connection with self-insurance and reinsurance obligations
incurred in the ordinary course of business, provided that the total amount of
outstanding Indebtedness incurred under this clause (3), other than in
connection with workers' compensation, unemployment insurance and other social
security obligations, shall not exceed $9 million at any one time.
"Permitted Investments" means (a) investments held in the form of cash and
Cash Equivalents; (b) Investments in any Wholly Owned Subsidiary (or in any
Person which will, upon the making of such Investment, become a Wholly Owned
Subsidiary) of the Company by the Company or by any other Wholly Owned
Subsidiary of the Company provided that (i) any Indebtedness evidencing an
Investment in a Wholly Owned Subsidiary of the Company shall not be
subordinated or junior to any other Indebtedness or other obligation of such
Wholly Owned Subsidiary and (ii) such Investment shall only be a Permitted
Investment so long as any such Wholly Owned Subsidiary in which the Investment
has been made or which has made such Investment remains a Wholly Owned
Subsidiary of the Company; (c) Investments made after the Issue Date, not
exceeding $15 million at any one time in excess of Investments made as
Restricted Payments, in joint ventures, partnerships or Persons that are not
Wholly Owned Subsidiaries of the Company that are made solely for the purpose
of acquiring or furthering businesses related to the Company's business; (d)
Investments of the Company and its Subsidiaries arising as a result of any
Asset Sale otherwise complying with the terms of the Indenture, provided that
for each Asset Sale the maximum aggregate amount of Investments permitted under
this clause (d) shall not exceed 20% of the total consideration received for
such Asset Sale by the Company or any Subsidiary of the Company; (e)
Investments in the Company by any Subsidiary of the Company, provided that any
Indebtedness evidencing such Investment is subordinated to the Senior Notes;
(f) Investments of the Company and its Subsidiaries in the form of promissory
notes or deferred payment obligations as a result of the sale of the Company's
business jet product line or its Hagerstown, Maryland plant; provided that the
aggregate amount of such non-cash consideration does not exceed
85
<PAGE>
$15 million; (g) Investments arising from, or of the type contemplated by, the
Company's Pooling and Servicing Agreement as in effect on the Issue Date; (h)
Investments received in connection with the bona fide settlement of legal
proceedings or other disputed obligations arising in the ordinary course of
business; (i) loans, advances or other extensions of credit to actual or
potential customers or suppliers that are made as part of the purchase or sale
of goods or services by the Company or any of its Subsidiaries, as made from
time to time by the Company or any Subsidiary in the ordinary course of
business and consistent with practices in the industry of the Company; and (j)
other Investments made after the Issue Date in the ordinary course of business
of the Company not to exceed $10 million at any one time.
"Permitted Liens" means, without duplication (a) Liens for taxes, assessments
and governmental charges or levies (other than any Lien imposed by the Employee
Retirement Income Security Act of 1974, as amended) that are not yet subject to
penalties for non-payment or are being contested in good faith by appropriate
proceedings and for which adequate reserves, if required, have been established
or other provisions have been made in accordance with GAAP; (b) statutory
mechanics', workmen's, materialmen's, operators', warehousemen's, repairmen's
and bankers' liens, and similar Liens imposed by law and arising in the
ordinary course of business for sums which are not overdue by more than 15 days
or, if so overdue, are being contested in good faith by appropriate proceedings
and for which adequate reserves, if required, have been established or other
provisions have been made in accordance with GAAP; (c) minor imperfections of,
or encumbrances on, title that do not impair the value of property for its
intended use; (d) Liens (other than any Lien under the Employee Retirement
Income Security Act of 1974, as amended) incurred or deposits made in the
ordinary course of business in connection with (or made to secure reinsurance
obligations of the Company or any of its Subsidiaries incurred in connection
with its or their obligations with respect to) workers' compensation,
unemployment insurance and other types of social security; (e) Liens incurred
or deposits made to secure the performance of tenders, bids, leases, statutory
or regulatory obligations, bankers' acceptances, surety and appeal bonds,
government contracts, performance and return of money bonds and other
obligations of a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (f) easements,
rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or of any of its
Subsidiaries; (g) Liens (including extensions and renewals thereof) upon real
or tangible personal property acquired after the Issue Date, provided that (1)
any such Lien is created solely for the purpose of securing Indebtedness (other
than Permitted Indebtedness) (A) that is incurred in accordance with "Certain
Covenants--Limitation on Indebtedness" or "Certain Covenants--Limitation on
Subsidiary Indebtedness and Preferred Stock" above to finance the cost
(including the cost of improvement or construction) of the item of property or
assets subject thereto and such Lien is created prior to, at the time of or
within 365 days after the later of the acquisition, the completion of
construction or the commencement of full operation of such property or (B) that
is Permitted Refinancing Indebtedness to Refinance any Indebtedness previously
so secured, (2) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost, and (3) any such Lien shall not extend to or
cover any property or assets of the Company or of any of its Subsidiaries other
than such item of property or assets and any improvements on such item; (h)
leases or subleases granted to others that do not materially interfere with the
ordinary course of business of the Company or of any of its Subsidiaries; (i)
Liens encumbering property or assets to secure repayment of advances, deposits
or progress or partial payments by a customer of the Company or of any of its
Subsidiaries relating to such property or assets; (j) Liens arising from filing
Uniform Commercial Code financing statements regarding leases; (k) Liens in
favor of the Company or any Wholly Owned Subsidiary of the Company; (l) Liens
securing any real property or other assets of the Company or of any Subsidiary
of the Company in connection with the financing of industrial revenue and
similar bond facilities and related obligations or of any equipment of other
property designed primarily for the purpose of air or water pollution control,
provided that any such Lien on such facilities, equipment or other property
shall not apply to any other property or assets of the
86
<PAGE>
Company or of such Subsidiary of the Company; (m) Liens arising from the
rendering of a final judgment or order against the Company or any Subsidiary of
the Company that does not give rise to an Event of Default; (n) Liens securing
reimbursement obligations with respect to letters of credit incurred in
accordance with the Indenture that encumber documents and other property
relating to such letters of credit and the products and proceeds thereof; (o)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(p) Liens encumbering customary initial deposits and margin deposits, and other
Liens that are within the general parameters customary in the industry and
incurred in the ordinary course of business securing Indebtedness under
Interest Rate Protection Agreements and Currency Agreements and forward
contracts, options, futures contracts, futures options or fluctuations in the
price of commodities; (q) Liens on sales of receivables; (r) Liens in favor of
the Trustee arising under the Indenture; (s) Liens incurred or deposits made in
the ordinary course of business to secure up to $9 million of self-insurance
and reinsurance obligations, other than obligations related to workers'
compensation, unemployment insurance and other types of social security; and
(t) deposits made to secure procurement credit card obligations arising from
miscellaneous, non-repetitive purchases of supplies and services in the
ordinary course of business, with no such purchase to exceed $5,000.
"Permitted Payments" means, so long as no Default or Event of Default shall
have occurred and be continuing or would result as a consequence thereof, (a)
the prepayment, acquisition, retirement or decrease of Indebtedness of the
Company that is subordinated (whether pursuant to its terms or by operation of
law) to the Senior Notes that is prepaid, acquired, decreased or retired (i) by
conversion into or in exchange for Qualified Capital Stock of the Company or
(ii) in exchange for or with or out of the net cash proceeds of the
substantially concurrent sale (other than by the Company to a Subsidiary of the
Company) of Permitted Refinancing Indebtedness; (b) payroll, travel, relocation
and similar advances to employees of the Company or any Subsidiary in the
ordinary course of the Company's business; (c) loans to employees (other than
travel advances) not to exceed $500,000 in the aggregate at any one time
outstanding; (d) any purchases, redemptions, acquisitions, cancellations or
other retirement for value of shares of Capital Stock of the Company or of any
Subsidiary of the Company, options on any such shares or related stock
appreciation rights or similar securities held by officers, directors or
employees or former officers or employees (or their estates or beneficiaries
under their estates) and which were issued pursuant to any stock option plan
(or other director, officer or employee benefit plan or agreement), upon death,
disability, retirement, termination of employment or pursuant to the terms of
such plan or agreement and which in the aggregate do not exceed $1,000,000 in
any fiscal year; (e) the purchase, at a price of not more than $.05 per right,
of any rights issued or issuable pursuant to currently existing or future
rights plans of the Company, provided that such purchase shall not exceed $3
million in the aggregate; or (f) the retirement of shares of the Company's
Capital Stock in exchange for or out of the proceeds of a substantially
concurrent sale (other than a sale to a Subsidiary of the Company) of other
shares of its Capital Stock (other than Disqualified Capital Stock).
"Permitted Program Investment" means an investment in design, engineering,
tooling or similar costs related to a program undertaken by the Company in the
ordinary course of its business.
"Permitted Refinancing Indebtedness" means Indebtedness of the Company or of
any of the Company's Subsidiaries or Preferred Stock of a Subsidiary of the
Company, the net proceeds of which are used to Refinance outstanding
Indebtedness of the Company or of any of the Company's Subsidiaries that was
outstanding as of the Issue Date or incurred in accordance with the Indenture
or Preferred Stock of a Subsidiary of the Company that was outstanding as of
the Issue Date or issued in accordance with the Indenture, provided that (a) if
the Indebtedness (including the Senior Notes) being Refinanced (the "Existing
Indebtedness") is pari passu with or subordinated to the Senior Notes, then any
Indebtedness Refinancing the Existing Indebtedness (the "New Indebtedness")
shall be pari passu with or subordinated to, as the case may be, the Senior
Notes at least to the same extent and in the same manner as the Existing
Indebtedness is to the Senior Notes, (b) such New Indebtedness has a
87
<PAGE>
Stated Maturity no earlier than the Stated Maturity of the Existing
Indebtedness, (c) such New Indebtedness has an Average Life at the time such
New Indebtedness is incurred that is equal to or greater than the Average Life
of the Existing Indebtedness as of the date of such Refinancing, (d) such New
Indebtedness is in an aggregate principal amount (or, if such New Indebtedness
is issued at a price less than the principal amount thereof, the aggregate
amount of gross proceeds therefrom is) not in excess of the aggregate principal
amount outstanding under the Existing Indebtedness on the date of the proposed
Refinancing thereof (or if the Existing Indebtedness was issued at a price less
than the principal amount thereof, then not in excess of the amount of
liability in respect thereof determined in accordance with GAAP as of the date
of such proposed Refinancing), (e) with respect to such Preferred Stock of the
Company's Subsidiaries, Preferred Stock issued in exchange for or the proceeds
of which are used to Refinance such existing Preferred Stock of a Subsidiary
("New Preferred Stock") shall have (i) a Stated Maturity no earlier than the
Stated Maturity of the Preferred Stock being exchanged or Refinanced, (ii) an
Average Life at the time such New Preferred Stock is proposed to be incurred
that is equal to or greater than the Average Life of the Preferred Stock to be
exchanged or Refinanced as of the date of such proposed exchange or Refinancing
and (iii) a liquidation value no greater than the liquidation value of the
Preferred Stock to be exchanged or Refinanced as of the date of such proposed
exchange or Refinancing and (f) if such Existing Indebtedness is Indebtedness
solely of the Company, such New Indebtedness will only be permitted if it is
Indebtedness solely of the Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan of Liquidation" means a plan (including by operation of law) that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously) (a) the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company otherwise than as an entirety or substantially as an
entirety and (b) the distribution of all or substantially all of the proceeds
of such sale, lease, conveyance or other disposition and all or substantially
all or the remaining assets of the Company to holders of Capital Stock of the
Company.
"Pooling and Servicing Agreement" means the Pooling and Servicing Agreement
dated as of December 23, 1992, among the Company, the Company's Wholly Owned
Subsidiary RI Receivables, Inc. and Bankers Trust Company, as trustee on behalf
of the Certificateholders (as defined therein), and related documentation and
any extension, renewal, modification, restatement or replacement thereof (in
whole or in part), and as the same may be amended, supplemented or otherwise
modified from time to time; provided, however, the investors in any such
receivables program shall not obtain an interest in receivables sold under such
program which exceeds $70 million in aggregate principal amount at any one
time.
"Preferred Stock" means the Capital Stock of any Person (other than the
Common Stock of such Person) of any class of classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding-up of
such Person, to shares of Capital Stock of any other class of such Person.
"Pro Forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act.
"Qualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that is not Disqualified Capital Stock or convertible into
or exchangeable or exercisable for Disqualified Capital Stock, and includes
rights and other securities issuable under the Company's Amended and Restated
Rights Agreement, dated as of April 6, 1990, between the Company and The First
National Bank of Chicago, as Rights Agent, as such agreement may be amended or
supplemented from time to time.
88
<PAGE>
"Reference Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Restricted Payment" means (a) the declaration or payment of any dividend or
the making of any other distribution, including any dividend or distribution
made in connection with the merger or consolidation of the Company (whether in
any such case in cash, securities or other property or assets of the Company or
of any of its Subsidiaries), on the Company's or any of its Subsidiaries'
Capital Stock, or to the holders of the Company's or any of its Subsidiaries'
Capital Stock, whether outstanding on the Issue Date or thereafter (other than
dividends or distributions payable solely in Qualified Capital Stock of the
Company or of such Subsidiary (subject to the last paragraph of the covenant
described under "Certain Covenants--Limitation on Restricted Payments") and
other than any dividend or distribution declared or paid by any Wholly Owned
Subsidiary of the Company); (b) the making of any Investment by the Company or
any of its Subsidiaries in any Person other than Permitted Investments; (c) any
purchase, redemption, retirement or other acquisition for value by the Company
or any Subsidiary of any Capital Stock of the Company or of any of its
Subsidiaries or of any Affiliate of the Company or any other securities of a
direct or indirect parent of the Company, whether outstanding on the Issue Date
or thereafter, or any warrants, rights or options to purchase or acquire shares
of the Capital Stock of the Company or of any of its Subsidiaries or of any
Affiliate of the Company, whether outstanding on the Issue Date or thereafter,
held by any Person other than the Company or one of its Wholly Owned
Subsidiaries, other than through the issuance in exchange therefor solely of
Qualified Capital Stock of the Company or of such Subsidiary; or (d) the
prepayment, acquisition, decrease or retirement for value prior to maturity,
scheduled repayment or scheduled sinking fund payment of any Indebtedness of
the Company that is subordinated (whether pursuant to its terms or by operation
of law) to the Senior Notes, in each case to the extent not contained within
the definition of "Permitted Payments." The dollar amount of any non-cash
dividend or distribution by the Company or any of its Subsidiaries on the
Company's or any Subsidiary's Capital Stock shall be equal to the Fair Market
Value of such dividend or distribution at the time of such dividend or
distribution.
"Stated Maturity" means, with respect to any security or Indebtedness, the
date specified therein as the fixed date on which any principal of such
security or Indebtedness is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase thereof at the option of the holder thereof).
A "Subsidiary" of a Person means (a) a corporation a majority of whose Voting
Stock is at the time, directly or indirectly, owned by such Person, by one or
more Subsidiaries of such Person or by such Person and one or more Subsidiaries
of such Person or (b) any other Person (other than a corporation) in which such
Person, one or more Subsidiaries of such Person or such Person and one or more
Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, have (i) at least a majority ownership interest or (ii)
the power to elect or direct the election of the directors or other governing
body of such Person.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock of such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the board of
directors or other governing body of such Person.
"Wholly Owned Subsidiary" means, with respect to any Person, any subsidiary
of such Person all the outstanding shares of Capital Stock (other than
directors' qualifying shares, if applicable) of which are owned directly by
such Person or another Wholly Owned Subsidiary of such Person.
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<PAGE>
DESCRIPTION OF CONCURRENT FINANCING
CONVERTIBLE SUBORDINATED NOTES
In connection with the Offering, the Company is concurrently offering,
pursuant to a separate prospectus, the Convertible Subordinated Notes which
will mature on , 2004. The Convertible Subordinated Notes are
convertible at the option of the holder thereof at any time prior to maturity,
unless previously redeemed, into shares of Common Stock of the Company, at a
conversion price of $ per share, subject to adjustment in certain events.
On May 10, 1994, the last reported sale price for the Common Stock on the New
York Stock Exchange (symbol: RHR) was $8.875 per share. The Convertible
Subordinated Notes are redeemable at the option of the Company, in whole or in
part, at any time on and after , 1998 at the prices specified in the
Convertible Subordinated Notes, plus accrued interest. The Convertible
Subordinated Notes do not provide for any sinking fund. Upon a change of
control, the holders of the Convertible Subordinated Notes will have the right,
subject to certain restrictions and conditions, to require the Company to
purchase all or any part of the Convertible Subordinated Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. The Convertible Subordinated Notes will be general unsecured
obligations of the Company and will be subordinate in right of payment to all
existing and future Senior Indebtedness (as defined in the Indenture governing
the Convertible Subordinated Notes) of the Company and pari passu in right of
payment with all existing and future Subordinated Indebtedness (as defined in
such indenture.)
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Company and the Underwriter, the
Company has agreed to sell to the Underwriter, and the Underwriter has agreed
to purchase, the principal amount of the Senior Notes set forth below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF SENIOR NOTES
----------- ----------------
<S> <C>
Salomon Brothers Inc..................................... $100,000,000
</TABLE>
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will be
obligated to purchase the entire principal amount of the Senior Notes offered
hereby if any Senior Notes are purchased.
The Company has been advised by the Underwriter that it proposes to offer the
Senior Notes directly to the public at the initial public offering price set
forth on the cover of this Prospectus and to certain dealers at such price less
a concession of not more than % of the principal amount of the Senior Notes.
The Underwriter may allow, and such dealers may reallow, a concession not in
excess of % of the principal amount of the Senior Notes. After the initial
public offering of the Senior Notes, the public offering price and such
concessions may be changed.
The Company does not intend to list the Senior Notes on any national
securities exchange. The Underwriter has indicated that it intends to make a
market in the Senior Notes, subject to applicable laws and regulations.
However, the Underwriter is not obligated to do so and any market-making may be
discontinued at any time at the sole discretion of the Underwriter without
notice. Accordingly, no assurance can be given that any market for the Senior
Notes will develop, or, if any such market develops, as to the liquidity of
such market. See "Risk Factors--Absence of Public Market for the Securities."
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or contribute to payments that the Underwriter may be required
to make in respect thereof.
90
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Securities will
be passed upon for the Company by Gibson, Dunn & Crutcher, San Diego,
California, and for the Underwriter by Latham & Watkins, Los Angeles,
California.
EXPERTS
The financial statements and the related financial statement schedules as of
July 31, 1993 and 1992 and for each of the three years in the period ended July
31, 1993, included and incorporated by reference in this Prospectus, have been
audited by Deloitte & Touche, independent auditors, as stated in their reports
which are included and incorporated by reference herein, and have been so
included and incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
91
<PAGE>
ROHR, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets--January 30, 1994, July 31, 1993 and 1992 F-3
Consolidated Statements of Operations--For the Six Months Ended January
30, 1994 and January 31, 1993 and the Years Ended July 31, 1993, 1992
and 1991 F-4
Consolidated Statements of Shareholders' Equity--For the Six Months
Ended January 30, 1994 and the Years Ended July 31, 1993 and 1992 F-5
Consolidated Statements of Cash Flows--For the Six Months Ended January
30, 1994 and January 31, 1993 and for the Years Ended July 31, 1993,
1992 and 1991 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ROHR, INC.:
We have audited the accompanying consolidated balance sheets of Rohr, Inc.
and its subsidiaries as of July 31, 1993 and July 31, 1992, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended July 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Rohr, Inc. and its subsidiaries as
of July 31, 1993 and July 31, 1992, and the results of its operations and its
cash flows for each of the three years in the period ended July 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in fiscal
year 1993 the Company changed certain elements in the application of accounting
principles relating to long-term programs and contracts and changed its method
of accounting for income taxes and for post-retirement benefits other than
pensions.
Deloitte & Touche
San Diego, California
September 17, 1993
(March 28, 1994 as to Notes 7 and 8)
F-2
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
ASSETS JULY 31,
------ JAN. 30, ----------------------
1994 1993 1992
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and short-term investments............ $ 28,768 $ 42,186 $ 21,122
Accounts receivable........................ 94,126 94,140 133,153
Inventories:
Work-in-process.......................... 516,483 560,139 972,003
Raw materials, purchased parts and sup-
plies................................... 29,051 32,575 42,549
Less customers' progress payments and ad-
vances.................................. (133,380) (152,976) (181,575)
--------- ---------- ----------
Inventories--net......................... 412,154 439,738 832,977
Prepaid expenses and other current assets.. 15,539 16,861 21,118
Deferred tax asset......................... 13,723 13,654 --
--------- ---------- ----------
Total Current Assets................... 564,310 606,579 1,008,370
Property, Plant and Equipment.............. 499,388 496,452 531,239
Less accumulated depreciation and amorti-
zation.................................. (268,539) (257,407) (260,956)
--------- ---------- ----------
Property, plant and equipment--net....... 230,849 239,045 270,283
Investment in Leases....................... 37,735 38,233 39,446
Deferred Tax Asset......................... 88,915 89,348 --
Other Assets............................... 45,757 44,581 45,859
--------- ---------- ----------
$ 967,566 $1,017,786 $1,363,958
========= ========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Trade accounts and other payables.......... $ 155,691 $ 166,916 $ 162,638
Salaries, wages and benefits............... 33,955 38,623 67,194
Taxes on income............................ -- -- 30,247
Short-term debt............................ -- -- 20,000
Current portion of long-term debt.......... 16,211 50,719 27,517
--------- ---------- ----------
Total Current Liabilities.............. 205,857 256,258 307,596
Long-Term Deferred Taxes on Income......... -- -- 43,458
Long-Term Debt............................. 467,214 480,889 525,077
Pension and Post-Retirement Obligations.... 69,246 63,040 25,785
Other Obligations.......................... 35,020 35,356 13,176
Commitments and Contingencies (Note 8)
Shareholders' Equity:
Preferred stock, $1 par value per share,
10 million shares authorized, none is-
sued.................................... -- -- --
Common stock, $1 par value per share, au-
thorized 50,000,000 shares; issued and
outstanding 18,017,930, 17,995,866 and
17,833,076 shares, respectively......... 18,018 17,996 17,833
Additional paid-in capital............... 102,541 102,312 101,261
Retained earnings........................ 82,976 75,241 329,772
Minimum pension liability adjustment..... (13,306) (13,306) --
--------- ---------- ----------
Total Shareholders' Equity............. 190,229 182,243 448,866
--------- ---------- ----------
$ 967,566 $1,017,786 $1,363,958
========= ========== ==========
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-3
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JULY 31,
------------------- ----------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991
-------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................... $484,823 $ 626,004 $1,175,152 $1,279,656 $1,385,086
Costs and Expenses...... 439,719 594,568 1,133,040 1,223,931 1,275,269
General and
Administrative
Expenses............... 13,446 22,467 43,800 10,167 9,239
-------- ---------- ---------- ---------- ----------
Operating Income (Loss). 31,658 8,969 (1,688) 45,558 100,578
Interest Income......... 520 405 928 3,666 1,119
Interest Expense........ 24,201 23,175 48,811 67,039 54,820
-------- ---------- ---------- ---------- ----------
Income (Loss) Before
Taxes and Cumulative
Effect of
Accounting Changes..... 7,977 (13,801) (49,571) (17,815) 46,877
Taxes (Benefit) on
Income................. 242 (5,286) (18,990) (19,270) 16,360
-------- ---------- ---------- ---------- ----------
Income (Loss) Before
Cumulative Effect of
Accounting Changes..... 7,735 (8,515) (30,581) 1,455 30,517
Cumulative Effect
Through July 31, 1992,
of Accounting Changes,
Net of Taxes........... -- (223,950) (223,950) -- --
-------- ---------- ---------- ---------- ----------
Net Income (Loss)....... $ 7,735 $ (232,465) $ (254,531) $ 1,455 $ 30,517
======== ========== ========== ========== ==========
Net Income (Loss) per
Average Share of Common
Stock:
Income (Loss) Before
Cumulative Effect of
Accounting Changes... $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74
Cumulative Effect
Through July 31, 1992
of Accounting
Changes, Net of
Taxes................ -- (12.52) (12.50) -- --
-------- ---------- ---------- ---------- ----------
Net Income (Loss)....... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74
======== ========== ========== ========== ==========
Pro forma amounts
assuming the changes in
the application of
accounting principles
for
long-term programs and
contracts are applied
retroactively
(unaudited):
Net (Loss)............ $ (30,581) $ (36,271) $ (22,898)
Net (Loss) per Average
Share of Common
Stock................ $ (1.71) $ (2.05) $ (1.31)
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
MINIMUM
COMMON STOCK ADDITIONAL PENSION
PAR VALUE PAID-IN RETAINED LIABILITY
$1 A SHARE CAPITAL EARNINGS ADJUSTMENT
------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
Balance at August 1, 1991......... $17,497 $ 95,587 $328,317 $ --
Common stock issued to employee
benefit plans.................. 319 4,995
Stock plans activity............ 17 679
Net income...................... 1,455
------- -------- -------- --------
Balance at July 31, 1992.......... 17,833 101,261 329,772 --
Common stock issued to employee
benefit plans.................. 67 673
Stock plans activity............ 96 378
Net loss........................ (254,531)
Minimum Pension Liability
Adjustment (See Note 9a)....... (13,306)
------- -------- -------- --------
Balance at July 31, 1993.......... 17,996 102,312 75,241 (13,306)
Stock plans activity............ 22 229
Net Income...................... 7,735
------- -------- -------- --------
Balance at Jan. 30, 1994
(unaudited)...................... $18,018 $102,541 $ 82,976 $(13,306)
======= ======== ======== ========
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JULY 31,
------------------- -----------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net Income (loss)......... $ 7,735 $(232,465) $(254,531) $ 1,455 $ 30,517
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating
activities:
Cumulative effect of
accounting changes--net
of taxes............... -- 223,950 223,950 -- --
Depreciation and
amortization........... 11,693 12,648 25,578 27,855 27,721
Changes due to
(increase) decrease in
operating assets:
Accounts receivable... 6,998 (34,527) 84,013 53,174 (38,791)
Net inventories....... 27,584 9,954 34,447 5,990 (31,122)
Prepaid expenses and
other assets......... 1,322 8,106 4,514 10,910 (2,392)
Changes due to increase
(decrease) in operating
liabilities:
Trade accounts and
other payables....... (11,817) (13,848) (17,478) 27,362 (47,757)
Taxes on income and
deferred taxes....... 364 (9,717) (29,432) (20,816) (2,684)
Other................... 1,049 328 7,607 4,412 1,738
-------- --------- --------- -------- --------
Net Cash Provided by (Used
in) Operating Activities.. 44,928 (35,571) 78,668 110,342 (62,770)
-------- --------- --------- -------- --------
Investing Activities:
Proceeds from sale-lease-
back transactions........ -- 52,247 52,247 -- --
Purchase of property,
plant and equipment...... (2,949) (18,878) (27,536) (62,933) (32,383)
Other, including
investment in leases..... (390) (2,522) (1,180) 21,789 13,528
-------- --------- --------- -------- --------
Net Cash Provided by (Used
in) Investing Activities.. (3,339) 30,847 23,531 (41,144) (18,855)
-------- --------- --------- -------- --------
Financing Activities:
Issuance of 9.33% senior
notes.................... -- 62,000 62,000 -- --
Annual principal payment
on 9.35% senior notes.... (12,500) (12,500) (12,500) -- --
Issuance (repayment) of
medium-term notes........ (35,000) (10,000) (10,000) (5,000) 50,000
Net short-term borrowings
(repayments)............. -- 5,000 (20,000) (57,000) 17,000
Long-term borrowings
under revolving credit
agreement................ 81,000 80,000 90,000 300,000 180,000
Repayment of borrowings
under revolving credit
agreement................ (81,000) (50,000) (120,000) (290,000) (150,000)
Repayment of other long-
term borrowings.......... (649) (18,712) (36,387) (11,890) (11,883)
Net repayment of
receivable and
equivalents.............. -- (45,000) (45,000) (15,000) --
Proceeds from cash values
in insurance policies.... -- -- 9,984 -- --
Cash collateral for
receivables sales
program.................. (6,984) -- -- -- --
Stock contributions to
employee benefit plans... -- 741 741 5,314 --
Repurchase of common
stock on open market..... -- -- -- -- (3,375)
Other..................... 126 11 27 (58) (77)
-------- --------- --------- -------- --------
Net Cash Provided by (Used
in) Financing Activities.. (55,007) 11,540 (81,135) (73,634) 81,665
-------- --------- --------- -------- --------
Increase (Decrease in Cash
and Short-Term
Investments............... (13,418) 6,816 21,064 (4,436) 40
Cash and Short-Term
Investments, Beginning of
Period.................... 42,186 21,122 21,122 25,558 25,518
-------- --------- --------- -------- --------
Cash and Short-Term
Investments, End of
Period.................... $ 28,768 $ 27,938 $ 42,186 $ 21,122 $ 25,558
======== ========= ========= ======== ========
Supplemental Cash Flow
Information:
Cash paid for interest,
net of amounts
capitalized.............. $ 21,353 $ 20,422 $ 47,758 $ 53,936 $ 81,914
Cash paid (refunded) for
income taxes............. (178) 4,392 9,802 2,243 19,501
Non-Cash Investing and
Financing Activities:
Sale of receivables..... 60,000 20,000
Repurchase of
receivables or
inventory equivalents.. (105,000) (20,000)
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-6
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIODS ENDED JANUARY 30, 1994 AND JANUARY 31, 1993,
(UNAUDITED) AND THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
The consolidated balance sheets of the Company as of July 31, 1993 and 1992
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years ended July 31, 1993, 1992 and 1991 have
been audited by Deloitte & Touche, independent auditors. The consolidated
balance sheet as of January 30, 1994, the consolidated statements of operations
and statements of cash flows for the six-month periods ended January 30, 1994,
and January 31, 1993, and the consolidated statement of shareholders' equity
for the six-month period ended January 30, 1994, are unaudited but reflect all
adjustments (including normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the interim periods. In the third quarter of fiscal 1993, the Company changed,
effective August 1, 1992, certain elements in the application of accounting
principles relating to long-term programs and contracts, as described in Note
2--Accounting Changes. The Summary of Significant Accounting Policies (Note 1)
reflects the changed accounting policies in effect on August 1, 1992.
Financial results for interim periods are not necessarily indicative of
results to be expected for the full year and, particularly in light of the
accounting policy changes referred to above and the substantial provisions
taken in the third quarters of fiscal 1992 and fiscal 1993, a comparison of the
interim periods may not be meaningful.
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated statements include the accounts of Rohr, Inc. and all
subsidiaries ("Company"). Total assets and sales of foreign subsidiaries are
not significant.
Certain reclassifications have been made to prior years to conform to current
year presentation.
b. Sales and Earnings
The Company follows the guidelines of Statement of Position 81-1, "Accounting
for Performance of Construction-Type and Certain Production-Type Contracts"
(the contract method of accounting) for certain commercial and all governmental
contracts, except that the Company's contract accounting policies differ from
the recommendations of SOP 81-1 with respect to the treatment of general and
administrative costs (prior to the accounting change described in Note 2) and
with respect to revisions of estimated profits on contracts which revisions are
included in earnings by the Company under the reallocation method rather than
the cumulative catch-up method recommended by SOP 81-1. Contract accounting
generally places limitations on the combining of contracts and prohibits the
anticipation of future contracts in determining the contract profit center.
Approximately one-half of the Company's sales during the fiscal year 1993 are
accounted for using the contract method of accounting. In the third quarter of
fiscal 1993, the Company made significant changes, effective August 1, 1992, to
certain elements of its application of accounting principles relating to its
long-term contracts as described in Note 2.
Several major commercial programs, under which spares and technical product
support are sold directly to airlines, are accounted for under the program
method of accounting, a method which existed in practice for many years prior
to the issuance of SOP 81-1. Guidelines for use of program accounting have been
developed in practice and are not codified by authoritative accounting
literature. This method
F-7
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of accounting is followed by relatively few public companies in a limited
number of industries. It applies in situations where the economics of producing
and marketing the program product extend beyond the initial production order.
The most significant differences from contract accounting are that (1) the
quantity of units included in the profit center under program accounting
includes existing and anticipated contracts, and (2) program units may be sold
to more than one customer. The Company uses program accounting in those
circumstances where it is able to make reasonably dependable estimates of (1)
the value of anticipated production units and spares sales in future contracts,
(2) the length of time to produce and sell those additional production units
and spares, and (3) the production costs and selling prices associated with
such units and spares. Typically, the Company applies program accounting on
programs for which the Company is responsible for total systems integration and
continuing product support. The Company initially adopted the program method of
accounting in 1988 in response to the changing characteristics of its
contracting environment.
Profit is estimated based on the difference between total estimated revenue
and total estimated cost of a contract or program and is recognized evenly as a
uniform percentage of sales value on all remaining units to be delivered.
Current revenue does not anticipate higher or lower future prices, but includes
units delivered at actual sales prices. A constant contract or program margin
is achieved by deferring or accelerating a portion of the average unit cost on
each unit delivered. Cost includes the estimated cost of the pre-production
effort (primarily tooling and design), plus the cost of manufacturing both a
specified number of production units and, under the program method of
accounting, those spares which are expected to be delivered concurrently with
such production units. The specified number of production units used to
establish the profit margin is predicated upon market forecasts and does not
exceed the lesser of those quantities assumed in original program pricing or
those quantities which the Company now expects to deliver in the periods
assumed in original program pricing. The number of units used to estimate
profit margin is increased when firm orders exceed the number of units used for
pricing purposes (a firm order authorizes the Company to commence production).
Spares, as a percentage of total deliveries, increase as a program matures and
historically have been sold at higher prices than production units. This higher
price reflects, in part, additional costs related to technical and customer
support activities.
Under both the contract and program methods of accounting, the Company's
sales are primarily under fixed-price contracts, many of which contain
escalation clauses and require delivery of products over several years. Sales
and profits on each contract or program are recognized primarily in accordance
with the percentage-of-completion method of accounting, using the units-of-
delivery method. Revisions of estimated profits on contracts or programs are
included in earnings by the reallocation method, which spreads the change in
estimate over current and future deliveries. Any anticipated losses on
contracts or programs are charged to earnings when identified.
Both the contract and program methods of accounting involve the use of
various estimating techniques to project estimated costs at completion. These
estimates involve various assumptions and projections relative to the outcome
of future events. Paramount are assumptions relative to labor performance and
anticipated future labor rates, and projections relative to material and
overhead costs. These assumptions involve various levels of expected
performance improvements. The Company reevaluates its estimates quarterly for
all significant contracts and programs. Changes in estimates are reflected in
the current and future periods.
Included in sales are amounts arising from contract terms that provide for
invoicing a portion of the contract price at a date after delivery. Also
included are: negotiated values for units delivered; and
F-8
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
anticipated price adjustments for contract changes, claims, escalation, and
estimated earnings in excess of billing provisions resulting from the
percentage-of-completion method of accounting. Certain contract costs are
estimated based on the learning curve concept discussed in Note 1c.
c. Inventories
Inventories of raw materials, purchased parts and supplies are stated at the
lower of average cost or estimated realizable value. Inventoried costs on long-
term contracts and programs include certain pre-production costs, consisting
primarily of tooling and design costs, and production costs, including
applicable overhead. As the production costs for early units are charged to
work-in-process inventory at an actual unit cost in excess of the estimated
average cost for all units projected to be delivered over the entire contract
or program, a segment of inventory described as the excess of production costs
over estimated average unit cost (and referred to as excess-over-average
inventory) is created. Generally, excess-over-average inventory, which may
include production (but not pre-production) cost over-runs, builds during the
early years of the contract or program when the efficiencies resulting from
learning are not yet fully realized and declines as the program matures. Under
the learning curve concept, an estimated decrease in unit labor hours is
assumed as tasks and production techniques become more efficient through
repetition of the same manufacturing operation and through management action
such as simplifying product design, improving tooling, purchasing new capital
equipment, improving manufacturing techniques, etc. For programs under the
program method of accounting, excess-over-average inventory also builds until
sales of spares, as a percentage of total sales, equal or exceed the percentage
used for the overall profit margin calculation.
Inventoried costs are reduced by the estimated average cost of deliveries
computed as a uniform percentage of sales value.
In the event that work-in-process inventory plus estimated costs to complete
a specific contract or program exceeds the anticipated remaining sales value of
such contract or program, such excess is charged to current earnings, thus
reducing inventory to estimated realizable value.
In accordance with industry practice, costs in inventory include amounts
relating to programs and contracts with long production cycles, much of which
is not expected to be realized within one year.
See Note 2, which describes certain changes in the application of accounting
principles and the effect of such changes on inventories.
d. Property, Plant and Equipment
Property, plant and equipment is recorded at cost or, in the case of assets
under capital leases, the lower of the present value of minimum lease payments
or fair market value. Depreciation and amortization is computed by the
straight-line method over the estimated useful lives of the various classes of
assets or, in the case of capitalized leased assets, over the lease term if
shorter. When assets are retired or disposed of, the assets and related
accumulated depreciation are eliminated and any resulting gain or loss is
reflected in income.
e. Pension and Health Plans
Pension costs include current costs plus the amortization of transition
assets over periods up to 14 years. The Company funds pension costs in
accordance with plan and legal requirements. The Company adopted, effective
August 1, 1992, the provisions of Statement of Financial Accounting Standards
(SFAS) No. 106, "Employers' Accounting for Post-Retirement Benefits other than
Pensions." This standard requires the Company to accrue the expected cost of
subsidizing an employee's post-retirement health care benefits during the
employee's service period. See Note 9b.
F-9
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
f. Research and Development
Research and development costs incurred for the development of proprietary
products are expensed as incurred. These costs have not been material to
operations during the periods presented. Design efforts performed under
contract generally consist of the adaptation of an existing capability to a
particular customer need and are accounted for as an element of contract costs.
These design efforts do not fall within the definition of Research and
Development as defined in SFAS No. 2, "Accounting for Research and Development
Costs."
g. Income Taxes
The Company adopted, effective August 1, 1992, the provisions of SFAS No.
109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are recognized based upon temporary differences between financial
statement and tax bases of assets and liabilities using presently enacted tax
rates. See Note 6.
h. Net Income Per Average Share of Common Stock
Net income per share was determined by dividing net income by the weighted
average number of common shares and common share equivalents outstanding during
the year. The assumed conversion of the Company's convertible debentures was
anti-dilutive. As a result, only primary earnings per share is presented in the
Company's Consolidated Statements of Operations.
i. Cash Flows
For purpose of the statement of cash flows, the Company considers all
investments and highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
j. Industry Segments
The Company considers itself to operate in one significant industry segment.
NOTE 2--ACCOUNTING CHANGES
a.Introduction
In the third quarter of fiscal year 1993, the Company changed, effective
August 1, 1992, certain elements in the application of accounting principles
relating to long-term programs and contracts. In addition, the Company adopted
the provisions of SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions," and SFAS No. 109, "Accounting for Income Taxes."
Each change requires that the Company calculate the effect of the change in
accounting principles on retained earnings as of the first day in the fiscal
year of change. These changes do not affect the Company's cash flow. Each of
these changes is discussed separately below.
Prior year financial statements have not been restated to apply the
provisions of adopting these standards.
b. Long-term Contracts
In fiscal 1993, the Company changed certain elements of its application of
accounting principles relating to long-term programs and contracts, effective
August 1, 1992. Certain costs previously carried in inventory for amortization
over future deliveries will now be expensed. These costs include certain
F-10
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
pre-certification costs, consisting primarily of tooling and design expenses in
excess of negotiated contractual values, that will now be expensed as
identified. In addition, prior to the accounting change, general and
administrative expenses were expensed as period charges, except for (1) such
expenses that were clearly related to production in accordance with Accounting
Research Bulletin No. 43 and had contractual revenue coverage and (2) other
amounts charged to commercial programs which did not have a material impact
upon the results of operations. The financial result of capitalizing these
latter amounts of general and administrative expense was not material due to
the offsetting impact upon operations resulting from their inclusion as an
element of total costs for purposes of determining contract and program gross
margins. Following a thorough review of its accounting policies, the Company
concluded there was a need, particularly in light of the current aerospace
environment, to have financial results more closely reflect near-term program
economics (cash flow and internal rate of return). As a result, these changes
will generally reduce the number of production units and spares used in the
calculation of overall profit margins. While the previous methods of applying
the Company's accounting principles were in accordance with generally accepted
accounting principles (GAAP), the changed policies are preferable. The
application of these policies produces program and contract estimates that are
based on shorter delivery periods, allowing a better matching of revenues and
expenses. The cumulative effect of these changes for the periods through July
31, 1992, was a charge of $219.7 million, net of income tax benefits of $136.3
million. The effect of these changes on the year ended July 31, 1993, was to
increase the net loss before the cumulative effect of the changes in accounting
principles by $24.6 million ($1.37 per average common share), net of income tax
benefits of $15.3 million.
In accordance with Accounting Principles Board Opinion No. 20, "Accounting
Changes," pro forma amounts are shown for net loss and net loss per average
share of common stock for all prior periods presented. The pro forma amounts
presented in the Consolidated Statements of Operations reflect the retroactive
application of these accounting changes, net of income tax benefits (which were
allocated ratably over the pro forma restated periods) for each period
presented. Primarily as a result of these changes, excess-over-average
inventory decreased from $323.7 million at July 31, 1992 to $75.4 million at
July 31, 1993. Pre-production inventory also decreased from $258.4 million at
July 31, 1992 to $181.0 million at July 31, 1993 primarily as a result of the
accounting changes. See Note 4.
c. Post-Retirement Benefits Other Than Pensions
The Company adopted, effective August 1, 1992, SFAS No. 106, "Employers'
Accounting for Post-Retirement Benefits Other than Pensions." The accumulated
post-retirement benefit obligation for active employees and retirees was
recorded using the immediate recognition transition option. See Note 9b. This
standard requires companies to accrue the expected cost of providing health
care benefits to retired employees and their dependents during the employees'
service periods. The Company previously charged the cost of providing these
benefits on a pay-as-you-go basis. The cumulative effect of this change for the
periods through July 31, 1992 was a charge of $4.3 million, net of income tax
benefits of $2.7 million. The effect of the change on the year ended July 31,
1993 was not material.
d. Income Taxes
The Company also adopted, effective August 1, 1992, SFAS No. 109, "Accounting
for Income Taxes." See Note 6. The cumulative effect of this change for periods
through July 31, 1992 was not material by itself. However, under this standard,
the Company recorded a substantial deferred tax asset as a result of the other
changes in accounting principles and certain other charges recorded in the year
ended July 31, 1993. See Note 6.
F-11
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
e. Effect of Changes
The cumulative effect of the changes described in this Note 2, as of August
1, 1992 and the effect of the changes on net loss before the cumulative effect
of the changes in accounting principles on the year ended July 31, 1993 were as
follows ($ in millions except per share data):
<TABLE>
<CAPTION>
CUMULATIVE EFFECT AT EFFECT ON THE YEAR
AUGUST 1, 1992 ENDED JULY 31, 1993
------------------------- ------------------------
(LOSS) PER (LOSS) PER
NET AVERAGE SHARE OF NET AVERAGE SHARE OF
(LOSS) COMMON STOCK (LOSS) COMMON STOCK
------- ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Change in application of
accounting principles
relating to long-term
programs and contracts--net
of taxes................... $(219.7) $(12.26) $(24.6) $(1.37)
Post-retirement benefits
other than pensions--net of
taxes...................... (4.3) (.24) -- --
------- ------- ------ ------
$(224.0) $(12.50) $(24.6) $(1.37)
======= ======= ====== ======
</TABLE>
The cumulative effect of adopting SFAS No. 109, "Accounting for Income
Taxes," for periods through July 31, 1992 and the effect on the year ended July
31, 1993 was not material by itself. However, under this standard, the Company
recorded a substantial deferred tax asset as a result of the other changes in
accounting principles and certain other charges recorded in the year ended July
31, 1993. See Note 6. Quarterly earnings for 1993 have been restated as if the
changes occurred at August 1, 1992.
NOTE 3--ACCOUNTS RECEIVABLE
Accounts receivable, which relate primarily to long-term programs and
contracts, consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
JAN. 30, ----------------
1994 1993 1992
----------- ------- --------
(UNAUDITED)
<S> <C> <C> <C>
Amount billed..................................... $49,962 $40,628 $ 62,405
Recoverable costs and accrued profit on units
delivered but not billed......................... 9,474 13,436 20,903
Recoverable costs and accrued profit on progress
completed but not billed......................... 499 810 3,273
Unrecovered costs and estimated profit subject to
future negotiations.............................. 34,191 39,266 46,572
------- ------- --------
$94,126 $94,140 $133,153
======= ======= ========
</TABLE>
"Recoverable costs and accrued profit on units delivered but not billed"
represent revenue recognized on contracts for amounts not billable to customers
at the balance sheet date. This amount principally represents delayed payment
terms along with escalation and repricing predicated upon deliveries and final
payment after acceptance. Some of these recoverable costs are expected to be
billed and collected in the normal course of business beyond one year.
F-12
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"Recoverable costs and accrued profit on progress completed but not billed"
represent revenue recognized on contracts based on the percentage-of-completion
method of accounting and is anticipated to be billed and collected in
accordance with contract terms, which may be longer than one year.
"Unrecovered costs and estimated profit subject to future negotiations"
consist of contract tasks completed for which a final price has not been
negotiated with the customer. Amounts in excess of agreed upon contract prices
are recognized when it is probable that the claim will result in additional
contract revenue and the amounts can be reliably estimated. Included in this
amount at January 30, 1994, July 31, 1993 and 1992 are estimated recoveries on
constructive change claims related to government imposed redefined acceptance
criteria on the Grumman F-14, Boeing E3/E6, and the Boeing KC-135 and Lockheed
C-5 production programs. Management believes that amounts reflected in the
financial statements, which in the aggregate are very substantial, are
reasonable estimates of the ultimate settlements. The resolution of these items
may take several years.
The Company entered into an arrangement on December 23, 1992 under which it
sells receivables through a subsidiary to a trust on an ongoing basis.
Investors' beneficial interests in the trust are reported as a reduction to
accounts receivable. Under the arrangement, the Company acts as an agent for
the trust by performing all record keeping and collection functions with
respect to the receivables that have been sold. At January 30, 1994 and July
31, 1993 the investors held a $60 million beneficial interest in the
receivables transferred to the trust. The Company's subsidiary holds the
remaining beneficial interest in the trust which fluctuates in value depending
upon the amount of receivables owned by the trust from time to time. At July
31, 1993 the Company's subsidiary had a 9 percent beneficial interest in the
trust and a zero percent interest at January 30, 1994. The Company has
deposited cash collateral as required to support the facility and has withdrawn
such cash when it is no longer required to be deposited. At January 30, 1994,
the Company had $7 million of cash collateral on deposit. At July 31, 1992 and
July 31, 1991 the investor in a now terminated predecessor facility held a $105
million and $120 million interest in Company receivables, respectively. The
cost associated with the sales of receivables under the current facility is
7.57 percent per year. The costs and those of the predecessor facility, all of
which have been reflected as a reduction in sales values, were $2.4 million,
$5.3 million, $7.0 million, and $9.2 million for the six months ended January
30, 1994 and in fiscal years 1993, 1992 and 1991, respectively.
Sales
The Company's direct sales to major customers including related program
spares, expressed as a percentage of total sales, during the following periods
are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JULY 31,
----------------- ----------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991
-------- -------- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Pratt & Whitney................................ 17% 19% 17% 15% 16%
General Electric............................... 16 12 14 12 12
International Aero Engines..................... 15 8 9 7 4
CFM International.............................. 9 8 8 2 0
McDonnell Douglas.............................. 8 13 11 18 14
Boeing......................................... 8 11 11 15 14
Rolls Royce.................................... 8 6 8 7 8
Lockheed....................................... 4 2 3 3 3
Airbus Industrie............................... 2 8 6 8 12
U.S. Government................................ 1 1 1 2 4
Grumman........................................ 0 0 0 1 6
Other.......................................... 12 12 12 10 7
</TABLE>
F-13
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total sales to the U.S. Government (including direct sales and indirect sales
through prime contractors) accounted for 12%, 11%, 13%, 14% and 20% for the six
months ended January 30, 1994, and January 31, 1993, and for fiscal years 1993,
1992 and 1991, respectively.
Commercial products sold by the Company to jet engine manufacturers are
ultimately installed on aircraft produced by the major commercial airframe
manufacturers, Airbus, Boeing and McDonnell Douglas. Sales to foreign customers
accounted for 23%, 25%, 25%, 22% and 21% of total sales for the first six
months of fiscal 1994 and 1993 and for fiscal years 1993, 1992 and 1991,
respectively. Of the total sales 22%, 23%, 23%, 19% and 20% were to Europe for
the first six months of fiscal 1994 and 1993 and for fiscal years 1993, 1992
and 1991, respectively.
NOTE 4--INVENTORIES
Work-in-process inventories, which relate primarily to long-term contracts
and programs as of January 30, 1994, are summarized as follows (in thousands,
except quantities):
(Table and Notes are Unaudited)
<TABLE>
<CAPTION>
AIRCRAFT ORDER
COMPANY ORDER STATUS STATUS(3) WORK-IN-PROCESS INVENTORY
------------------------------- ------------------ --------------------------------------
AS OF 1/30/94 AS OF 12/31/93
FIRM --------------------- ------------------ EXCESS
PROGRAM UNFILLED FISCAL YEAR UNFILLED UNFILLED PRE- OVER
PROGRAM QUANTITY(1) ORDERS(2) DELIVERED COMPLETE(7) ORDERS OPTIONS PRODUCTION PRODUCTION AVERAGE TOTAL
- ------- ----------- --------- --------- ----------- -------- -------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A340
nacelle(4)(6)... 117 28 45 1997 95 74 $ 15,409 $ 63,794 $ 7,386 $ 86,589
PW4000 nacelle
for the
A300/A310 and
MD-11(4)........ 422 28 251 2000 51 72 27,397 6,920 19,898 54,215
MD-90(4)(6)...... 451 11 3 2006 77 102 8,478 69,518 3,885 81,881
V2500 nacelle for
the A320/
A321(4)(6)...... 270 62 163 1997 155 198 25,245 22,068 0 47,313
CF6-80C nacelle
for the 747/
767, MD-11 and
for the A300/
A310(5)(6)...... 694 117 577 1996 302 319 31,143 2,809 19,915 53,867
CFM56-5 nacelle
for the A320/
A321(5)(6)...... 435 122 313 1999 150 145 23,121 2,723 4,535 30,379
MD-11(4)(6)...... 200 39 121 1997 60 127 6,549 0 0 6,549
PW300(4)(6)...... 164 63 76 1997 40(8) 0(8) 3,910 8,489 0 12,399
Others........... 118,769 23,032 1,490 143,291
-------- -------- ------- --------
Balance at Janu-
ary 30, 1994.... $260,021 $199,353 $57,109 $516,483
======== ======== ======= ========
</TABLE>
- --------
(1) Represents the number of aircraft used to obtain average unit cost. Spares
(which are not included in this quantity) anticipated to be delivered
concurrently with the production units for the above aircraft are also used
in calculating average unit cost. Total spares sales value used in
calculating average unit cost at January 30, 1994 were $91,734 on the A340,
$324,803 on the PW4000, $381,503 on the MD-90, $110,764 on the V2500,
$154,007 on the CF6-80C, $255,179 on the CFM56-5 and $16,986 on the MD-11.
Total spares sales value sold as of January 30, 1994 were $18,667 on the
A340, $193,633 on the PW4000, $0 on the MD-90, $63,196 on the V2500,
$112,295 on the CF6-80C, $113,219 on the CFM56-5 and $13,814 on the MD-11.
(2) Represents the number of aircraft for which the Company has firm unfilled
nacelle orders.
F-14
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) Represents the aircraft order status as announced by the aircraft
manufacturers for the related aircraft and engine option. The Company's
orders frequently are less than the announced orders shown above.
(4) Program quantity represents initial program quantities and does not exceed
the lesser of those quantities assumed in original program pricing or those
quantities which the Company now expects to deliver in the periods assumed
in original program pricing. The Company does not have orders for all of
these units at this time.
(5) Program quantity represents initial plus follow-on program quantities. The
Company has firm orders for all of these units.
(6) Programs accounted for in accordance with the program method of accounting.
(7) The year presented for each program or contract represents the fiscal year
in which the final production and spares units included in the program
quantity are expected to be delivered.
(8) Aircraft order status as of July 31, 1993, subsequent order data not
available.
Work-in-process inventories, which relate primarily to long-term contracts
and programs as of July 31, 1993, are summarized as follows (in thousands,
except quantities):
<TABLE>
<CAPTION>
AIRCRAFT ORDER
COMPANY ORDER STATUS STATUS(3)
------------------------------- -----------------
AS OF 7/31/93 AS OF 6/30/93 WORK-IN-PROCESS INVENTORY
--------------------- ----------------- ---------------------------------------
FIRM EXCESS
PROGRAM UNFILLED FISCAL YEAR UNFILLED UNFILLED PRE- OVER
PROGRAM QUANTITY(1) ORDERS(2) DELIVERED COMPLETE(7) ORDERS OPTIONS PRODUCTION PRODUCTION AVERAGE TOTAL
- ------- ----------- --------- --------- ----------- -------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A340
nacelle(4)(6)... 124 38 35 1997 107 65 $ 24,611 $ 57,181 $ 4,443 $ 86,235
PW4000 nacelle
for the
A300/A310 and
MD-11(4)........ 422 47 234 2002 79 71 45,808 0 33,623 79,431
MD-90(4)(6)...... 454 8 3 2006 77 102 4,670 63,180 4,169 72,019
V2500 nacelle
for the A320/
A321(4)(6)...... 291 52 139 1998 187 202 45,385 18,235 0 63,620
CF6-80C nacelle
for the 747/
767, MD-11 and
A300/
A310(5)(6)...... 647 105 542 1995 368 358 26,204 8,701 25,162 60,067
CFM56-5 nacelle
for the A320/
A321(5)(6)...... 390 79 311 1997 183 175 18,741 4,593 3,535 26,869
MD-11(4)(6)...... 200 47 113 1998 74 143 12,612 0 1,642 14,254
PW300(4)(6)...... 193 63 64 1997 40 0 5,897 7,918 0 13,815
Others........... 119,858 21,180 2,791 143,829
-------- -------- -------- --------
Balance at July
31, 1993........ $303,786 $180,988 $ 75,365 $560,139
======== ======== ======== ========
Balance at July
31, 1992........ $389,904 $258,416 $323,683 $972,003
======== ======== ======== ========
</TABLE>
- --------
(1) Represents the number of aircraft used to obtain average unit cost. Spares
(which are not included in this quantity) anticipated to be delivered
concurrently with the production units for the above aircraft are also used
in calculating average unit cost. Total spares sales value used in
calculating average unit cost at July 31, 1993 were $91,734 on the A340,
$325,151 on the PW4000, $417,588 on the MD-90, $143,550 on the V2500,
$152,664 on the CF6-80C, $190,601 on the CFM56-5 and $16,474 on the MD-11.
Total spares sales value sold as of July 31, 1993 were $13,989 on the A340,
$181,083 on the PW4000, $0 on the MD-90, $51,998 on the V2500, $103,553 on
the CF6-80C, $108,856 on the CFM56-5 and $12,282 on the MD-11.
(2) Represents the number of aircraft for which the Company has firm unfilled
nacelle orders.
F-15
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) Represents the aircraft order status as announced by the aircraft
manufacturers for the related aircraft and engine option. The Company's
orders frequently are less than the announced orders shown above.
(4) Program quantity represents initial program quantities and does not exceed
the lesser of those quantities assumed in original program pricing or those
quantities which the Company now expects to deliver in the periods assumed
in original program pricing. The Company does not have orders for all of
these units at this time.
(5) Program quantity represents initial plus follow-on program quantities. The
Company has firm orders for all of these units.
(6) Programs accounted for in accordance with the program method of accounting.
(7) The year presented for each program or contract represents the fiscal year
in which the final production and spares units included in the program
quantity are expected to be delivered.
The Company's inventories at July 31, 1993 have been significantly reduced as
a result of the changes in the application of accounting principles for long-
term programs and contracts, effective August 1, 1992. See Note 2b.
On certain long-term programs, the Company has agreed to recover pre-
production costs (primarily tooling and design) over an expected number of
deliveries, including spare parts. The number of deliveries over which
production costs are to be amortized is predicated upon initial pricing
agreements and does not exceed the Company's overall assessment of the market
for that program.
Excess-over-average inventory represents the cost of in-process and delivered
units less, for each such unit, the current estimated average cost of the units
in the program. Recovery of these inventoried costs assumes (i) certain
production efficiencies, (ii) the sale of the program quantity used in
estimating the profit margin, (iii) a specified allocation of sales among
production units and spare units, and (iv) the attainment of an estimated
spares margin that is substantially higher than the margin of production units.
Spares prices are higher than production unit prices, in part, due to
additional costs related to technical and customer support activities. If these
program assumptions are not attained, then substantial amounts of unrecoverable
costs may be charged to expense in subsequent periods.
To the extent that a forward loss is encountered on a program, the amount of
such loss is offset against the inventory of such program (until such inventory
has been depleted). The loss is offset first against excess-over-average,
followed by pre-production, then production.
Contractual terms on certain programs provide varying levels of recovery
commitments for specified amounts of pre-production costs. Certain programs
also provide for the repricing of units in the event that less than a specified
quantity is sold, which allows for recovery of additional excess-over-average
inventory in such circumstances. The Company, in turn, has provided certain
subcontractors with similar recovery commitments and repricing provisions on
these programs.
The excess of deferred program costs over the total costs allocated to units
in process and delivered (less recoveries from customers due to repricing
provisions) that would not be recovered based on existing firm orders as of
July 31, 1993 was $6.6 million on the A340, $72.0 million on the MD-90, $9.6
million on the V2500 and $7.9 million on the PW300 and, as of January 30, 1994,
was $2.3 million on the A340, $81.9 million on the MD-90, $7.2 million on the
V2500 and $8.5 million on the PW300.
F-16
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company uses forward contracts to manage its exchange risk on a portion
of its purchase commitments from vendors of aircraft components denominated in
foreign currencies and to manage its exchange risk for sums paid to its French
subsidiary for services. The extent to which the Company utilizes forward
contracts varies and depends upon management's evaluation of current and
projected foreign currency exchange rates, but the Company does not acquire
forward contracts in excess of its current hedging requirements. At January 30,
1994 and July 31, 1993, $25 million and $34 million, respectively, of foreign
exchange contracts were outstanding to purchase foreign currencies. The foreign
exchange contracts generally have maturities which do not exceed 12 months.
Gains and losses on contracts which hedge specific foreign currency denominated
commitments are not recognized currently but are included in the determination
of profit or loss on the contract or program to which they relate. The Company
believes that the credit risk from these instruments is minimal as the
contracts are placed with highly reputable financial institutions.
As described in Note 2, effective August 1, 1992, the Company changed
accounting principles and began expensing certain general and administrative
expenses as incurred; these expenses were previously inventoried. Amounts
charged to inventories as incurred (prior to the accounting change, effective
August 1, 1992), for general and administrative expenses were $42.8 million and
$40.0 million for the years ending July 31, 1992 and 1991. Included in work-in-
process inventories at July 31, 1992 and 1991 were general and administrative
costs aggregating $36.1 and $30.9 million, respectively. These costs were
estimated assuming that they bear the same relationship to total general and
administrative costs incurred during the year as the ending inventory bears to
total costs charged to inventory during the year.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
JAN. 30, --------------------
1994 1993 1992
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................... $ 25,152 $ 24,833 $ 24,883
Buildings.................................... 208,329 188,643 143,809
Machinery and equipment...................... 253,153 251,298 295,627
Construction in progress..................... 12,754 31,678 66,920
--------- --------- ---------
499,388 496,452 531,239
Less accumulated depreciation and amortiza-
tion........................................ (268,539) (257,407) (260,956)
--------- --------- ---------
Property, plant & equipment--net............. $ 230,849 $ 239,045 $ 270,283
========= ========= =========
</TABLE>
Included in the above categories are assets recorded under capital leases
totaling $50.5 million, at January 30, 1994, and July 31, 1993 and 1992.
NOTE 6--TAXES ON INCOME
The Company changed, effective August 1, 1992, its method of accounting for
income taxes from the provisions of APB No. 11 "Accounting for Income Taxes" to
the provisions of SFAS No 109 "Accounting for Income Taxes." The cumulative
effect from the adoption of this standard for periods through July 31, 1992 was
not material by itself. However, under this standard, the Company recorded a
substantial deferred tax asset as a result of the adoption of the other changes
in accounting principles and certain other charges recorded in the year ended
July 31, 1993.
F-17
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes and
(b) operating loss and tax credit carryforwards.
The components of the Company's deferred tax asset reflect the tax effects of
the Company's temporary differences, tax credit carryforwards and net operating
loss carryforwards (NOLs) at July 31, 1993. The components of the Company's
deferred tax asset are listed below (in thousands):
<TABLE>
<S> <C>
Current:
Inventories................................................... $ 11,557
Employee benefits............................................. 6,885
State taxes................................................... (4,788)
--------
Net deferred tax asset--current............................... $ 13,654
========
Long-term:
Depreciation.................................................. $ 31,872
Deferred gain on sale/leaseback............................... 9,201
Minimum pension liability adjustment.......................... 8,259
Net operating loss carryforward............................... 73,053
Tax credit carryforward....................................... 7,949
Investment in leases.......................................... (41,237)
Other--net.................................................... 251
--------
Net deferred tax asset--long-term............................. $ 89,348
========
</TABLE>
The Company has federal NOLs totaling approximately $186 million at July 31,
1993, which expire in the years 2003 through 2008.
When tax effected at the rates in effect July 31, 1993, the net deductible
temporary differences, tax credit carryforwards, and NOLs result in a deferred
tax asset of $103.0 million, consisting of $85.3 million for federal tax
purposes and $17.7 million for state tax purposes. As of January 30, 1994 and
July 31, 1993, based upon rates in effect on such dates, approximately $286
million and $271 million of future taxable income, respectively, is required
prior to expiration of the Company's NOLs and credits for full realization of
the deferred tax asset as of those dates. The Company believes that its
expected future taxable income will be sufficient for full realization of the
deferred tax asset.
During fiscal 1993, a tax benefit of $8.2 million was provided for the charge
recorded as a reduction to shareholders' equity for the additional minimum
liability for the pension plan. See Note 9a.
The provision (benefit) for taxes on income is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
--------- -----------------
JULY 31,
JULY 31, -----------------
1993 1992 1991
--------- -------- -------
<S> <C> <C> <C>
Currently Payable:
Federal income taxes........................ $ 400 $ 3,500 $ 1,100
Foreign income taxes........................ 1,000 1,700 600
State income taxes.......................... -- 2,300 1,200
Deferred:
Federal income taxes........................ (16,420) (23,000) 10,760
State income taxes.......................... (3,970) (3,770) 2,700
-------- -------- -------
$(18,990) $(19,270) $16,360
======== ======== =======
</TABLE>
F-18
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred portion of the federal income tax provision (benefit) is
comprised of the following (in thousands):
<TABLE>
<CAPTION>
DEFERRED METHOD
-----------------
JULY 31,
-----------------
1992 1991
-------- -------
<S> <C> <C>
Contract profit and loss recognition........................ $ (400) $14,200
Employee benefits........................................... 5,900 (2,900)
Depreciation................................................ (8,400) (9,700)
California franchise tax.................................... 500 (1,400)
General and administrative expenses......................... 2,300 800
Provision for estimated losses and expenses................. (19,800) 1,000
Pre-production costs........................................ -- (400)
Rate differences............................................ (1,100) (280)
Utilization of reserves previously provided for tax
assessments................................................ (9,800)
Offset of loss and credit carryforwards against deferred
taxes...................................................... (3,100) (1,100)
Utilization of loss and credit carryforwards................ 18,600 18,100
Leveraged leasing........................................... (7,900) (8,600)
Other items--net............................................ 200 1,040
-------- -------
$(23,000) $10,760
======== =======
</TABLE>
The difference between the income tax provision (benefit) computed at the
federal statutory rate and the actual tax provision (benefit) is accounted for
as follows (in thousands):
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
--------- -----------------
JULY 31,
JULY 31, -----------------
1993 1992 1991
--------- -------- -------
<S> <C> <C> <C>
Taxes (benefit) computed at the federal statutory
tax rate......................................... $(16,854) $ (6,100) $15,900
Increase (reduction) resulting from:
State income taxes, net of federal tax benefit.. (2,617) (500) 2,600
Leveraged leasing............................... (1,300) (1,900)
Tax-exempt income from Foreign Sales
Corporation.................................... (700)
Rate differences................................ (1,100) (280)
Utilization of reserves previously provided for
tax assessments................................ (9,800)
Other........................................... 481 230 40
-------- -------- -------
$(18,990) $(19,270) $16,360
======== ======== =======
</TABLE>
As a result of applying SFAS No. 109, and after effecting the other changes
in accounting principles adopted by the Company, effective August 1, 1992, the
Company has recognized the future tax effects attributable to deductible
temporary differences, NOLs and tax credit carryforwards for financial
statement purposes. Thus, under the provisions of SFAS No. 109, the Company has
recorded a $19.0 million income tax benefit on the net loss for the year ended
July 31, 1993 and a $139.0 million income tax benefit on the cumulative effect
of accounting changes at a 38.3 percent effective tax rate.
The Company's effective tax rate on its net loss was 108 percent for the year
ended July 31, 1992 primarily as a result of the utilization of reserves
previously provided for tax assessments. Net deferred tax liabilities, reduced
by loss and credit carryforwards, approximating $34.5 million and $40.6 million
are included in Taxes on Income in the Consolidated Balance Sheets at July 31,
1992 and 1991, respectively.
F-19
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Internal Revenue Service (IRS) has completed its examination of fiscal
years 1984 and 1985 and proposed additional taxes of $36.6 million, excluding
interest. The most significant adjustments involve the Company's adoption in
fiscal 1984 of the completed contract method of accounting for tax purposes
(which was conceded by the IRS subsequent to the second quarter of fiscal 1994)
and the timing of deductions for employee benefit payments. The Company intends
to vigorously protest the proposed adjustments through the IRS appeals process.
Based upon all the information available to it, the Company believes that the
resolution of this matter will not have a material effect on the financial
position or results of operations of the Company.
The Company has provided $3.1 million for income taxes during the six months
ended January 30, 1994, offset by a tax benefit of $2.8 million due to the
change in federal tax rates under the Omnibus Budget Reconciliation Act of
1993. The Company's deferred tax asset of $102.6 million remains substantially
unchanged from the amount at July 31, 1993 but is expected to increase due to
increased pension liability by the end of fiscal 1994.
NOTE 7--INDEBTEDNESS
The maturity schedule of the Company's indebtedness, which includes debt and
capital lease obligations, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
SCHEDULED MATURITIES
TOTAL AT FISCAL YEAR ENDED JULY 31, TOTAL AT JULY 31,
JAN. 30, ------------------------------------------------------ ------------------
1994 1994 1995 1996 1997 1998 THEREAFTER 1993 1992
----------- ------- ------- ------- ------- ------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term Debt......... $ 20,000
Current portion of Long-
Term Debt.............. $ 16,211 $50,719 $ 50,719 27,517
Long-Term Debt:
Medium-Term Notes...... 0 35,000
Revolving Credit....... 50,000 $50,000 50,000 80,000
9.35% Senior Notes..... 62,500 $12,500 12,500 $12,500 $12,500 $ 25,000 75,000 87,500
9.33% Senior Notes..... 62,000 8,850 8,850 44,300 62,000
Other Debt............. 17,858 914 337 293 255 16,604 18,403 18,448
-------- ------- ------- ------- ------- -------- -------- --------
192,358 13,414 62,837 21,643 21,605 85,904 205,403 220,948
Capital Leases.......... 14,154 1,849 1,762 1,674 1,588 8,395 15,268 76,876
Less Imputed Interest.. (4,298) (837) (754) (672) (591) (1,928) (4,782) (37,829)
Direct Finance Leases.. 0 -- 82
-------- ------- ------- ------- ------- -------- -------- --------
9,856 1,012 1,008 1,002 997 6,467 10,486 39,129
Subordinated Debentures:
9 1/4%, maturing in
2017.................. 150,000 7,500 142,500 150,000 150,000
7%, maturing in 2012... 115,000 115,000 115,000 115,000
-------- ------- -------- -------- --------
265,000 7,500 257,500 265,000 265,000
-------- ------- -------- -------- --------
Total Long-Term Debt. 467,214 14,426 63,845 22,645 30,102 349,871 480,889 525,077
-------- ------- ------- ------- ------- ------- -------- -------- --------
Total Indebtedness... $483,425 $50,719 $14,426 $63,845 $22,645 $30,102 $349,871 $531,608 $572,594
======== ======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
The Company's total financing includes: indebtedness, shown in the table
above; the receivables sales program, in the amount of $60 million, which is
reported as a reduction to accounts receivable (see Note 3); and two sale-
leaseback transactions, accounted for as operating leases, through which the
Company raised $52.3 million in fiscal 1993. The sale leaseback transactions
resulted in a gain of $20.7 million which was deferred and is being amortized
over the terms of the lease. The Company's total financings were $587.0
million, $643.9 million and $677.6 million at January 30, 1994, July 31, 1993
and July 31, 1992, respectively. These amounts exclude undrawn commitments
under the revolving credit agreement.
F-20
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's unsecured revolving credit agreement with a group of banks
provides a total loan commitment of $150 million, reduced annually by $50
million in April of each of 1994 through 1996. This revolving credit agreement
consists of a bank line, of which a portion is immediately available for
borrowing (or to support the issuance of up to $8.5 million of letters of
credit), and the balance can be made available at the end of any month.
Borrowings under this credit agreement incur interest at an annual rate equal
to one of the following at the Company's option: (1) prime rate plus 0% to
2.25%; (2) London Interbank Offered Rate plus 0.75% to 3.25%; (3) or a Domestic
Money Market Bid Rate plus 0.875% to 3.375%; or (4) competitive bid. The
interest rate at January 30, 1994 and July 31, 1993 was approximately 5.3% and
4.9%, respectively. The agreement provides for a facility fee, payable on a
monthly basis at the rate of 0.35 to 0.75 of 1% on each lender's total
commitment. The specific interest rate and facility fee payable at any time is
based upon the Company's credit rating and the amount drawn under the credit
agreement.
The Company's 9.35% Senior Notes mature in 2000 and require principal
payments of $12.5 million in January of each year until repaid. The Company's
9.33% Senior Notes mature in 2002 and require principal payments of
approximately $8.9 million in December of each year, beginning in 1996, until
repaid. With respect to each of these two Senior Note transactions, the Company
can make principal prepayments at its option, which may include a premium for
yield adjustment. The note holders can require the Company to purchase the
remaining principal amount of the notes plus accrued interest and premium for
yield adjustment in the event of certain changes in control or ownership of the
Company.
The Company's 9 1/4 percent subordinated debentures mature in 2017. These
debentures are subject to mandatory annual sinking-fund payments of $7.5
million beginning March 1998. The Company may redeem an additional $15 million
on each sinking-fund date. The subordinated debentures are redeemable at the
Company's option, at 106.5 percent of the outstanding principal amount at July
31, 1993, 106.01% at March 1, 1994, declining annually to 100.5 percent in
2006, plus accrued interest. However, no such redemption may be effected prior
to March 1997, directly or indirectly, from borrowed money having an interest
cost of less than 9 1/4 percent per annum.
The Company's 7 percent convertible subordinated debentures mature in 2012.
These debentures are convertible prior to maturity, unless previously redeemed,
at a conversion price of $43 per share, subject to adjustment under certain
conditions. The debentures are redeemable at the option of the Company, in
whole or in part, at a redemption price of 102.8 percent declining annually to
100.7 percent in 1996, together with accrued interest to the date of
redemption. Annual sinking-fund payments of 5 percent of the aggregate
principal amount of the debentures originally issued are to be applied to the
redemption of debentures at 100 percent of principal amount plus accrued
interest, commencing October 1998. The Company has the option of delivering
repurchased debentures to the sinking-fund in lieu of cash. The mandatory
sinking-fund is calculated to retire 70 percent of the debentures prior to
maturity. The debentures are subordinated to all existing or future senior debt
of the Company and rank on equal terms with the Company's outstanding 9 1/4
percent subordinated debentures due 2017.
The Company's medium term note, which was privately placed with a bank, was
paid in October, 1993. In fiscal 1993, the Company's debt relating to the
Foley, Alabama, Industrial Revenue Bonds totaling $5.3 million was removed from
the balance sheet as a result of the Company's deposit of U.S. Government
securities in an irrevocable trust. The principal and interest of the
securities deposited with the trustee were sufficient to fund the scheduled
principal and interest payments of the debt. Subsequent to July 31, 1993, the
debt was extinguished in exchange for the securities deposited.
F-21
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Several of the Company's principal financing agreements contain financial
covenants that require it to maintain specified levels of Consolidated Tangible
Net Worth (as defined), specified ratios of Consolidated Net Income Available
for Fixed Charges (as defined) to Fixed Charges (as defined), and specified
ratios of Debt to Consolidated Tangible Net Worth (as defined). Effective upon
the sale of the Securities, these covenants require a Consolidated Tangible Net
Worth of $125 million plus 50% of positive consolidated net income; a ratio of
Consolidated Net Income Available for Fixed Charges (as defined) to Fixed
Charges (as defined) of 1.40 to 1 through July 31, 1994, 1.55 to 1 from August
1, 1994 through July 31, 1995, 1.90 to 1 from August 1, 1995 through July 31,
1996, and 2.00 to 1 thereafter; and a ratio of Debt to Consolidated Tangible
Net Worth (as defined) of 5.60 to 1 through July 31, 1994, 5.00 to 1 from
August 1, 1994 through July 31, 1995, 4.10 to 1 from August 1, 1995 through
July 31, 1996, and 3.20 to 1 thereafter. The Company's principal financing
agreements also contain other restrictions, including restrictions on
indebtedness, liens, lease obligations, mergers, sales of assets, investments
and capital expenditures. If the Company were to breach a covenant in any of
its principal financing agreements, the lenders under such agreement could, at
their option, accelerate the maturity of the debt evidenced by such agreement.
In addition, any such default (or, in some cases, an acceleration after the
occurrence of such a default) would cause defaults under cross-default
provisions (or cross-acceleration provisions) in other Company financing
agreements.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Minimum rental commitments under operating leases with non-cancelable terms
of more than one year as of January 30, 1994 and July 31, 1993 are as follows
(in thousands):
<TABLE>
<CAPTION>
JAN. 30, JULY 31,
1994 1993
----------- --------
(UNAUDITED)
<S> <C> <C>
1994--Six Months..................................... $ 5,700 $ --
1994--Year........................................... -- 11,500
1995................................................. 9,300 8,700
1996................................................. 7,200 6,700
1997................................................. 6,400 6,200
1998................................................. 5,700 6,000
Thereafter........................................... 23,200 23,400
------- -------
$57,500 $62,500
======= =======
</TABLE>
Generally, leases have provisions for rent escalation based on inflation.
Certain leases provide for options to renew with substantially similar terms
(except negotiable rent increases). The total expense under all operating
leases was approximately $6.7 million, $7.7 million, $15.9 million, $15.3
million and $14.9 million for the first six months of fiscal 1994 and 1993 and
for fiscal years 1993, 1992 and 1991, respectively.
During fiscal year 1992, the U.S. Air Force filed a termination notice for
alleged default under the C-5 spare pylon contract, and the Company then
commenced the appeal process to convert the termination to one for convenience
of the government. Contemporaneously, the Company filed a notice of breach of
contract with the government on the C-5 spare pylon contract. The Company also
filed a variety of actions before the Armed Services Board of Contract Appeals
("ASBCA") requesting payment of sums owed the Company due to the government's
imposition of redefined acceptance criteria under the C-5 pylon program and the
KC-135 re-engining program. The Company also recorded special provisions for
this matter in prior periods.
F-22
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Following the end of the Company's fiscal 1994 second quarter, the Company
and the U.S. Air Force settled all of their disputes as well as certain
constructive change claims of the Company against the U.S. Air Force for which
estimated revenues were included in the accounts receivable of the Company at
July 31, 1993. (See Note 3 Accounts Receivable). The most significant aspects
of this settlement were:
(1) The C-5 spare pylon contract will be converted to termination for
government convenience. The Company will retain approximately $27.3 million
of unliquidated progress payments previously made by the U.S. Air Force.
(2) The Company will retain most of the C-5 spare pylon work-in-process and raw
material inventories.
(3) The Company will provide a warranty on certain, specified C-5 pylon panels.
This will end seven years after the original delivery date of each
applicable panel to the Air Force. The original delivery dates for the
warranted panels range from 1989 to 1991. The Company has established a
reserve for this warranty obligation.
Contemporaneously with the settlement with the U.S. Air Force, the Company
and the United States Attorney for the Central District of California settled
the civil aspects of an investigation, which had been ongoing since 1990,
concerning the production of parts, the recording of information which is a
part of that production process, and the testing practices utilized by the
Company on many programs. The Company cooperated fully in the investigation and
does not believe there was any adverse effect on the safety or utilization of
its products. The Company recorded special provisions in prior periods
reflecting its assessment of the ultimate costs which it believed would be
incurred. Under this settlement the Company will pay $4 million to the U.S.
Attorney's office. In connection with these settlements, a recently unsealed
qui tam lawsuit filed by former employees against the Company on behalf of the
U.S. Government with respect to certain of the activities that had been under
investigation has been dismissed with prejudice. The criminal aspects of this
matter are pending a pre-sentencing report to a judge in the U.S. District
Court in Los Angeles. The Company's plea of making eight false statements under
which it has agreed to pay approximately $3.7 million, is conditioned upon
judicial approval of the settlement agreement. In connection with this matter,
the Company is also engaged in discussions with government officials who have
the discretion to temporarily suspend or to debar the Company from entering
into government contracts in the future. The discussions are designed to
demonstrate that the Company is a presently-responsible contractor and that it
should be entitled to continue to be eligible to receive additional
governmental contracts.
In June 1987, the U.S. District Court of Los Angeles, in U.S. et al, vs.
Stringfellow, granted partial summary judgment against the Company and 14 other
defendants on the issue of liability under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). This suit, along with
related lawsuits, alleges that the defendants are jointly and severally liable
for all damage in connection with the Stringfellow hazardous waste disposal
site in Riverside County, California. In June 1989, a federal jury and a
special master appointed by the federal court found the State of California
also liable for the cleanup costs. On November 30, 1993, the special master
released his "Findings of Fact, Conclusion of Law and Reporting Recommendations
of the Special Master Regarding the State Share Fact Finding Hearing". In it,
he allocates liability between the State of California and other parties. As
this hearing did not involve the valuation of future tasks and
responsibilities, the order did not specify dollar amounts of liability. The
order, phrased in percentages of liability, recommended allocating liability on
the CERCLA claims as follows: 65% to the State of California and 10% to the
Stringfellow entities, leaving 25% to the generator/counter claimants
(including the Company) and other users of the site (or a maximum of up to 28%
depending on the allocation of any Stringfellow entity orphan share). On the
state law claims, the special master recommended a 95% share for the State of
California, and 5%
F-23
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for the Stringfellow entities, leaving 0% for the generator/counterclaimants.
This special master's recommendation is subject to a final decision and appeal.
The Company is the second largest generator of wastes by volume disposed at the
site, although it and certain other generators have argued the final allocation
of cleanup costs among generators should not be determined solely by volume.
The largest volume generator of wastes disposed at the Stringfellow site has
indicated it is significantly dependent on insurance to fund its share of any
cleanup costs, and that it is in litigation with certain of its insurers. The
Company and the other generators of wastes disposed at the Stringfellow site,
which include numerous companies with assets and equity significantly greater
than the Company, are jointly and severally liable for the share of cleanup
costs for which the generators, as a group, ultimately are found to be
responsible.
The Company has claims against its comprehensive general liability insurers
for reimbursement of its cleanup costs at the site. These claims are the
subject of separate litigation, although the insurers nevertheless are paying
substantially all of the Company's costs of defense in the EPA and State action
against the generators of wastes disposed at the site. Certain of these
insurance policies have pollution exclusion clauses which are being argued as a
defense and the insurers are alleging various other defenses to coverage. The
Company has entered settlements with some of the insurance carriers and is
engaged in settlement discussions with certain others. The Company intends to
continue to vigorously defend this matter and believes, based upon currently
available information, that the ultimate resolution will not have a material
adverse effect on the financial position, liquidity, or results of operations
of the Company.
The Company is also involved in several other proceedings and investigations
related to environmental protection matters. It is difficult to estimate the
ultimate level of environmental expenditures due to a number of uncertainties,
including the complexity of the related laws and their interpretation,
alternative cleanup technologies and methods, insurance and other recoveries,
and in some cases, the extent and uncertainties of the Company's involvement.
However, the Company has heard of very preliminary estimates of cleanup costs
for the Rio Bravo, Chatham Brothers and Casmalia waste disposal sites as
approximately $7 million, $30 million and $70 million, respectively, and the
Company's share (based on estimated, respective volumes of discharges into such
sites by all generators, all of which cannot now be known with certainty) could
approximate $450,000 for the Rio Bravo site, $0 for the Chatham Brothers site
(based on the Company's belief that it never used that site), and $1,750,000),
for the Casmalia site. The Company does not yet know about the ability of other
waste generators using the Casmalia and Rio Bravo sites to fund their allocable
share, and the Company could be found jointly or severally liable with all
waste generators using such sites. The Company has made claims against its
insurance carriers for certain of these items, and has received claims
acknowledgment letters reserving the rights of such carriers. The insurers have
alleged or may allege various defenses to coverage, although no litigation has
been commenced. Based upon presently available information, the Company
believes that capital expenditures and costs of remedial actions in relation to
these other matters will not have a material adverse effect on the financial
position or results of operations of the Company.
In 1990, the Division of Enforcement of the Securities and Exchange
Commission (the "SEC") began conducting an informal inquiry regarding various
Company production programs, program and contract estimates at completion and
related accounting practices. Following the filing of a registration statement
with the SEC, the Company received on August 17, 1993, and shortly thereafter
responded to, a request for documents from the SEC Division of Enforcement
concerning its decision to change its accounting practices relating to long-
term programs and contracts, and its previous practice of capitalizing pre-
certification and certain general and administrative costs. There have been no
further comments from the SEC Division of Enforcement since that date.
F-24
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is involved as plaintiff or defendant in various other legal and
regulatory actions and inquiries incident to its business, none of which are
believed by management to have a material adverse effect on the financial
position or results of operations of the Company.
Included in trade accounts and other payables at January 30, 1994 and July
31, 1993 and 1992 are allowances aggregating $50.4 million, $49.8 million and
$19.3 million, respectively, for plant closure, other costs related to the
planned downsizing process and various items of litigation.
NOTE 9--EMPLOYEE BENEFIT PLANS
a. Pension Plans
The Company has non-contributory pension plans covering substantially all of
its employees. Benefits for the salaried employees' plan are based on salary
and years of service, while those for the hourly employees' plan are based on
negotiated benefits and years of service. The Company has historically made
contributions to an independent trust for the minimum funding requirements of
these plans under IRS regulations. In addition, the Company has unfunded
supplemental retirement plans.
Pension expense consists of the following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------
1993 1992 1991
-------- -------- -------
<S> <C> <C> <C>
Service cost....................................... $ 12,250 $ 8,123 $ 6,873
Interest cost on projected benefit obligation...... 34,601 32,260 29,376
Actual gain on plan assets......................... (29,379) (40,344) (30,716)
Net amortization and deferral...................... 1,605 13,356 1,912
-------- -------- -------
Pension expense.................................... $ 19,077 $ 13,395 $ 7,445
======== ======== =======
</TABLE>
An amendment to the hourly employees' pension plan, reflecting increased
benefits resulting from union negotiations, accounted for approximately $.6
million of additional pension expense in fiscal 1993 and approximately $2.3
million of additional pension expense in fiscal 1991. An amendment to the
salaried employees' retirement plan accounted for approximately $3.6 million of
additional pension expense in fiscal 1992. Pension expense for the first six
months of fiscal 1994 and 1993 was $7.1 million and $7.5 million, respectively.
F-25
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the funded status of these plans and the
amounts recognized in the Consolidated Balance Sheets (in thousands):
<TABLE>
<CAPTION>
JULY 31,
--------------------
1993 1992
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested........................................... $ 413,460 $ 372,714
Non-vested....................................... 18,483 16,982
--------- ---------
Accumulated benefit obligation..................... 431,943 389,696
Effect of projected future salary increases........ 10,145 13,036
--------- ---------
Projected benefit obligation for service rendered
to date........................................... 442,088 402,732
Plan assets at fair value, primarily stocks, bonds,
other fixed income obligations and real estate.... 376,474 346,883
--------- ---------
Plan assets less than projected benefit obligation. (65,614) (55,849)
Unrecognized net loss.............................. 46,140 29,594
Unrecognized net asset from initial application of
SFAS No. 87 being recognized over plans' average
remaining service life............................ (18,202) (21,130)
Unrecognized prior service cost.................... 38,353 36,740
Additional minimum liability....................... (58,550) (34,164)
--------- ---------
Pension liability recognized in the Consolidated
Balance Sheet..................................... $ (57,873) $ (44,809)
========= =========
</TABLE>
At July 31, 1993, the Company's additional minimum liability was in excess of
the unrecognized prior service costs and net transition obligation and recorded
as a reduction of $13.3 million to shareholders' equity, net of tax benefits of
$8.2 million, in accordance with SFAS No. 87, "Employers' Accounting for
Pensions". The remaining portion of the additional minimum liability of $37.0
million was recorded as intangible assets and additional minimum pension
liability and included in Other Assets and Pension and Post-Retirement
Obligations respectively, in the Consolidated Balance Sheets.
The weighted average discount rate used in determining the present value of
the projected benefit obligation was 8.5 percent at July 31, 1993 and 8.75
percent for fiscal 1992. For compensation based plans, the rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation and service cost was based upon an experience-
related table and approximated 5.5 percent on current salaries through January
1, 1994, in accordance with plan terms. The expected long-term rate of return
on plan assets was 9 percent for the periods presented.
The Company also has certain defined contribution plans covering most
employees. Expenses for these plans amounted to $0.9 million, $2.1 million,
$3.4 million, $6.7 million and $9.7 million in the first six months of fiscal
1994 and 1993 and fiscal years 1993, 1992 and 1991, respectively.
b. Post-retirement Benefit Obligations Other Than Pensions
The Company has a retirement health care program that pays a specified fixed
amount to supplement the medical insurance payments made by retirees who are
under age 65 and their spouses and covered dependents. Eligibility for and the
amount of the supplement provided by the Company is based on age and years of
service. The program requires deductibles and employee contributions.
F-26
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company, effective August 1, 1992, adopted the provisions of SFAS No.
106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions"
using the immediate recognition transition option. See Note 2. This standard
requires recognition, during an employee's service with the Company, of the
cost of his or her retiree health care benefits. The Company recognized the
accumulated post-retirement benefit obligation for past service cost as a one-
time charge to earnings (the transition obligation) as of August 1, 1992 of
$4.3 million, net of income tax benefit of $2.7 million ($.24 per average share
of common stock). In fiscal 1993, 1992 and 1991, the Company's cost of
providing post-retirement health care benefits was $2.0 million, $2.9 million
and $2.0 million, respectively, excluding the cumulative effect of adopting
SFAS No. 106. The costs of health care benefits is provided largely under a
self-insured plan, which is scheduled for termination on January 1, 1994. The
effect of adopting the new standard on net periodic post-retirement benefit
expense for the year ended July 31, 1993 was not material. The accumulated
post-retirement benefit obligation was determined using a weighted average
discount rate of 8.5 percent. The plan is unfunded. Each year the Company funds
the benefits paid.
SFAS No. 106 requires disclosure of the effect on the Company's accumulated
post-retirement benefit obligation, and net periodic post-retirement benefit
cost, using the assumption that the health care cost trend will increase by 1
percent each year. This disclosure is not applicable because the Company is not
affected by future health care cost trends since its obligation is to pay a
fixed amount as a health care supplement for retirees entitled to this benefit.
Net periodic post-retirement benefit cost for the year ended July 31, 1993,
included the following components (in thousands):
<TABLE>
<S> <C>
Service cost--benefits attributed to service during the period....... $196
Interest cost on accumulated post-retirement benefit obligation...... 549
----
Net periodic post-retirement benefit cost............................ $745
====
</TABLE>
The liability for post-retirement health care benefits at July 31, 1993,
included the following components (in thousands):
<TABLE>
<S> <C>
Accumulated post-retirement benefit obligation:
Retirees........................................................ $2,749
Fully eligible active plan participants......................... 376
Other active plan participants.................................. 2,929
------
Liability for post-retirement health care benefits................ $6,054
======
</TABLE>
Net periodic post-retirement health care benefit cost for the six months
ended January 30, 1994 and January 31, 1993 was $317 and $373, respectively.
Liability for post-retirement health care benefits was $5,602 and $6,290,
respectively.
c. Post-Employment Benefits
The Financial Accounting Standards Board has issued SFAS No. 112, Employers'
Accounting for Post-Employment Benefits. The new standard is effective for
fiscal years beginning after December 15, 1993 and requires employers to
recognize the obligation to provide post-employment benefits to former or
inactive employees, their beneficiaries, and covered dependents when certain
conditions are met. The Company does not expect there to be a material adverse
effect on the financial position or result of operations in the year of
adoption.
F-27
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--SHAREHOLDERS' EQUITY
Under the terms of the Company's debt covenants of its loan agreements (See
Note 7), no portion of retained earnings is available for payment of cash
dividends until after July 9, 1995. Thereafter, the Company may pay cash
dividends in an amount not to exceed 50 percent of net income for the period
beginning August 1, 1995. Effective upon the sale of the Securities, the
Company may pay cash dividends only when its ratio of consolidated debt to
consolidated tangible net worth is at least 2.50-to-1.00.
The Company's 1989 Stock Incentive Plan provides that qualified employees are
eligible to receive stock options and various other stock-based awards. Subject
to certain adjustments, the plan provides that up to 2,500,000 shares of common
stock may be sold or issued under the plan. As a result of previous option
grants under this plan, 381,431, 371,281 and 377,147 stock options and other
stock-based awards remained available for grant at January 30, 1994, July 31,
1993 and 1992, respectively. The plan has no specific termination date except
that Incentive Stock Options may not be granted after July 31, 1999. The terms
and conditions of the stock-based awards are determined by a Committee of the
Board of Directors on each grant date and may include provisions for the
exercise price, expiration, vesting, restriction on sale and forfeiture, as
applicable. Restricted shares purchased under this plan are subject to
restrictions on sale or disposal, which lapse in varying installments from one
to 10 years. During fiscal 1992, 6,000 restricted shares were purchased at a
price of $1.00 per share. During fiscal 1993, 115,000 restricted shares were
purchased by grantees and 21,300 restricted shares were repurchased from
grantees, in each case at a price of $1.00 per share. During the six months
ended January 30, 1994, 20,000 stock bonus awards were granted at no cost to
the recipient.
The Company's 1982 Stock Option Plan, under which no future options will be
granted, provided for the issuance of non-qualified stock options at the market
price of the Company's common stock at the date of grant. The options become
exercisable in installments from one to two years after date of grant and
expire 10 years from date of grant.
The Company has a director stock plan under which non-employee directors are
automatically granted, on the first business day following the annual meeting
of shareholders, an option to purchase 1,000 shares of common stock. The option
exercise price is equal to the fair market value of the stock on the date the
option is granted. Options granted under the plan generally becomes exercisable
six months after the date of grant and expire 10 years from the date of grant.
Subject to certain adjustments, the plan provides that up to 100,000 shares of
common stock may be sold or issued under the plan. As a result of previous
option grants under the plan, 50,000, 59,000 and 69,000 stock options remained
available for grant at January 30, 1994, July 31, 1993 and 1992, respectively.
The Company also has a stock compensation plan for non-employee directors
pursuant to which the Company will issue or deliver to each such director, in
partial consideration for the services rendered by such director during the
Company's prior fiscal year, 250 shares of the Company's common stock, subject
to certain adjustments. The shares will be issued or delivered on the date of
the first meeting of the Board that occurs after the end of each fiscal year.
In May 1993, in connection with certain amendments to the financial covenants
of its principal financing agreements, the Company issued warrants to certain
lenders. The warrants are exercisable for 600,000 shares of common stock at
$9.00 per share and expire in seven years.
Under the various stock option plans, outstanding options for 1,771,342,
1,671,947 and 1,113,910 shares of common stock were exercisable as of January
30, 1994, July 31, 1993 and 1992, respectively. Activity in these stock option
plans for the three years and six months ended January 30, 1994 is summarized
as follows:
F-28
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
--------- -------------------
<S> <C> <C> <C> <C>
Balance Outstanding at August 1, 1991........... 1,331,420 $12.500 - $31.625
Granted....................................... 1,548,803 10.625 - 22.125
Relinquished.................................. (16,760) 16.500 - 31.625
Forfeited..................................... (33,600) 12.000 - 22.125
Exercised..................................... (34,000) 12.000 - 19.375
--------- -------------------
Balance Outstanding at July 31, 1992............ 2,795,863 $10.625 - $31.625
Granted....................................... 155,000 8.875 - 11.375
Relinquished.................................. (30,880) 16.500 - 31.625
Forfeited..................................... (254,134) 10.625 - 22.125
--------- -------------------
Balance Outstanding at July 31, 1993............ 2,665,849 $ 8.875 - $31.625
Granted....................................... 29,000 0 - 8.875
Bonus Stock Award............................. (20,000) 0
Relinquished.................................. (17,955) 16.500 - 31.625
Forfeited..................................... (30,150) 10.625 - 22.125
--------- -------------------
Balance Outstanding at January 30, 1994 (Unau-
dited)......................................... 2,626,744 $ 8.875 - $31.625
========= ===================
</TABLE>
The Company's stockholder rights plan generally entitles the holder of each
right to purchase one one-hundredths of a share of Series C preferred stock, $1
par value, from the Company for $100, subject to adjustment. A right is
included with, and attaches to, each share of common stock issued and expires
on August 25, 1996 and is redeemable by the Company. The rights become
exercisable and separate from the common stock under certain circumstances
generally when a person or group of affiliated or associated persons has
acquired or obtained the right to acquire 15 percent or more of the Company's
outstanding voting stock or has made a tender offer to acquire 15 percent or
more of such voting stock. Under certain circumstances, each right would
entitle the holder to purchase a certain number of the Company's common stock
at one-half of fair market value.
Authorized, unissued shares of common stock were reserved for the following:
<TABLE>
<CAPTION>
JULY 31,
JAN. 30, -------------------
1994 1993 1992
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Various stock plans............................. 3,058,175 3,096,130 3,242,010
Conversion of subordinated debentures........... 2,674,418 2,674,418 2,674,418
Warrants........................................ 600,000 600,000 --
--------- --------- ---------
6,332,593 6,370,548 5,916,428
========= ========= =========
</TABLE>
F-29
<PAGE>
(PICTURES)
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference........................... 3
Available Information..................................................... 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 12
Financing Plan............................................................ 17
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
Selected Consolidated Financial and Operating Data........................ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 35
Directors and Executive Officers of the Company........................... 52
Legal and Environmental Proceedings....................................... 55
Description of Certain Financings......................................... 60
Description of Senior Notes............................................... 63
Description of Concurrent Financing....................................... 90
Underwriting.............................................................. 90
Legal Matters............................................................. 91
Experts................................................................... 91
Index to Financial Statements............................................. F-1
</TABLE>
$100,000,000
ROHR, INC.
% SENIOR NOTES DUE 2003
[LOGO OF ROHR]
- ----------------------------------
SALOMON BROTHERS INC
- ---------------------------------------
PROSPECTUS
DATED , 1994
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PROSPECTUS MAY 11, 1994
$50,000,000
ROHR, INC. [LOGO OF ROHR]
% CONVERTIBLE SUBORDINATED NOTES DUE 2004
The % Convertible Subordinated Notes due 2004 (the "Convertible Subordinated
Notes") are being issued by Rohr, Inc. ("Rohr" or the "Company") and will
mature on , 2004. The Convertible Subordinated Notes are convertible
at the option of the holder thereof at any time prior to maturity, unless
previously redeemed, into shares of Common Stock of the Company, at a
conversion price of $ per share, subject to adjustment in certain events.
On May 10, 1994, the last reported sale price for the Common Stock on the New
York Stock Exchange (symbol: RHR) was $8.875 per share.
The Convertible Subordinated Notes are redeemable at the option of the Company,
in whole or in part, at any time on and after , 1998, at the
redemption prices specified herein, plus accrued interest. The Convertible
Subordinated Notes do not provide for any sinking fund. Upon a Change of
Control (as defined), the holders of the Convertible Subordinated Notes will
have the right, subject to certain restrictions and conditions, to require the
Company to purchase all or any part of the Convertible Subordinated Notes at
101% of the principal amount thereof, plus accrued and unpaid interest to the
date of purchase.
In connection with the offering of the Convertible Subordinated Notes (the
"Offering"), the Company is concurrently offering, pursuant to a separate
prospectus (together with the Offering, the "Offerings"), $100 million
aggregate principal amount of its % Senior Notes due 2003 (the "Senior Notes"
and, together with the Convertible Subordinated Notes, the "Securities"). See
"Description of Concurrent Financing."
The Convertible Subordinated Notes will be general unsecured obligations of the
Company and will be subordinate in right of payment to all existing and future
Senior Indebtedness (as defined) of the Company and pari passu in right to
payment with all existing and future Subordinated Indebtedness (as defined).
The Convertible Subordinated Notes will be effectively subordinated to all
indebtedness and other liabilities of the Company's subsidiaries. As of January
30, 1994, after giving effect to the Offerings and the anticipated use of the
proceeds therefrom, the Company would have had approximately $256.8 million of
Senior Indebtedness outstanding and the indebtedness and other liabilities of
the Company's subsidiaries would have been approximately $32.7 million.
Application has been made to list the Convertible Subordinated Notes on the New
York Stock Exchange.
AN INVESTMENT IN THE CONVERTIBLE SUBORDINATED NOTES INVOLVES A SIGNIFICANT
DEGREE OF RISK. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CONVERTIBLE SUBORDINATED
NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT COMPANY (2)
<S> <C> <C> <C>
Per Note..................................... % % %
Total (3).................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from , 1994 to the date of delivery.
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company has granted to the Underwriter a 30-day option to purchase up
to $7,500,000 principal amount of the Convertible Subordinated Notes on the
same terms as the Convertible Subordinated Notes offered hereby to cover
over- allotments, if any. If all such additional Convertible Subordinated
Notes are purchased by the Underwriter, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ , and
$ , respectively.
The Convertible Subordinated Notes are offered subject to receipt and
acceptance by the Underwriter, to prior sale and to the Underwriter's right to
reject any order in whole or in part and to withdraw, cancel or modify the
offer without notice. It is expected that delivery of the Convertible
Subordinated Notes will be made at the office of Salomon Brothers Inc, Seven
World Trade Center, New York, New York or through the facilities of The
Depository Trust Company on or about , 1994.
- ---------------------------------------------------------
SALOMON BROTHERS INC
- ---------------------------------------------------------
The date of this Prospectus is , 1994.
<PAGE>
INSERT PICTURES
2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CONVERTIBLE
SUBORDINATED NOTES AND THE COMPANY'S COMMON STOCK AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED
IN THE OVER-THE-COUNTER MARKET, OR THE NEW YORK STOCK EXCHANGE, OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Securities and Exchange
Commission (the "Commission") by Rohr pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), are incorporated herein by reference
and made a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1993;
(2) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended October 31, 1993 and January 30, 1994;
(3) The Company's Current Report on Form 8-K dated May 2, 1994; and
(4) The description of the Company's Common Stock contained in the
Registration Statement on Form 8-B, File No. 1-3801.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering made hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such document.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER OF CONVERTIBLE SUBORDINATED NOTES, TO WHOM THIS PROSPECTUS IS
DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR
ALL OF THE DOCUMENTS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS
PROSPECTUS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). SUCH REQUESTS SHOULD BE
DIRECTED TO: ROHR, INC., ATTN.: SHAREHOLDER SERVICES, P.O. BOX 878, CHULA
VISTA, CALIFORNIA 91912-0878, (619) 691-2808.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (together with all
amendments and exhibits thereto, the "Registration Statement") with the
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities. This Prospectus does not contain all of the
information set forth in such Registration Statement, certain portions of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected, without
charge, and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
the following regional offices of the Commission: Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and
other information can also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005 and The Pacific Stock
Exchange Incorporated, 301 Pine Street, San Francisco, California 94104.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere or incorporated by reference in this Prospectus. Investors should
carefully consider the information set forth under the heading "Risk Factors."
Market discussions and references to aircraft production exclude consideration
of markets in the former U.S.S.R.
THE COMPANY
Rohr, Inc. ("Rohr" or the "Company") designs, develops, manufactures, sells
and supports complete nacelle and pylon systems for large aircraft engines. The
Company has over 50 years of experience in the aerospace industry and is the
leading independent supplier of nacelle and pylon systems to the world's major
commercial airframe and engine manufacturers ("OEMs"). Rohr manages projects
from the early design stage through production and systems integration to
lifetime customer support. In addition, the Company has the right to provide
customer and product support directly to approximately 145 airlines around the
world, including on-site field services and the sale of spare parts.
Nacelles are aerodynamic structures which surround jet engines. A nacelle
system generally includes the nose cowl or inlet, fan cowl, nozzle systems,
thrust reverser and engine build-up ("EBU"). Pylons (sometimes referred to as
struts) are the structures that attach the jet engines to the aircraft. Nacelle
and pylon systems are highly engineered, critical to fuel efficiency and
integral to all of the key interfaces between the jet engine and the airframe.
The Company believes that it is competitively well-positioned in its core
business. Management estimates that the Company supplied approximately 45% of
the nacelle systems and 25% of the pylons for all large commercial aircraft
produced worldwide in 1993, including products represented on the Boeing 737,
747, 757 and 767, the Airbus A300, A310, A320, A321, A330 and A340, and the
McDonnell Douglas MD-80 and MD-11. The Company attributes its strong market
position to its leading technologies, its focus on a specific product line and
its competitive cost structure. Management believes that this market position
is protected by (i) Rohr's long-term contracts, including some "life-of-
program" agreements, (ii) the substantial costs required for the airframe or
engine OEMs to change supply sources, (iii) the significant up-front design,
development, tooling and certification costs which must be borne before
production on a program may begin and (iv) a strong reluctance by airlines to
support different nacelle systems manufactured by more than one supplier.
Rohr's management intends to maintain the Company's leading market position
by supplying its customers with high-quality, technically-advanced products at
competitive prices while improving profitability and returns to investors.
Management plans to accomplish this goal by (i) focusing on its core product
line and on customer satisfaction, (ii) continuing to reduce costs and improve
productivity, (iii) capitalizing on past investments in product lines and fixed
assets and (iv) implementing a financing plan to improve the Company's capital
structure and liquidity.
Focus on Core Business: Over the past year, the Company has increased its
focus on its core business within the commercial aerospace industry--the design
and manufacture of nacelle and pylon systems for large commercial aircraft. The
Company intends to focus exclusively on these products and to be the low cost
producer in this segment. The Company is currently in negotiations to sell two
non-core businesses, its business jet product line and its overhaul and repair
business. These two businesses generated approximately $35 million of revenue
in fiscal 1993.
4
<PAGE>
In April 1993, Robert H. Rau was recruited from outside the Company and
appointed President and Chief Executive Officer. Under his leadership, new
management has placed increased emphasis on enhancing its customers'
satisfaction. Management believes these efforts have contributed to the strong
relationships that the Company currently has with customers.
Cost Improvement Program: New management has taken aggressive actions to
increase competitiveness, improve earnings, maximize cash flow and reduce debt.
From April 30, 1993 (the end of the third quarter of fiscal 1993) to January
30, 1994 (the end of the second quarter of fiscal 1994), total employment was
reduced over 30% from 7,450 employees to 5,154. The ratio of indirect employees
to direct employees has improved from 1-to-2.0 to 1-to-2.6 over this same time
frame. Management has targeted a ratio of 1-to-2.8 by July 31, 1994. Management
has established a total overhead expense budget equal to 29% of sales for
fiscal 1994, which compares to a high of 41% of sales in fiscal 1989 and 32% of
sales for the 12 months ended January 30, 1994. Total overhead peaked at $477
million in fiscal 1991, was reduced to $327 million for the 12 months ended
January 30, 1994, and is budgeted for $267 million in fiscal 1994.
Coincident with these overhead reductions, the Company has increased its
effort to streamline its operations and reduce material costs. To reduce excess
capacity and to increase overall production efficiencies through higher
utilization of its remaining facilities, the Company has closed and sold the
Auburn, Washington plant, is closing the Hagerstown, Maryland plant and has
deferred completion of a new facility in Arkadelphia, Arkansas.
Modest Future Investment Requirements: During the five-year period ended July
31, 1993, the Company invested significantly in the design, development,
tooling, certification and other start-up costs associated with new aircraft
programs. Although the Company intends to aggressively pursue all important new
nacelle programs, management anticipates that few program introductions will be
made by airframe and engine manufacturers during the next five years.
Management believes that this slow down in new product introductions will
enable the Company to focus on efficiencies in existing programs, protect its
current market share and generate increased cash flow without the investments
required for new product development.
In addition, capital expenditures (including expenditures funded by
industrial revenue bonds and capital leases) averaged $45 million per year over
the past five fiscal years. During that period, the Company spent $109 million
for upgraded production and office facilities. No new facilities will be
required over the next five years. Management anticipates that capital
expenditures will total approximately $7 million in fiscal 1994 and that
capital expenditures over the subsequent four years will average less than $20
million per year.
Financing Plan: The Company has adopted a financing plan to enhance its
liquidity, extend the maturity of its bank credit facility and improve its
financial flexibility. The financing plan is comprised of three components: (i)
amendments to a three-year revolving credit agreement (the "Revolving Credit
Agreement"), providing an initial commitment of $110 million, (ii) amendments
to certain other financing agreements and (iii) the offering of $100 million of
Senior Notes and the offering of $50 million of Convertible Subordinated Notes
(assuming no exercise of the Underwriter's over-allotment option).
5
<PAGE>
RECENT FINANCIAL PERFORMANCE
The Company believes that its performance for the three most recent fiscal
quarters represents meaningful evidence of the Company's financial turnaround.
For the nine-month period ended January 30, 1994, the Company recorded an
operating profit margin of 6.0%, net income margin of 1.1% and EBITDA of $62.7
million. During the same nine-month period, the Company generated $78.1 million
in cash from operating activities and reduced total financings (debt plus off-
balance sheet financings) by $94.4 million from $681.4 million at May 2, 1993
to $587.0 million at January 30, 1994.
SELECTED UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JULY 31, 1994 FISCAL YEAR ENDED JULY 31, 1993
----------------- ----------------------------------------
SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating Income (Loss). $ 14,594 $ 17,064 $ 12,710 $(23,367) $ (7,534) $ 16,503
Operating Margin........ 6.1% 7.0% 5.0% (7.9)% (2.2)% 5.8%
EBITDA(1)............... $ 20,642 $ 22,709 $ 19,314 $ 7,959 (2) $ (1,330) $ 22,947
Capital Expenditures.... 1,474 1,475 4,647 4,011 6,993 11,885
Cash Provided by (Used
In) Operating Activi-
ties................... 27,284 17,644 33,168 81,071 (19,814) (15,757)
Total Financings(3)..... $586,982 $618,380 $643,855 $681,412 $740,490 $601,987
Employee Data:
Direct Employees....... 3,727 4,081 4,334 4,994 5,823 6,047
Indirect Employees..... 1,427 1,705 2,130 2,456 2,678 2,795
-------- -------- -------- -------- -------- --------
Total Employees...... 5,154 5,786 6,464 7,450 8,501 8,842
</TABLE>
- --------
(1) EBITDA represents earnings before the cumulative effect of the accounting
changes, interest and other income, interest expense, taxes on income
(benefit), depreciation, amortization and the impact of the special
provisions referred to in note (2) below. EBITDA is presented here to
provide additional information about the Company's ability to meet its
future debt service, capital expenditure, and working capital requirements
and should not be construed as a substitute for or a better indicator of
results of operations or liquidity than net income or cash flow from
operating activities computed in accordance with generally accepted
accounting principles.
(2) EBITDA is adjusted for the impact of the net provision of $25.0 million for
plant closure, inventory obsolescence and other asset valuation, other
costs related to the planned consolidation process and various items of
litigation.
(3) Includes off-balance sheet financings. See "Capitalization."
----------------
The Company's principal executive offices are located at 850 Lagoon Drive,
Chula Vista, California. The Company's mailing address is P. O. Box 878, Chula
Vista, California 91912-0878, and its telephone number is (619) 691-4111.
6
<PAGE>
THE OFFERING
Issue....................... $50,000,000 principal amount of % Convertible
Subordinated Notes due 2004, assuming no exercise
of the Underwriter's over-allotment option.
Maturity.................... , 2004.
Interest Payment Dates...... and of each year,
commencing , 1994.
Conversion.................. The Convertible Subordinated Notes, unless
previously redeemed, are convertible at the
option of the holder at any time prior to
maturity into shares of Common Stock at a
conversion price of $ per share, subject to
adjustment upon the occurrence of certain events.
See "Description of Notes--Conversion."
Optional Redemption......... The Convertible Subordinated Notes are
redeemable, at the Company's option, in whole or
from time to time in part, on and after ,
1998, at the redemption prices specified herein,
plus accrued interest. See "Description of
Notes--Optional Redemption."
Ranking..................... The Convertible Subordinated Notes will be
general unsecured obligations of the Company,
ranking subordinate in right of payment to all
existing and future Senior Indebtedness and pari
passu with all Subordinated Indebtedness (as
defined). The Convertible Subordinated Notes will
also be effectively subordinated to all
indebtedness and other liabilities of the
Company's subsidiaries. As of January 30, 1994,
after giving effect to the Offerings and the
anticipated use of the proceeds therefrom, the
Company would have had approximately $256.8
million of Senior Indebtedness outstanding and
the indebtedness and other liabilities of the
Company's subsidiaries would have been
approximately $32.7 million at such date.
Change of Control........... In the event of a Change of Control, the Company
will be required, subject to certain conditions
and limitations, to offer to purchase all
Convertible Subordinated Notes then outstanding
at a purchase price equal to 101% of the
aggregate principal amount of the Convertible
Subordinated Notes plus accrued and unpaid
interest to the date of purchase. There can be no
assurance that the Company will have sufficient
cash to pay the Change of Control purchase price
in the event that a Change of Control occurs. See
"Description of Notes--Change of Control."
Sale of Assets.............. The Company may be required, subject to certain
conditions and limitations, to offer to purchase
certain of the Convertible Subordinated Notes at
100% of the aggregate principal amount thereof,
plus accrued and unpaid interest, in the
7
<PAGE>
event of an Asset Sale (as defined). See
"Description of Notes--Limitation on Sale of
Assets."
Use of Proceeds............. Proceeds from the sale of the Convertible
Subordinated Notes and, to the extent necessary,
the Senior Notes, will be used to repay all
outstanding amounts under the Company's Revolving
Credit Agreement. The remaining net proceeds of
the Offerings will be used for general corporate
purposes. See "Use of Proceeds."
Risk Factors................ An investment in the Convertible Subordinated
Notes involves a significant degree of risk. For
a discussion of certain material factors to be
considered by potential investors, see "Risk
Factors."
Listing..................... The Common Stock of the Company is listed (symbol
RHR) on the New York Stock Exchange and the
Pacific Stock Exchange. It is also listed on The
Stock Exchange in London. Application will be
made to list the Convertible Subordinated Notes
on the New York Stock Exchange.
Concurrent Offering......... The Company is concurrently offering, pursuant to
a separate prospectus, $100 million in aggregate
principal amount of Senior Notes. See
"Description of Concurrent Financing." The sale
of the Convertible Subordinated Notes will be
conditioned on the simultaneous sale of the
Senior Notes.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth a summary of selected financial and operating
data of the Company for each of the periods indicated in the five-year period
ended July 31, 1993, which were derived, except as otherwise noted, from the
audited Consolidated Financial Statements of the Company. The table also sets
forth selected financial and operating data for the six-month periods ended
January 30, 1994, and January 31, 1993, which were derived from unaudited
interim Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
------------------- ---------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993(A) 1992 1991 1990 1989
-------- --------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales......................... $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Operating Income (Loss)....... 31,658 8,969 (1,688)(b) 45,558(c) 100,578 31,605 75,044
Income (Loss) Before Taxes and
Cumulative Effect of
Accounting Changes........... 7,977 (13,801) (49,571) (17,815) 46,877 (9,001) 46,080
Income (Loss) Before
Cumulative Effect of
Accounting Changes........... 7,735 (8,515) (30,581) 1,455 30,517 39 33,480
Net Income (Loss)............. 7,735 (232,465)(d) (254,531)(d) 1,455 30,517 39 33,480
Net Income (Loss) Per Share:
Income (Loss) Before
Cumulative Effect of
Accounting Changes.......... $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 $ 0.00 $ 1.90
Net Income (Loss)(d)......... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 $ 0.00 $ 1.90
BALANCE SHEET DATA AT
PERIOD END:
Working Capital............... $358,453 $ 447,476 $ 350,321 $ 700,774 $ 712,520 $ 640,461 $ 549,799
Property, Plant and Equipment,
Net.......................... 230,849 245,948 239,045 270,283 237,434 234,166 204,911
Total Assets.................. 967,566 1,130,164 1,017,786 1,363,958 1,411,498 1,329,308 1,166,828
Total Debt(e)................. 483,425 628,243 531,608 572,594 636,070 551,227 426,390
Total Shareholders' Equity.... 190,229 217,336 182,243 448,866 441,401 413,713 412,387
OTHER DATA:
EBITDA(f)..................... $ 43,351 $ 21,617 $ 48,890 $ 123,413 $ 128,299 $ 58,645 $ 99,880
Capital Expenditures(g)....... 2,949 18,878 27,536 62,933 32,383 28,923 39,005
Ratio of Earnings to Fixed
Charges(h)................... 1.31x 0.40x 0.01x 0.72x 1.81x 0.83x 2.27x
EBITDA to Interest Expense(f). 1.79x 0.93x 1.00x 1.84x 2.34x 1.09x 3.13x
PRO FORMA DATA TO REFLECT
ACCOUNTING CHANGES (UNAUDITED)(I):
Pro Forma Net Income
(Loss)(i).................... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680)
Pro Forma Net Income (Loss)
per Share.................... 0.43 (0.48) (1.71) (2.05) (1.31) (3.29) (0.49)
Pro Forma EBITDA(f)(j)........ 43,351 21,617 48,890 62,269 41,727 (36,182) 31,549
ADJUSTED DATA TO REFLECT OFFERINGS
BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES (UNAUDITED)(K):
Net Income (Loss)............. $ 4,412 $ (36,495)
Net Income (Loss) per Share... 0.24 (2.04)
Ratio of Earnings to Fixed
Charges(h)(l)................ 1.07x 0.01x
EBITDA to Interest Expense(f). 1.48x 0.85x
</TABLE>
9
<PAGE>
- --------
(a) Fiscal 1993 results reflect the Company's adoption, in the third quarter,
of changes to certain elements in the application of accounting principles
relating to long-term programs and contracts, including the expensing of
general and administrative costs that were previously carried in inventory
for amortization over future deliveries. The amounts also reflect the
Company's adoption of SFAS No. 106, "Employers' Accounting for Post-
Retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for
Income Taxes." The accounting changes described above were effective August
1, 1992. As a result, periods prior to August 1, 1992 are not comparable.
(b) Includes the impact of net provisions of $25.0 million for plant closure,
inventory obsolescence and other asset valuations, other costs related to
the planned consolidation process and various items of litigation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Fiscal 1993 Compared to Fiscal 1992."
The impact of the accounting change on fiscal 1993 was a reduction to
operating profit of $39.9 million.
(c) Includes the impact of special provisions of approximately $50.0 million
for the termination of the Lockheed C-5 spare pylon program, the Valsan 727
re-engining program, an investigation by government agencies concerning
production of parts and a provision for the closing of the Auburn plant.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Fiscal 1992 Compared to
Fiscal 1991."
(d) In the third quarter of fiscal 1993, the Company changed certain of its
accounting principles as described in note (a) above. These changes
required the Company to calculate the effect of the change in accounting
principles on retained earnings as of the first day in the fiscal year of
change.
(e) Excludes off-balance sheet financing. See "Capitalization."
(f) EBITDA is defined as earnings before the cumulative effect of the
accounting changes, interest and other income, interest expense and taxes
on income (benefit) and depreciation, amortization and the impact of the
special provisions referred to in notes (b) and (c) above. EBITDA is
presented here to provide additional information about the Company's
ability to meet its future debt service, capital expenditure, and working
capital requirements and should not be construed as substitute for or a
better indicator of results of operations or liquidity than net income or
cash flow from operating activities computed in accordance with generally
accepted accounting principles.
(g) Includes capitalized interest; excludes additions to property, plant and
equipment financed by industrial revenue bonds and capital leases.
(h) For purposes of determining the ratio of earnings to fixed charges, the
term "earnings" represents income (loss) before cumulative effect of
accounting changes, plus income tax (benefit) and fixed charges excluding
capitalized interest. The term "fixed charges" represents interest expense,
capitalized interest, amortization of debt issue expense and the portion of
operating lease rental expense considered to be representative of an
interest factor. Historical earnings were insufficient to cover fixed
charges by $14,886 for the six months ended January 31, 1993 and $51,184
for fiscal 1993, $19,312 for fiscal 1992 and $9,604 for fiscal 1990.
(i) The Pro Forma Data to Reflect Accounting Changes (Unaudited) assumes the
changes in the application of accounting principles for long-term programs
and contracts adopted by the Company effective August 1, 1992, are applied
retroactively. The pro forma amounts presented also reflect the retroactive
application of SFAS No. 109, "Accounting for Income Taxes" to the periods
presented--periods which predate both the Company's adoption of SFAS No.
109 and the release of that standard. Tax benefits arising pursuant to SFAS
No. 109, "Accounting for Income Taxes", are allocated ratably over the pro
forma restated periods. The pro forma restated effect of the Company's
adoption of SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other Than Pensions" are not material and are not presented. The
pro forma financial data should not be considered indicative of actual
results that would have been achieved had the accounting changes adopted by
the Company effective August 1, 1992 been in effect for the periods
indicated and do not purport to indicate results of operations as of any
future date or for any future period. The following information should be
read in conjunction with "Selected Consolidated Financial and Operating
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the "Consolidated Financial Statements of Rohr,
Inc. and Subsidiaries" and the Notes thereto, included elsewhere in this
Prospectus.
10
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
----------------- ----------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA INCOME STATE-
MENT DATA (UNAUDITED):
Sales.................. $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Cost and Expenses...... 439,719 594,568 1,133,040 1,242,240 1,321,792 1,092,150 996,313
General and Adminis-
trative Expenses(a)... 13,446 22,467 43,800 53,002 49,288 49,784 41,651
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating Income
(Loss)................ 31,658 8,969 (1,688)(b) (15,586)(c) 14,006 (63,222) 6,713
Interest Net........... 23,681 22,770 47,883 63,373 53,701 40,606 28,964
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (Loss) before
Taxes................. 7,977 (13,801) (49,571) (78,959) (39,695) (103,828) (22,251)
Taxes (Benefit) on
Income................ 242 (5,286) (18,990) (42,688) (16,797) (45,359) (13,571)
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss).... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680)
======== ======== ========== ========== ========== ========== ==========
</TABLE>
- --------
(j) The calculation of pro forma EBITDA is shown below (unaudited):
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
----------------- ---------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Income, as
Reported............... $31,658 $ 8,969 $(1,688)(b) $ 45,558 (c) $100,578 $ 31,605 $75,044
Less Changes in the Ap-
plication of Account-
ing Principles for
Long-Term Programs and
Contracts............. -- -- -- 61,144 86,572 94,827 68,331
------- ------- ------- -------- -------- -------- -------
Pro Forma Operating In-
come (Loss)............ 31,658 8,969 (1,688) (15,586) 14,006 (63,222) 6,713
Add Depreciation and
Amortization........... 11,693 12,648 25,578 27,855 27,721 27,040 24,836
------- ------- ------- -------- -------- -------- -------
Pro Forma Earnings...... 43,351 21,617 23,890 12,269 41,727 (36,182) 31,549
Add Special Provisions.. -- -- 25,000 50,000 -- -- --
------- ------- ------- -------- -------- -------- -------
Pro Forma EBITDA........ $43,351 $21,617 $48,890 $ 62,269 $ 41,727 $(36,182) $31,549
======= ======= ======= ======== ======== ======== =======
</TABLE>
- --------
(k) The unaudited adjusted data to reflect the Offerings assumes the financial
data has been adjusted for the effect of the Offerings and the
corresponding repayment of the outstanding balance under the Revolving
Credit Agreement and short-term bank debt as of the first day of each
fiscal period, and assumes no exercise of the Underwriter's over-allotment
option.
(l) Ratio of earnings to fixed charges as adjusted to reflect the Offerings,
reflects the issuance of Senior Notes and the Convertible Subordinated
Notes (assuming no exercise of the underwriter's over-allotment option) and
the application of proceeds therefrom, as if the Offerings had been
consummated as of the first day of each fiscal period. On such basis,
earnings were insufficient to cover the pro forma fixed charges by $60,769
for fiscal 1993.
11
<PAGE>
RISK FACTORS
An investment in the Securities involves a significant degree of risk. A
prospective investor should consider carefully all of the information contained
in this Prospectus before deciding whether to purchase the Securities and, in
particular, should consider the following:
HIGH LEVERAGE; DEBT SERVICE REQUIREMENTS
The Company is highly leveraged. At January 30, 1994, after giving pro forma
effect to the sale of the Securities and the repayment of certain indebtedness
with a portion of the estimated net proceeds of the Offerings, the Company
would have had consolidated total financings of approximately $687.0 million
(including $583.4 million of indebtedness and $103.6 million of off-balance
sheet sale-leaseback and accounts receivable financings and assuming no
exercise of the Underwriter's over-allotment option) and $123.1 million of
cash. See "Capitalization" and "Use of Proceeds." At January 30, 1994, the
Company's shareholders' equity was approximately $190.2 million, which does not
reflect certain anticipated charges to shareholders' equity in connection with
the Company's underfunded pension plans. In addition, at January 30, 1994, the
Company had a $102.6 million net deferred tax asset recorded in accordance with
SFAS No. 109, "Accounting for Income Taxes." See "--Deferred Tax Assets" and
"--Underfunded Pension Plans."
The Company has reported net income for each of the last three fiscal
quarters. On a pro forma basis, however, after giving effect to the accounting
changes adopted by the Company effective August 1, 1992, the Company would have
reported losses for each of the last five fiscal years and its pro forma
earnings would have been insufficient to cover fixed charges for each of such
fiscal years. See "Selected Consolidated Financial and Operating Data." The
Company's ability to make interest payments on the Securities and its other
financing obligations depends upon its future financial performance, including
earnings and cash flow from operations. On an adjusted basis, after giving
effect to the issuance of the Securities and the application of the proceeds
therefrom (assuming no exercise of the Underwriter's over-allotment option),
earnings (pre-tax income plus fixed charges) would have been $60.8 million less
than the adjusted fixed charges (which represent interest expense, capitalized
interest, amortization of debt issue expense and the portion of operating lease
rental expense considered to be representative of an interest factor) in fiscal
1993. For the six months ended January 30, 1994, however, adjusted earnings
would have been $2.2 million greater than adjusted fixed charges. Available
cash flow to service debt could be adversely affected by certain pension
funding requirements. See "--Underfunded Pension Plans." The degree to which
the Company is leveraged could have important consequences to holders of the
Securities, including the following: (1) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; (2) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of interest on its indebtedness; and (3) the Company's leverage may
make it more vulnerable to future economic downturns and may limit its ability
to withstand competitive pressures. Based upon current levels of operations and
anticipated future business, the Company believes that cash flow from
operations together with available cash, borrowings under the Revolving Credit
Agreement and other sources of liquidity, will be adequate to meet the
Company's anticipated requirements for working capital, capital expenditures,
interest payments and scheduled principal payments. There can be no assurance,
however, that the Company's business will continue to generate cash flow at or
above current levels. If the Company is unable to generate sufficient cash flow
from operations in the future, it may be required to refinance all or a portion
of its existing debt or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any additional
financing could be obtained on terms that are favorable or acceptable to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
UNDERFUNDED PENSION PLANS
The Company has substantial obligations related to its defined benefit
pension plans (the "Pension Plans"). As of July 31, 1993, the Company's
actuaries have determined that the Pension Plans were underfunded by $65.6
million on an ongoing plan basis. This underfunding resulted from a combination
of factors, including benefit increases, increased levels of early retirement,
less than actuarially-
12
<PAGE>
assumed returns on plan assets and a reduction in the discount rate used to
calculate the present value of future liabilities of the Pension Plans for
financial reporting purposes. The Company is currently assessing certain
additional decisions and actions affecting the Pension Plans. It is anticipated
that the unfunded liabilities with respect to the Pension Plans will be
increased by approximately $75 million on
an ongoing basis due to an anticipated reduction in the discount rate used to
calculate the present value of future liabilities under the Pension Plans from
8.5% to 7.5% and to a higher-than-previously-expected level of early
retirements. As a result of the anticipated increase in the unfunded
liabilities, the Company expects to take a direct charge to shareholders'
equity estimated at $45 million and to increase its deferred tax account by
approximately $30 million. In addition, the Company and its actuaries are
evaluating the extent to which the downsizing of personnel may necessitate the
expensing of certain unamortized pension benefit past service costs related to
the terminated employees. This would not increase the underfunded status of the
Pension Plans, but would result in an additional charge to earnings for
financial statement purposes. The Company expects that the evaluation of the
above described items and the recognition of the financial impact will be
completed by the end of the third quarter of fiscal 1994. Concurrent with the
consummation of the Offerings, the financial covenants in several of the
Company's principal financing agreements will be amended to accommodate the
anticipated impact of these matters on its reported financial results. See
"Description of Certain Financings."
IRS regulations will require the Company to increase its contribution to the
Pension Plans. Consistent with these IRS requirements it is the Company's
current intention to have the Pension Plans fully funded within approximately
five years. The Company's minimum cash contributions to its Pension Plans,
based on current IRS regulations, are therefore expected to increase from the
current level of approximately $17 million in fiscal 1994 to an average of
approximately $35 million per year in fiscal years 1995, 1996 and 1997 and to
decline thereafter. The Company expects to have sufficient liquidity to make
these contributions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." In
addition, minimum cash contributions for these years may increase as a result
of legislation which has been introduced in Congress. The prospects for the
passage of such legislation are uncertain.
The calculation of the amount of underfunding of the Pension Plans for
financial reporting and IRS minimum funding purposes assumes continued
employment with projections for retirements, mortality, resignations and
discharges and also includes assumptions relating to the discount rate, plan
asset value and other matters. The Company and its actuaries review these
assumptions on a regular basis. If it were to become necessary to make
additional reductions in the discount rate, or to make certain other changes in
the existing assumptions, the Pension Plans' liabilities and underfunded status
might be increased. Such changes could adversely affect the Company because of
the increase in recorded liabilities, decreases in shareholders' equity and
increases in IRS minimum funding requirements.
INDUSTRY CYCLES; CURRENT BUSINESS OUTLOOK
The commercial aerospace industry is a cyclical business and the demand by
commercial airlines for new aircraft is highly dependent upon a variety of
factors, which historically have been related to the stability and health of
the United States and world economies. The industry typically lags behind the
general economic cycle because it can take up to two years to manufacture an
aircraft. Although the United States economy entered a period of slow growth
and recession in 1989 and 1990, the aerospace industry made record deliveries
of large commercial aircraft, by revenue, during these years. In fact, aircraft
deliveries continued to grow through 1991 and only decreased slightly in 1992.
In 1990 through 1992, United States scheduled airlines suffered record
operating losses of more than $2 billion per year. Non-United States scheduled
airlines also reported significantly reduced profits during this period. As a
result of the losses incurred by the airlines, the high levels of debt incurred
to purchase new aircraft and the excess capacity within the commercial airline
sector, airlines and leasing
13
<PAGE>
companies deferred existing orders for new aircraft to an unprecedented extent
and, to a lesser degree, canceled such orders. All of the Company's major
customers received numerous requests for deferrals and cancellations from the
airlines and leasing companies and have slowed their aircraft delivery rates.
In response to the deferrals and cancellations from their customers, airframe
and engine manufacturers reacted by rescheduling future production levels,
laying off workers and passing production slow-downs on to their suppliers,
including the Company. The large number of aircraft delivered over the last
several years has created an excess capacity in the air carrier system, as
evidenced by the fact that a substantial number of new and used aircraft are
currently inactive. Reactivated aircraft could replace or postpone new aircraft
deliveries in the future. The Company expects that orders from and deliveries
of large commercial aircraft will continue to be affected through calendar 1995
by the adverse United States and world economic conditions which have existed
in recent periods. It appears, however, that the health of the airline industry
is improving. In calendar 1993, United States scheduled airlines reported
operating income of approximately $1 billion. There can be no assurance that
the improved operating health of the commercial airlines will continue or that
deliveries of large commercial aircraft will not continue to be affected beyond
1995.
In connection with the current contraction in the commercial aircraft
industry, subcontractors such as Rohr have been experiencing pressures from
their customers to reduce prices. The Company, in turn, is exerting similar
pressure on its own suppliers to reduce prices and thus enable the Company to
manufacture products at lower costs. There can be no assurance that such
reductions in prices by Rohr's suppliers will be achieved. See "Business--
Markets."
RECOVERY OF PROGRAM INVESTMENTS
The development of a new aircraft, or a variation of an existing aircraft,
requires significant investments for pre-production costs such as design and
engineering, tooling, testing and certification. Competitive pressures forced
suppliers such as the Company to bear a significant amount of the cost and
investment risk associated with the large number of new programs under
development in the 1980s. During this period, the Company also experienced
substantial production inventory increases as it began to produce and deliver
products under new programs.
In response to these competitive market pressures, the Company agreed on
several of its significant contracts to finance a substantial portion of its
pre-production costs, with such costs to be recovered ratably as a specified
number of units, including spare equivalents, are sold. As a result of these
agreements, the Company's inventory included $199.4 million of capitalized pre-
production costs at January 30, 1994. See "Notes to the Consolidated Financial
Statements--Note 4." On some of these contracts, the prime contractor has
agreed to pay the Company for a portion of its pre-production costs if a
specified number of units is not sold by an agreed upon date or if the contract
is terminated before the specified number of units is delivered. However, on
other programs, the Company agreed, based upon its market analysis, to amortize
its pre-production costs over a specified number of units without receiving
such reimbursement protections from its customer if the specified number of
units is not sold. Based on its analysis of the demand for specific products,
the Company has also agreed on certain programs to a unit price which may not
be profitable, even after recovery of pre-production costs, if fewer units are
sold than the Company assumed for pricing purposes. If the Company's market
analysis with respect to these programs is incorrect, the Company could incur
substantial losses with respect to these programs. See "Business--Contracts,"
"Business--Program Funding," and "Notes to the Consolidated Financial
Statements--Notes 1.c and 4."
DEFERRED TAX ASSET
SFAS No. 109, "Accounting for Income Taxes," requires businesses to recognize
possible future tax benefits if it is "more likely than not" that the tax
benefits will be realized. Under this standard, on January 30, 1994, the
Company had a net deferred tax asset of $102.6 million, consisting of $85.4
million for federal tax purposes and $17.2 million for state tax purposes.
(This net deferred tax asset is anticipated to increase by an additional $30
million in the third quarter of the current fiscal year as a result of an
increase in the Company's underfunded pension liabilities.) Based on current
tax rates, the Company must generate approximately $286 million of future
taxable income (net of $240 million of
14
<PAGE>
taxable income that the Company will report as a result of the automatic
reversal of existing taxable temporary differences between asset and liability
values for financial reporting and income tax purposes) prior to the expiration
of the Company's net operating loss carryforwards ("NOLs") in 2003 through 2008
for full realization of the net deferred tax asset. After the anticipated third
quarter increase in the net deferred tax asset, the amount of future taxable
income the Company must generate will be approximately $360 million. As with
its other assets, the Company will regularly re-evaluate the value of its net
deferred tax asset. If the Company were to determine that full realization of
this asset is no longer "more likely than not," it would be required to reduce
the value of the asset by establishing a valuation allowance. Such an allowance
would reduce the Company's earnings in the relevant period and, if it causes a
loss in such period, would reduce shareholders' equity. In addition, reductions
in state or federal tax rates, or limitations on the use of NOLs, as well as
adjustments resulting from any audit of the Company's tax returns, could reduce
the value of the Company's net deferred tax asset, again affecting earnings and
shareholders' equity. See "--Underfunded Pension Plans," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Income Taxes" and "Notes to the Consolidated Financial Statements--Note 6."
RESTRICTIVE COVENANTS
The Company's major financing agreements, as amended effective upon the
completion of the Offerings, require it to maintain specified financial
covenants, including a minimum Consolidated Tangible Net Worth (as defined in
such agreements to include the Company's net deferred tax asset), a minimum
ratio of Consolidated Net Income Available for Fixed Charges to Fixed Charges
(as defined in such agreements) and a maximum ratio of Debt (as defined in such
agreements to include the Company's underfunded pension liabilities) to
Consolidated Tangible Net Worth (each as defined in such agreements). Covenants
in these agreements also impose additional requirements on the Company,
including restrictions on its ability to create liens, enter into leases,
engage in mergers, consolidations and acquisitions, sell assets, repay debt
prior to its maturity, incur additional debt, amend other debt agreements,
declare and pay dividends, acquire company securities, and change the nature of
its business. A failure by the Company to maintain such financial ratios or to
comply with the restrictions contained in its Revolving Credit Agreement or
other financing agreements could result in a default thereunder, which in turn
could cause such indebtedness (and by reason of cross-default provisions, other
indebtedness) to become immediately due and payable, and would prevent the
Company from drawing any further amounts under its Revolving Credit Agreement.
As a result, any such default could have a material adverse effect on the
Company and its ability to make principal and interest payments on the
Securities. See "Description of Certain Financings" and "Description of
Concurrent Financing."
ENVIRONMENTAL MATTERS
As an international aerospace manufacturing corporation, the Company is
subject to foreign, federal, state and local laws and regulations that limit
the discharge of pollutants into the air, soil and water and establish
standards for the treatment, storage and disposal of hazardous wastes. As a
result, the Company is involved from time to time in administrative and
judicial proceedings and inquiries related to environmental matters. These
include several currently pending matters. The Company does not believe that
its environmental risks are materially different from those of comparable
manufacturing companies. Nevertheless, the Company cannot provide assurances
that environmental issues will not adversely affect the Company's operations
and financial condition in the future. Environmental risks are generally
excluded from coverage under the Company's current insurance policies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Legal and Environmental Matters."
LIMITED CUSTOMER BASE
The Company conducts substantial business with each of the three major
commercial airframe manufacturers: The Boeing Company ("Boeing"), Airbus
Industrie ("Airbus") and McDonnell Douglas Corporation ("McDonnell Douglas").
In addition, the Company conducts business with each of the
15
<PAGE>
major commercial jet engine manufacturers: General Electric Company ("General
Electric"), Rolls-Royce, plc ("Rolls-Royce"), United Technologies Corporation
("Pratt & Whitney"), CFM International, Inc. (a corporation jointly owned by
General Electric and Societe Nationale d'Etude et de Construction de Moteurs
d'Aviation; "CFM International"), and International Aero Engines AG (a
corporation owned by Rolls-Royce, Pratt & Whitney, Fiat Aviazione, SpA,
Japanese Aero Engines Corporation and MTU Motoren-und Turbinen-Union Munchen
GmbH; "International Aero Engines"). Commercial products sold by the Company to
jet engine manufacturers are installed ultimately on aircraft produced by one
of the three major commercial airframe manufacturers. The Company's financial
condition and operations could be materially adversely affected if one or more
of its major customers were to reduce operations materially, shift a
significant amount of work from the Company or cease conducting operations. See
"Business."
COMPETITION
The Company's principal competition is Boeing (which, in addition to being a
customer, also manufactures nacelle systems and pylons for its own aircraft),
other significant aerospace companies who have development and production
experience with respect to portions of the nacelle system and the companies to
whom the Company has subcontracted various components and who could (and have)
bid on contracts in competition with the Company. See "Business--
Subcontractors." Military aerospace contractors are also potential competitors,
as excess capacity created by reductions in defense spending could cause some
of these contractors to look to expand in commercial markets.
Because of recent reductions in demand in the aircraft manufacturing
industry, excess production capacity exists in the market for a number of the
Company's principal products. While the Company has a significant share of the
market for commercial aircraft nacelles and pylons, there can be no assurance
that the Company can maintain its share of the market at existing levels. See
"Business-- Market Share and Competition."
REDUCED GOVERNMENT SALES
Government (military and space) sales accounted for approximately 12% of the
Company's total sales in the six months ended January 30, 1994, and 13% in the
fiscal year ended July 31, 1993. The Company expects that the percentage of
Company revenues attributable to government sales will continue to decline in
future years. The production rate for the Titan rocket motor casing program,
which accounted for 5.9% of revenues in fiscal 1993, is expected to decline
substantially in response to market demand. In addition, another company's
alternative technology casing approach may allow it to become a leading
competitor in the market for this product in the future. The Company's military
sales are primarily associated with older programs which are being phased out
of production.
RANKING OF THE CONVERTIBLE SUBORDINATED NOTES
The Convertible Subordinated Notes will be general unsecured obligations of
the Company ranking subordinated in right of payment to all existing and future
Senior Indebtedness of the Company (as defined) and pari passu with all
Subordinated Indebtedness (as defined), including the Company's 9.25%
subordinated debentures, due in 2017, and its 7% convertible subordinated
debentures, due in 2012. The Convertible Subordinated Notes will also be
effectively subordinated to all indebtedness and other liabilities of Company's
subsidiaries. As of January 30, 1994, after giving effect to the Offerings and
the anticipated use of the proceeds therefrom (and assuming no exercise of the
Underwriter's over-allotment option), the Company would have had approximately
$256.8 million of Senior Indebtedness outstanding and the indebtedness and all
other liabilities of the Company's subsidiaries would have been approximately
$32.7 million. In addition, the Company had $103.6 million of off-balance sheet
sale-leaseback and accounts receivable financings then outstanding. See
"Capitalization" and "Description of the Convertible Subordinated Notes--
Subordination."
16
<PAGE>
In the event of any bankruptcy, liquidation or reorganization of the Company,
the assets of the Company will be available to pay the obligations under the
Convertible Subordinated Notes only after all Senior Indebtedness of the
Company, and any other secured or priority claims, including secured claims
relating to the Company's underfunded pension liabilities, as discussed below,
have been paid in full. See "--Underfunded Pension Plans" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." After such payments, there may not be
sufficient assets remaining to pay amounts then outstanding under the
Convertible Subordinated Notes and the Company's other subordinated
obligations. In addition, the assets of the Company's subsidiaries will be
available to creditors of the Company only after such subsidiaries' obligations
are satisfied in full.
Certain rights of the Pension Benefit Guaranty Corporation (the "PBGC") could
also affect the Company in connection with any such bankruptcy, liquidation or
reorganization. In general, the PBGC (an agency of the federal government)
guarantees certain benefits provided under defined benefit plans, such as the
Company's Pension Plans. If a plan is terminated (by either the sponsor or the
PBGC) and the sponsor of such plan does not pay the guaranteed benefits, the
PBGC will pay those benefits and then seek recovery of all unfunded benefits
from any company which contributes to such a plan and certain of its
affiliates. If the PBGC has a right to such a recovery, it also has a statutory
lien on all assets of such companies, up to a maximum of 30% of the net worth
of all companies liable for such amounts. Any claim in excess of the PBGC's
secured claim would be a general unsecured claim. The actuarial assumptions
used by the PBGC in assessing funding liabilities reflect a termination of the
plan rather than continued funding by the plan sponsor. This may result in a
substantially greater liability for benefits under the Company's Pension Plans
than is reflected in actuarial valuations for such plans prepared on an ongoing
basis.
ABSENCE OF PUBLIC MARKET FOR THE SECURITIES
The Securities comprise new issues of securities for which there is currently
no public market. Although application has been made to list the Convertible
Subordinated Notes on the New York Stock Exchange, there can be no assurance
that an active trading market will be developed or sustained or that
Convertible Subordinated Notes will be able to be resold at or above the public
offering price as a result of prevailing interest rates, the market for similar
securities, the performance of the Company and other factors.
FINANCING PLAN
The Company has adopted a financing plan to enhance its liquidity, extend the
maturity of its Revolving Credit Agreement and improve its financial
flexibility. To meet these objectives, the Company is offering the Senior Notes
and the Convertible Subordinated Notes and, effective upon the completion of
the Offerings, amending its Revolving Credit Agreement and certain of its other
principal financing agreements.
Upon completion of the Offering, the Company's existing unsecured Revolving
Credit Agreement will be amended to provide for an extended three-year term. As
part of this amendment, the principal financial covenants in the Revolving
Credit Agreement will be modified to provide the Company with greater financial
flexibility and to eliminate the previous requirement that the Company sell
additional subordinated debt. For a summary of the principal covenants to be
contained in the amended Revolving Credit Agreement, see "Description of
Certain Financings--Revolving Credit Agreement."
The Company will also amend, effective upon the completion of the Offerings,
the financial covenants in the agreements governing its existing 9.35% and
9.33% Senior Notes in substantially the same manner as the financial covenants
in the Revolving Credit Agreement. For a summary of the principal covenants
contained in such agreements, see "Description of Certain Financings--9.35%
Senior Notes due 2000 and 9.33% Senior Notes due 2002."
17
<PAGE>
USE OF PROCEEDS
The Company intends to use all of the net proceeds of the Convertible
Subordinated Notes offering and, to the extent necessary, a portion of the net
proceeds of the Senior Notes offering to repay, on the date of issuance of the
Securities, all of the amounts outstanding under the Company's Revolving Credit
Agreement. This repayment will not reduce the lenders' three-year commitment
under that agreement. The Revolving Credit Agreement will have an initial
availability of $110 million. As of May 1, 1994, the Company had $50 million
borrowed under its Revolving Credit Agreement. The Company intends to use the
remaining net proceeds for general corporate purposes. For additional
information concerning the term, interest rate and other provisions of the
Revolving Credit Agreement, see "Description of Certain Financings--Revolving
Credit Agreement."
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed on the New York, Pacific and London Stock
Exchanges. The following table sets forth for the fiscal periods indicated, the
high and low sales prices of the Common Stock on the Composite Tape, as
reported by the National Quotation Bureau, Incorporated:
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
1992
First Quarter........................................... $26 $19 3/8
Second Quarter.......................................... 24 1/4 18 1/2
Third Quarter........................................... 21 5/8 14 1/4
Fourth Quarter.......................................... 15 1/8 9 3/8
1993
First Quarter........................................... 12 7/8 10 1/8
Second Quarter.......................................... 13 1/8 9 1/4
Third Quarter........................................... 12 1/2 8 5/8
Fourth Quarter.......................................... 10 1/4 6 1/2
1994
First Quarter........................................... 8 3/4 6 3/4
Second Quarter.......................................... 11 1/2 7 1/8
Third Quarter........................................... 11 1/8 8
Fourth Quarter(1)....................................... 8 7/8 8 5/8
</TABLE>
- --------
(1) Through May 10, 1994, on which date the last reported sale price on the
Composite Tape was $8.875 per share.
At February 28, 1994, there were approximately 4,855 shareholders of record
holding the Company's Common Stock.
The Company has not paid cash dividends on its Common Stock since October
1975. Under the terms of the Company's Revolving Credit Agreement, the Company
may not pay cash dividends on its Common Stock. The Company's current policy is
to retain earnings for use in its business rather than to pay cash dividends on
its Common Stock. Future dividends on the Common Stock will depend on business
and financial conditions, earnings, then existing covenants in the Company's
financing agreements, and other factors and are subject to declaration by the
Company's Board of Directors at its discretion.
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
and its subsidiaries as of January 30, 1994, and as adjusted to give effect to
(i) the sale of the Senior Notes, (ii) the sale of the Convertible Subordinated
Notes and (iii) the repayment of amounts outstanding under the Revolving Credit
Agreement. This table should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 30, 1994
-------------------
AS
ACTUAL(1) ADJUSTED
--------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and Short-Term Investments.......................... $ 28,768 $123,068
======== ========
Debt:
Revolving Credit Agreement(2).......................... $ 50,000 $ --
9.35% Senior Notes due 2000............................ 75,000 75,000
9.33% Senior Notes due 2002............................ 62,000 62,000
Senior Notes due 2003.................................. -- 100,000
Capital leases......................................... 11,102 11,102
Convertible Subordinated Notes due 2004................ -- 50,000(3)
9.25% Subordinated Debentures due 2017................. 150,000 150,000
7.00% Convertible Subordinated Debentures due 2012..... 115,000 115,000
Other debt............................................. 20,323 20,323
-------- --------
Total Debt(4)........................................ 483,425 583,425(3)
Shareholders' Equity:
Preferred Stock, $1 par value, 10,000,000 shares
authorized, no shares issued.......................... -- --
Common Stock, $1 par value, 50,000,000 shares autho-
rized, 18,017,930 shares issued(5).................... 18,018 18,018
Additional paid-in capital............................. 102,541 102,541
Retained earnings...................................... 82,976 82,976
Minimum pension liability adjustment(6)................ (13,306) (13,306)
-------- --------
Total Shareholders' Equity........................... 190,229 190,229
-------- --------
Total Capitalization................................. $673,654 $773,654
======== ========
</TABLE>
- --------
(1) See "Notes to the Consolidated Financial Statements--Notes 7 and 10" for
additional information concerning indebtedness and shareholders' equity.
(2) Borrowings under the Revolving Credit Agreement were $50 million as of May
1, 1994. All outstanding amounts under the Revolving Credit Agreement will
be repaid with a portion of the net proceeds of the Offerings. See "Use of
Proceeds."
(3) Assuming the Underwriter does not exercise any part of its over-allotment
option.
(4) The Company's total financings include indebtedness, shown in the table
above, and off-balance sheet financings consisting of a $60 million
accounts receivable sales facility, which is reported as a reduction to
accounts receivable, and certain sale-leaseback transactions, accounted for
as operating leases, with an outstanding balance of $50.5 million as of
January 30, 1994. At January 31, 1994, the Company had deposited
approximately $7 million of cash into a reserve fund to support the
accounts receivable facility. See "Description of Certain Financings." The
Company's total financings were $587 million at January 30, 1994, and $687
million as adjusted for the Offerings.
(5) Excludes 2,674,418 shares reserved for issuance upon conversion of the
7.00% Convertible Subordinated Debentures due 2012, 3,058,175 shares
reserved for issuance upon exercise of outstanding or issuable stock
options, and 600,000 shares reserved for issuance upon exercise of
outstanding warrants.
(6) See "Notes to the Consolidated Financial Statements--Note 9a" and "Risk
Factors--Underfunded Pension Plan."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth the selected financial and operating data of
the Company for each of the periods indicated in the five-year period ended
July 31, 1993, which were derived, except as otherwise noted, from the audited
Consolidated Financial Statements of the Company. The table also sets forth
selected financial and operating data for the six-month periods ended January
30, 1994, and January 31, 1993, which were derived from unaudited interim
Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
-------------------- -------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993(A) 1992 1991 1990 1989
-------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.................. $484,823 $ 626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Cost and Expenses...... 439,719 594,568 1,133,040 1,223,931 1,275,269 1,038,501 969,240
General and Adminis-
trative Expenses(b)... 13,446 22,467 43,800 10,167 9,239 8,606 393
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating Income
(Loss)................ 31,658 8,969 (1,688)(c) 45,558(d) 100,578 31,605 75,044
Interest--Net.......... 23,681 22,770 47,883 63,373 53,701 40,606 28,964
-------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before
Taxes and Cumulative
Effect of Accounting
Changes............... 7,977 (13,801) (49,571) (17,815) 46,877 (9,001) 46,080
Taxes (Benefit) on In-
come.................. 242 (5,286) (18,990) (19,270) 16,360 (9,040) 12,600
-------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before
Cumulative Effect of
Accounting Changes.... 7,735 (8,515) (30,581) 1,455 30,517 39 33,480
Cumulative Effect
Through July 31, 1992
of Accounting
Changes--Net of
Taxes(e).............. -- (223,950) (223,950) -- -- -- --
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)...... $ 7,735 $ (232,465) $ (254,531) $ 1,455 $ 30,517 $ 39 $ 33,480
======== ========== ========== ========== ========== ========== ==========
Net Income (Loss) Per
Share:
Income (Loss) Before
Cumulative Effect of
Accounting Changes.. $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74 $ 0.00 $ 1.90
Cumulative Effect
Through July 31,
1992 of Accounting
Changes--Net of
Taxes............... -- (12.52) (12.50) -- -- -- --
-------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss).... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74 $ 0.00 $ 1.90
======== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA AT
PERIOD END:
Working Capital........ $358,453 $ 447,476 $ 350,321 $ 700,774 $ 712,520 $ 640,461 $ 549,799
Property, Plant and
Equipment, Net........ 230,849 245,948 239,045 270,283 237,434 234,166 204,911
Total Assets........... 967,566 1,130,164 1,017,786 1,363,958 1,411,498 1,329,308 1,166,828
Total Debt(f).......... 483,425 628,243 531,608 572,594 636,070 551,227 426,390
Total Shareholders'
Equity................ 190,229 217,336 182,243 448,866 441,401 413,713 412,387
OTHER DATA:
EBITDA(g).............. $ 43,351 $ 21,617 $ 48,890 $ 123,413 $ 128,299 $ 58,645 $ 99,880
Depreciation and Amor-
tization.............. 11,693 12,648 25,578 27,855 27,721 27,040 24,836
Net Cash Provided by
(Used in)
Operating Activities.. 44,928 (35,571) 78,668 110,342 (62,770) (155,644) (106,747)
Capital
Expenditures(h)....... 2,949 18,878 27,536 62,933 32,383 28,923 39,005
Ratio of Earnings to
Fixed Charges(i)...... 1.31x 0.40x 0.01x 0.72x 1.81x 0.83x 2.27x
EBITDA to Interest
Expense(g)............ 1.79x 0.93x 1.00x 1.84x 2.34x 1.09x 3.13x
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
------------------ -----------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993(A) 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA DATA TO REFLECT
ACCOUNTING CHANGES:
(UNAUDITED)(j):
Pro Forma Net Income
(Loss)(j).................. $ 7,735 $(8,515) $(30,581) $(36,271) $(22,898) $(58,469) $(8,680)
Pro Forma Net Income (Loss)
per Share.................. $ 0.43 $ (0.48) $ (1.71) $ (2.05) $ (1.31) $ (3.29) $ (0.49)
Pro Forma EBITDA(g)(k)...... $43,351 $21,617 $ 48,890 $ 62,269 $ 41,727 $(36,182) $31,549
Pro Forma EBITDA to Inter-
est Expense................ 1.79x 0.93x 1.00x 0.93x 0.76x (l) 0.99x
ADJUSTED DATA TO REFLECT
OFFERINGS BEFORE CUMULA-
TIVE EFFECT OF ACCOUNTING
CHANGES: (UNAUDITED)(m)
Net Income (Loss)(m)........ $ 4,412 $(36,495)
Net Income (Loss) per
Share...................... $ 0.24 $ (2.04)
Ratio of Earnings to Fixed
Charges(n)................. 1.07x 0.01x
EBITDA to Interest
Expense(g)................. 1.48x 0.85x
</TABLE>
- --------
(a) Fiscal 1993 results reflect the Company's adoption, in the third quarter,
of changes to certain elements in the application of accounting principles
relating to long-term programs and contracts, including the expensing of
general and administrative costs that were previously carried in inventory
for amortization over future deliveries. The amounts also reflect the
Company's adoption of SFAS No. 106, "Employers Accounting for Post-
Retirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting
for Income Taxes." The accounting changes described above were effective
August 1, 1992. As a result, periods prior to August 1, 1992 are not
comparable.
(b) Fiscal 1993 results reflect the Company's changed accounting policy to
expense general and administrative expenses as incurred; these expenses
were previously inventoried.
(c) Includes the impact of net provisions of $25.0 million for plant closure,
inventory obsolescence and other asset valuations, other costs related to
the planned consolidation process and various items of litigation. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations--Fiscal 1993 Compared to Fiscal
1992." The impact of the accounting change on fiscal 1993 was a reduction
to operating profit of $39.9 million.
(d) Includes the impact of special provisions of approximately $50.0 million
for the termination of the Lockheed C-5 spare pylon program, the Valsan
727 re-engining program, an investigation by government agencies
concerning production of parts and a provision for the closing of the
Auburn plant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Fiscal 1992
Compared to Fiscal 1991."
(e) In the third quarter of fiscal 1993, the Company changed certain of its
accounting principles as described in note (a) above. These changes
required the Company to calculate the effect of the change in accounting
principles on retained earnings as of the first day in the fiscal year of
change.
(f) Excludes off-balance sheet financing. See "Capitalization."
(g) EBITDA is defined as earnings before the cumulative effect of the
accounting changes, interest and other income, interest expense and taxes
on income (benefit) and depreciation, amortization and the impact of the
special provisions referred to in notes (b) and (c) above. EBITDA is
presented here to provide additional information about the Company's
ability to meet its future debt service, capital expenditure, and working
capital requirements and should not be construed as substitute for or a
better indicator of results of operations or liquidity than net income or
cash flow from operating activities computed in accordance with generally
accepted accounting principles.
(h) Includes capitalized interest; excludes additions to property, plant and
equipment financed by industrial revenue bonds and capital leases.
(i) For purposes of determining the ratio of earnings to fixed charges, the
term "earnings" represents income (loss) before cumulative effect of
accounting changes, plus income tax (benefit) and fixed charges excluding
capitalized interest. The term "fixed charges" represents interest
expense, capitalized interest, amortization of debt issue expense and the
portion of operating lease rental expense considered to be representative
of an interest factor. Historical earnings were insufficient to cover
fixed charges by $14,886 for the six months ended January 31, 1993 and
$51,184 for fiscal 1993, $19,312 for fiscal 1992 and $9,604 for fiscal
1990.
21
<PAGE>
(j) The Pro Forma Data to Reflect Accounting Changes (Unaudited), assumes the
changes in the application of accounting principles for long-term programs
and contracts adopted by the Company effective August 1, 1992, are applied
retroactively. The pro forma amounts presented also reflect the
retroactive application of SFAS No. 109, "Accounting for Income Taxes" to
the periods presented--periods which predate both the Company's adoption
of SFAS No. 109 and the release of that standard. Tax benefits arising
pursuant to SFAS No. 109, "Accounting for Income Taxes," are allocated
ratably over the pro forma restated periods. The pro forma restated effect
of the Company's adoption of SFAS No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions" are not material and are not
presented. The pro forma financial data should not be considered
indicative of actual results that would have been achieved had the
accounting changes adopted by the Company effective August 1, 1992 been in
effect for the periods indicated and do not purport to indicate result of
operations as of any future date or for any future period. The following
information should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations", and the
"Consolidated Financial Statements of Rohr, Inc. and Subsidiaries" and the
Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
------------------ ----------------------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA INCOME
STATEMENT DATA
(UNAUDITED):
Sales.................. $484,823 $626,004 $1,175,152 $1,279,656 $1,385,086 $1,078,712 $1,044,677
Cost and Expenses...... 439,719 594,568 1,133,040 1,242,240 1,321,792 1,092,150 996,313
General and
Administrative
Expenses.............. 13,446 22,467 43,800 53,002 49,288 49,784 41,651
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating Income
(loss)................ 31,658 8,969 (1,688)(c) (15,586)(d) 14,006 (63,222) 6,713
Interest Net........... 23,681 22,770 47,883 63,373 53,701 40,606 28,964
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before
Taxes................. 7,977 (13,801) (49,571) (78,959) (39,695) (103,828) (22,251)
Tax (Benefit) on
Income................ 242 (5,286) (18,990) (42,688) (16,797) (45,359) (13,571)
-------- -------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)...... $ 7,735 $ (8,515) $ (30,581) $ (36,271) $ (22,898) $ (58,469) $ (8,680)
======== ======== ========== ========== ========== ========== ==========
Pro Forma Ratio of
Earnings to Fixed
Charges............... 1.31x 0.40x 0.01x (l) 0.30x (l) 0.33x
</TABLE>
(k) The calculation of pro forma EBITDA is shown below (unaudited):
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED JULY 31,
----------------- ---------------------------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Income, as Re-
ported................. $31,658 $ 8,969 $ (1,688)(c) $ 45,558(d) $100,578 $ 31,605 $75,044
Less Changes in the Ap-
plication of Account-
ing Principles for
Long-Term Programs and
Contracts............. -- -- -- 61,144 86,572 94,827 68,331
------- ------- -------- -------- -------- -------- -------
Pro forma Operating In-
come (Loss)............ 31,658 8,969 (1,688) (15,586) 14,006 (63,222) 6,713
Add Depreciation and Am-
ortization............. 11,693 12,648 25,578 27,855 27,721 27,040 24,836
------- ------- -------- -------- -------- -------- -------
Pro Forma Earnings...... 43,351 21,617 23,890 12,269 41,727 (36,182) 31,549
Add Special Provisions.. -- -- 25,000 50,000 -- -- --
------- ------- -------- -------- -------- -------- -------
Pro Forma EBITDA........ $43,351 $21,617 $ 48,890 $ 62,269 $ 41,727 $(36,182) $31,549
======= ======= ======== ======== ======== ======== =======
</TABLE>
(l) Negative numbers as losses were incurred.
(m) The unaudited adjusted data to reflect the Offerings assumes the financial
data has been adjusted for the effect of the Offerings and the
corresponding repayment of the outstanding balance under the Revolving
Credit Agreement and short-term bank debt as of the first day of each
fiscal period and assumes no exercise of the Underwriter's over-allotment
option.
(n) Ratio of earnings to fixed charges as adjusted to reflect the Offerings,
reflect the issuance of the Senior Notes and the Convertible Subordinated
Notes (assuming no exercise of the Underwriter's over-allotment option),
and the application of the proceeds therefrom, as if the Offerings had
been consummated as of the first day of each fiscal period. On such basis,
earnings were insufficient to cover the pro forma fixed charges by $60,769
for fiscal 1993.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis presents management's assessment of
material developments affecting the Company's results of operations, liquidity
and capital resources for the three years ended July 31, 1993 and the six
months ended January 30, 1994. These discussions should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto.
Comparisons between periods may not be meaningful because of significant
changes the Company made in certain of its accounting policies, effective
August 1, 1992, as discussed in "--Accounting Changes," and the substantial
provisions taken in the third quarters of fiscal 1992 and 1993.
On certain long-term programs under which the Company sells spares directly
to the airlines, the Company accounts for profit and loss under the program
method of accounting. Under the program method of accounting, the quantity of
units in the profit center includes existing and anticipated contracts and is
predicated upon market forecasts, which have inherent uncertainties. Included
within the program quantity are spares anticipated to be sold concurrent with
production units which, as a percentage of total deliveries, increase as a
program matures and historically have been sold at higher prices than
production units. As spares and production units are both included in the
program quantity, higher margins are reported in the early program years based
upon anticipated production and spare orders in the future. Programs for which
the Company uses the program method of accounting and for which spares are
significant are as follows: V2500, CF6-80C, CFM56-5, A340 and MD-90. Market
forecasts continue to support the reasonableness of the projected spares
included in program quantities. See "Notes to Consolidated Financial
Statements--Note 1b."
COMPANY OUTLOOK
As a result of the slow down in the commercial aerospace industry and
reductions in the Company's military and space programs (see "Risk Factors--
Industry Cycles; Current Business Outlook" and "Business--Markets"), the
Company's revenues decreased approximately 8% from fiscal 1991 to fiscal 1992
and approximately 8% from fiscal 1992 to fiscal 1993. Revenues for the first
six months of fiscal 1994 were approximately 23% less than for the comparable
period in fiscal 1993. In response to these conditions, management has taken
aggressive actions to increase competitiveness, improve earnings, maximize cash
flow and reduce debt.
The Company has reduced its workforce from a peak of approximately 12,100 at
July 31, 1989, to approximately 6,500 at July 31, 1993, and 5,154 at January
30, 1994. The Company's new management has also focused on reducing the ratio
of indirect employees to direct employees. From April 30, 1993 to January 30,
1994, this ratio improved from 1-to-2.0 to 1-to-2.6. Management has targeted a
ratio of 1-to-2.8 by July 31, 1994. Management has also established a total
overhead expense budget equal to 29% of sales for fiscal 1994, which compares
to a high of 41% of sales in fiscal 1989 and 32% of sales for the 12 months
ended January 30, 1994.
To reduce excess capacity and to increase overall production efficiencies
through higher utilization of its remaining facilities, the Company has closed
and sold its Auburn, Washington plant, is closing its Hagerstown, Maryland
plant and has deferred completion of a new facility in Arkadelphia, Arkansas.
The Company also has reduced capital expenditures from an average of $45
million per year over the last five fiscal years to a planned expenditure of $7
million in fiscal 1994. Average expenditures over the next four years are not
expected to exceed $20 million per year.
The Company has also increased its focus on its core business within the
commercial aerospace industry--the design and manufacture of nacelle and pylon
systems for large commercial aircraft. The Company intends to focus exclusively
on these products and to be the low cost producer in this
23
<PAGE>
segment. The Company is currently in negotiations to sell two non-core
businesses, its business jet product line and its overhaul and repair business.
These two businesses generated approximately $35 million of revenue in fiscal
1993.
RESULTS OF OPERATIONS
First Six Months Fiscal 1994 Compared to First Six Months Fiscal 1993
Total sales for the first six months of fiscal year 1994 were $484.8 million,
down $141.2 million or 22.6% from the first six months of fiscal year 1993.
Commercial sales during the first six months of fiscal year 1994 were down
compared to the same period of fiscal year 1993 due primarily to reductions in
deliveries. Government sales for the comparative period declined due primarily
to a reduction in the delivery rate on the Titan program. Commercial sales
aggregated 88% and government sales 12% of the Company's total sales in the
first six months of fiscal year 1994.
Operating income increased to $31.7 million for the first six months of
fiscal year 1994, up from $9.0 million for the same period of fiscal year 1993.
A significant contributor was reduced general and administrative expenses which
declined $9.1 million from $22.5 million for the first six months of fiscal
1993 to $13.4 million for the first six months of fiscal 1994. The decline was
primarily the result of work force reductions and other ongoing cost cutting
efforts. Fiscal 1994 results were adversely impacted by a reduction in sales
volume on several programs. Fiscal 1993 results were impacted by losses on
tooling and design efforts and cost problems related to certain programs, a
loss on the 727 re-engining program, and $5 million for additional provisions
related to various litigation uncertainties. Operating income in the first six
months of fiscal year 1994 was also impacted by a less favorable follow-on
contract on the Titan program.
Net interest expense was $23.7 million for the first six months of fiscal
year 1994 compared to $22.8 million for the same period last year. While total
financings have declined, interest rates paid by the Company have increased
primarily due to the replacement of certain variable rate financings with long-
term fixed rate financing.
Earnings for the first six months of fiscal year 1994 were a positive $7.7
million or 43 cents per share compared to a loss of $8.5 million or 48 cents
per share (before the cumulative effect of the accounting change) for the same
period last year. The Omnibus Budget Reconciliation Act, adopted in August
1993, increased federal tax rates, thus causing the deferred tax asset shown on
the balance sheet to increase and taxes on income to decrease for the first
six-months of fiscal year 1994. This resulted in a one time increase in net
income of $2.8 million and earnings per share of 16 cents.
The first six-months of fiscal year 1993 were additionally impacted by a loss
of $223.9 million, net of taxes, or $12.52 per share, due to the cumulative
effect for the changes in the application of accounting principles through July
31, 1992, adopted on a retroactive basis in the third quarter of fiscal year
1993.
Additional Items
The Company is still experiencing softness in orders by airlines for spare
components, which caused the Company to revise its spares delivery forecast in
the near term on certain programs. See "--Fiscal 1993 Compared with Fiscal
1992."
The Company has notified its customer on the V2500 program that it has
exercised its contractual right to terminate the contract in 1995 so the
Company will not be required to accept orders under the current contract terms
after mid-year 1995. The Company is discussing possible alternative contractual
arrangements with its customer under which it would continue with the program.
In addition, anticipated spares deliveries for the V2500 program have been
revised downward in the near term and the Company now expects to incur the
total loss previously booked on this program.
24
<PAGE>
The Company and its actuary are evaluating the extent to which the downsizing
of personnel may necessitate the expensing of unamortized pension benefit past
service costs related to the termination of employees. This evaluation and the
recognition of its financial impact is expected to be complete by the end of
the third quarter of fiscal 1994. See "Risk Factors--Underfunded Pension
Plans."
Fiscal 1993 Compared with Fiscal 1992
Sales declined from $1,279.7 million in fiscal 1992 to $1,175.2 million in
fiscal 1993. Commercial sales benefited from deliveries on the Airbus A340
program, and start-up of the MD-90 program. However, commercial sales in fiscal
1993 were negatively impacted by reductions in the delivery rate of large
commercial aircraft. See "Risk Factors--Industry Cycles; Current Business
Outlook" and "Business--Markets." Government sales for the comparable period
declined due to events in the previous year, including the termination of the
C-5 spare pylon program and completion of F-14 production deliveries.
Commercial sales aggregated 87% and government sales 13% of total sales.
Total general and administrative expenditures declined $9.2 million from
$53.0 million in fiscal 1992 to $43.8 million in fiscal 1993. The decline was
primarily the result of work force reductions, postponement of annual wage
increases, and other ongoing cost cutting efforts. General and administrative
expenses in fiscal 1993 were charged as a period expense. General and
administrative expenditures for fiscal 1992 were, in part, inventoried and
relieved through cost of sales as units were delivered. This change was made as
part of the change in application of accounting principles discussed in "--
Accounting Changes."
The Company reported an operating loss of $1.7 million for fiscal 1993
compared to an operating profit of $45.6 million for fiscal 1992. Fiscal 1993
operating income was negatively impacted by $39.9 million due to the change in
application of accounting principles relating to long-term programs and
contracts. See "--Accounting Changes." These changes will also continue to
impact results negatively in the near term, but are expected to positively
impact operating results in the long-term. Results for the year were also
adversely affected by net provisions aggregating $25.0 million for plant
closure, inventory obsolescence and other asset valuations, other costs related
to the planned consolidation process, and various items of litigation. In
addition, results reflect a reduction in anticipated sale of spare parts on the
V2500, CF6-80C, CFM56-5 and A340 programs. The Company generally attributes
recent reductions in spares sales to the surplus aircraft in the current market
place. As a result of such surplus, aircraft deliveries have declined and the
initial spares sold to support newly delivered aircraft have also declined. In
addition, airlines are maintaining lower spares levels; the existence of
surplus aircraft has reduced the need for spares supplies sufficient to keep an
airline's entire fleet in operation. Also, improved production quality appears
to have reduced spares requirements. In addition, fiscal 1993 results reflected
increased costs associated with assembly labor performance and subcontractor
changes on the PW300 program and certain out-of-production spare programs.
Operating results in fiscal 1992 were adversely impacted by a number of special
provisions approximating $50 million. Paramount was a provision for potential
losses arising as a result of the government's termination for default of the
C-5 spare pylon program. See "Notes to the Consolidated Financial Statements--
Note 8." Operating results for fiscal 1992 were also impacted by provisions
relating to the Company's investment in the Valsan 727 re-engining program,
which was negatively impacted by delayed implementation of U.S. noise
regulations, and by provisions for closure of the Company's Auburn facility and
future settlement of possible criminal and civil proceedings concerning certain
government programs. In fiscal year 1992, operating results were also impacted
by cost problems on certain "out-of production" spares programs.
In fiscal 1993, the Company achieved better labor performance than in fiscal
1992. This is attributed, in part, to the generally higher seniority level of
the Company's work force as a result of the Company's recent downsizing
activities.
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Estimates of anticipated spare part sales were reduced on the McDonnell
Douglas MD-90 program resulting in a decline of projected operating income from
this program in future years. Negotiation of a new long-term agreement on the
PW4000 program resulted in revised cash flow estimates that delayed recovery of
the Company's investment on that program.
Net interest expense was $47.9 million for the year ended July 31, 1993, as
compared to $63.4 million for the same period the previous year. The 1992
period included a charge of $18.3 million during the third quarter of fiscal
1992 for interest cost attributed to the IRS audit adjustment to the Company's
1984 and 1985 federal tax returns. The 1993 period also includes interest
expenses for income tax liabilities. Net of the interest for income tax
liabilities, interest expense in 1993 was lower than in fiscal 1992 due to
lower average borrowings and lower interest rates.
Net loss was $254.5 million for the year ended July 31, 1993, as compared to
income of $1.5 million for fiscal 1992, primarily as a result of the $224.0
million charge for the cumulative effect of the accounting changes described
under "--Accounting Changes," the effect of the accounting change in 1993 of
$39.9 million ($24.6 million after tax) and the $25.0 million ($15.4 million
after tax) special provision.
The net loss for the year ended July 31, 1993 is net of tax benefits totaling
$158.0 million. These tax benefits offset existing deferred tax liabilities at
July 31, 1992 and resulted in a net deferred tax asset of $103.0 million at
July 31, 1993.
Fiscal 1992 Compared With Fiscal 1991
Commercial sales declined during fiscal 1992 compared to fiscal 1991 due to a
reduction in deliveries on certain programs reflecting changing economic
conditions and a reduction in sales resulting from a subcontractor delivering
directly to the customer. Government sales declined due to the termination of
the C-5 spare pylon program and the completion of F-14 production deliveries.
Commercial sales aggregated 86% and government sales 14% of total sales
compared to 80% and 20% for fiscal 1991.
The Company reported an operating profit of $45.6 million for fiscal 1992
compared to an operating profit of $100.6 million for fiscal 1991. Fiscal 1992
operating results were adversely impacted by a number of third quarter special
provisions approximating $50.0 million, plus approximately $5.5 million during
the third quarter related to the state franchise tax effect of special charges.
The special provisions included charges for the termination of the Lockheed C-5
spare pylon program, the Valsan 727 re-engining program, an investigation by
government agencies concerning production of parts, and a provision for the
closing of the Auburn plant. In addition, commercial programs during fiscal
1992 benefited from some improved pricing and, based on aircraft orders and
options placed by airlines, an increase in the program quantity and spare part
sales estimates for the General Electric CF6-80C and CFM International CFM56-5
nacelle programs, which were in turn offset by a reduction in sales volume.
Government programs during fiscal 1992 continued to be adversely impacted by
disruption from redefined acceptance criteria by the government. Also of
significance was the completion of the F-14 production program and the benefit
from improved cost performance at the Space division. The Company revised its
overhead cost rates used in its program cost estimates to reflect a declining
production base anticipated in future years.
Fiscal 1992 operating results included an estimate of recovery on the KC-135
program for constructive change claims related to government redefined
acceptance criteria. Fiscal 1991 operating results included an additional
estimate of recovery on the Boeing E3/E6 program and an initial estimate of
recovery on the Lockheed C-5 production and spare pylon programs related to
government redefined acceptance criteria, as well as an estimate of recovery on
the PW4000 program related to tooling and design change activity.
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Operating results were limited by the inability to achieve profitable results
on several major programs. Among these were the V2500, MD-11 pylon and PW4000
programs, which have been impacted by delays and increased labor cost estimates
for bonding and assembly operations plus tooling and design support services.
An A320 order by United Airlines improved the market outlook for the V2500
program, although spares sales were still below original expectations delaying
recovery of the Company's program investment. Negotiations on the PW4000
contract and the resolution of major design changes for the MD-11 program
improved the financial status during the fourth quarter of fiscal 1992 of these
major programs.
Program estimates on the Airbus A340 nacelle program continued to be
negatively influenced by delays in delivery of the initial program quantity, a
reduction in anticipated spare part sales, increased start-up costs and higher
than planned bonding and assembly costs. These revised estimates indicate a
less than planned return in the future on investment for this program.
Interest expense was increased $18.3 million during the third quarter of
fiscal 1992 to reflect the interest cost of federal income tax adjustments.
These tax adjustments have offset previously expected tax deductions, and the
related interest income accrual. Interest on indebtedness was lower than for
fiscal 1991 due to lower average borrowings and lower rates.
An income tax benefit was recorded during fiscal 1992 as a result of the
pretax loss. The benefit was higher than the amount computed at statutory tax
rates due to additional benefits from tax planning items and, most importantly,
utilization of tax reserves in connection with the federal income tax interest
adjustment discussed above. The effective income tax rate, which is expressed
as a ratio of tax expense to pretax income, was substantially higher in fiscal
1992 compared to fiscal 1991 because benefits from utilization of tax reserves
and tax planning items increase the rate when there is a pretax loss.
LIQUIDITY AND CAPITAL RESOURCES
For the first six months of fiscal year 1994, net cash provided by operating
activities totaled $44.9 million compared with a use of cash of $35.6 million
for the same period of the prior year. Net cash provided by operating
activities was $78.7 million in fiscal 1993 and $110.3 million in fiscal 1992.
In recent periods, net cash provided by operating activities included one-time
receipts by the Company for design and tooling efforts and similar non-
recurring tasks. Net cash from operating activities also included accelerated
payments for delivered production hardware in the first six months of fiscal
1994, and the receipt of certain amounts that had been deferred pending
aircraft certification in fiscal 1993 and 1992. Net cash provided by operations
is subject to significant variations from period to period.
The Company's total financings (balance sheet debt plus off-balance sheet
financings) aggregated $587 million at January 30, 1994, down $56.9 million
from July 31, 1993. Total indebtedness as reflected on the Company's balance
sheet decreased by $48.2 million from $531.6 million on July 31, 1993 to $483.4
million on January 30, 1994. During the first six months of fiscal year 1994,
the Company repaid its $35 million medium term note and made the annual $12.5
million principal payment on its 9.35% senior notes.
The Company's liquidity has improved over the last year, primarily as a
result of cash flow generated from operating activities. However, as a result
of its credit rating and the financial community's concerns about the aerospace
industry, the Company has generally been unable to utilize uncommitted and
certain other credit facilities which historically have been available to it. A
bank that provided a letter of credit in support of certain Company obligations
recently extended the letter of credit for an additional year. The Company is
seeking the renewal of or replacement of another letter of credit which is
scheduled to expire in July 1994. If the Company does not obtain a renewal or
substitute letter of credit, it will be required to fund approximately $17
million of obligations currently supported by the letter of credit.
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On January 30, 1994, the Company had $50 million of borrowings under its
committed Revolving Credit Agreement, no change from borrowings of $50 million
on July 31, 1993. Upon completion of the Offerings, the Revolving Credit
Agreement will be amended to provide for a three-year commitment and will
contain revised financial covenants which were negotiated to permit the
Offerings contemplated by this Prospectus and the expected increases in
underfunded pension liabilities (which are discussed in greater detail below).
See "Risk Factors--Underfunded Pension Plans" and "Description of Certain
Financings."
The Company is a party to a $60 million accounts receivable facility under
which it sells receivables from specified customers on an on-going basis. As a
result of the slow-down in the aerospace industry, the amount of outstanding
receivables from these customers has fallen below levels which existed at the
start of the facility. As a result, the Company has deposited cash collateral
from time to time as required to support the facility and has withdrawn such
cash when it is no longer required to be deposited. At January 30, 1994, the
Company had $7 million of cash collateral on deposit.
The Company is also a party to certain equipment leases and has granted the
lessors a security interest in selected customer receivables to secure $10
million of obligations. If the parties who lease this equipment to the Company
do not assign approximately one-half of their beneficial interests in the
leased equipment to other parties by January 1995, the equipment lessors may
require the Company to prepay up to $10 million of its equipment lease
obligations.
The Company's existing debt level reflects the substantial investments made
by the Company in the late 1980s and early 1990s to design and begin production
on several major long-term programs. Except for the MD-90, the Company has
substantially completed the large investments required by these programs and
most are now well into production. The industry is expected to introduce
relatively few new programs in the next several years and, accordingly, the
Company believes that its financing requirements for new programs have been
reduced as compared to prior periods.
At July 31, 1993, the underfunded status (excess of projected benefit
obligations over plan assets) of the Company's defined benefit plans had
increased to $65.6 million. This underfunded status resulted from a combination
of factors including benefit increases, increased levels of early retirements,
less than the actuarially-assumed returns on plan assets and a reduction in the
discount rate used to calculate the present value of future pension plan
liabilities for financial reporting purposes. Considering current interest rate
levels, the Company anticipates reducing its discount rate to 7.5% for its
fiscal year 1994 valuation from the 8.5% used for its 1993 valuation, which
will substantially increase the Company's accrued pension benefit obligation.
In addition, the Company has continued to experience a higher level of early
retirements than actuarially anticipated which is also expected to
significantly increase the accrued pension benefit obligation. The Company
anticipates that the expected increases in the underfunded pension liabilities
will approximate $75 million and will result in a charge to shareholders'
equity estimated at $45 million and an estimated $30 million increase to the
Company's deferred tax asset account. The Company and its actuary are also
evaluating the extent to which the downsizing of personnel may necessitate the
expensing of unamortized pension benefit past service costs related to
terminated employees. This matter does not affect the underfunded status of the
plans but would result in a charge to earnings. The evaluation of all of these
items and the recognition of the related financial impact is expected to be
completed by the end of the third quarter of fiscal 1994. See "Risk Factors--
Underfunded Pension Plans."
The Company's required minimum annual contribution to its defined benefit
plan, which is directly impacted by the plans' funded status, has increased
from $15.3 million for calendar year 1992 to $19.0 million for calendar year
1993. The Company expects that IRS regulations will require it to increase its
annual cash contributions to the Pension Plans for several years. These
regulations are designed to
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substantially eliminate pension plan underfunding within five years. The
Company expects to have sufficient liquidity to make these increased
contributions.
The Company's principal financing agreements have covenants pertaining to
indebtedness (which is defined to include the underfunded pension liabilities),
to shareholders' equity (which would be affected by any charge to equity caused
by an increase in underfunded pension liabilities), and to the ratio of net
income to fixed charges (which would be affected by any increase in pension
expense). However, the Company and the lenders under these agreements have
agreed on revised financial covenants to accommodate the financial effect of
the pension issues described above. The revised financial covenants will become
effective upon the sale of the Securities.
On January 21, 1994, the Company announced that it had signed letters of
intent to sell its business jet product line and certain assets of a wholly
owned subsidiary, Rohr Aero Services, Inc. The revenue generated from these
operations has approximated $35 million in each of the last two fiscal years.
In preparation for the sale of the assets of Rohr Aero Services, Inc., the
Company adjusted carrying values of assets downward by $0.7 million during the
second quarter of fiscal 1994. In the aggregate, a net gain is anticipated upon
sale of these assets. In March 1994, the purchaser of these two lines of
business placed a $7.8 million deposit in escrow. One-half of this deposit is
nonrefundable under certain circumstances. The Company recently sold its
Auburn, Washington plant (which was closed in fiscal year 1993) and is seeking
to sell its Hagerstown, Maryland manufacturing facility which is excess to
projected capacity needs.
The Company's net inventory decreased to $412.2 million at January 30, 1994
from $439.7 million at July 31, 1993. Excess-over-average and production
inventory declined reflecting the increased maturity of newer programs, the
reduced sales volume and the efforts of management to control inventory levels
through shorter lead times and just-in-time contracts. These reductions were
partially offset by an increase in pre-production inventory, primarily in the
MD-90 and A340 programs and in a new application of the V2500 program. The
changes in the application of accounting principles adopted by the Company in
fiscal 1993 substantially decreased net inventory from its level at July 31,
1992. See "--Accounting Changes" and "Notes to the Consolidated Financial
Statements--Note 2."
The Company's receivables decreased from $133.2 million on July 31, 1992 to
$94.1 million at both July 31, 1993, and January 30, 1994, due to several large
receipts by the Company for tooling, design changes and similar non-recurring
tasks, as well as the receipt of certain amounts deferred pending aircraft
certification. This decrease was net of a $45 million reduction in the
receivables sales arrangement which, by itself, would have increased
receivables by $45 million. See "Notes to the Consolidated Financial
Statements--Note 3."
Capital expenditures (including expenditures funded by industrial revenue
bonds and capital leases) averaged $45 million per year over the past five
fiscal years. Capital expenditures for property, plant and equipment totaled
$2.9 million for the first six months of fiscal year 1994, down from $18.9
million in the first six months of fiscal year 1993. Capital expenditures in
the first six months of fiscal year 1993 were higher due in large part to
expenditures for new office and manufacturing facilities. In addition, the
Company has substantially curtailed its previously planned capital expenditures
for the balance of fiscal year 1994 in line with other cost cutting efforts and
anticipates such expenditures will not exceed an average of $20 million per
year over the subsequent four years. Given its substantial recent investments,
the Company believes that the amount it plans to spend on capital expenditures
over the next several years will be sufficient to meet the Company's production
requirements.
The Company's firm backlog, which includes the sales price of all undelivered
units covered by customers' orders for which the Company has production
authorization, was approximately $1.3 billion at January 30, 1994 compared to
$1.4 billion at July 31, 1993. Approximately $0.4 billion of the $1.3 billion
backlog is expected to be delivered in the remainder of fiscal year 1994.
(Sales during any period
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include sales which were not part of backlog at the end of the prior period.)
Customer orders in firm backlog are subject to rescheduling and/or termination
for customer convenience; however, in certain cases the Company is entitled to
an adjustment in contract amounts. The Company has an additional $2.7 billion
in anticipated backlog, which represents the sales price of units which the
Company expects that its customers will order under existing contracts and the
Company will deliver within seven years.
The Company believes that, after the completion of the Offerings, its
principal sources of liquidity over the next several years will be cash flow
from operations, available cash, borrowings under the Revolving Credit
Agreement and the pending asset sales. Based upon current levels of operations
and anticipated future business, the Company believes that these sources will
be adequate to meet its anticipated requirements for working capital, capital
expenditures and debt service during that period.
ENVIRONMENTAL MATTERS
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA" or "Superfund"), and under certain analogous
state laws for the cleanup of contamination resulting from past disposal of
hazardous substances at several sites to which the Company, among others, sent
such substances in the past. CERCLA requires the cleanup of sites from which
there has been a release or threatened release of hazardous substances, and
authorizes the Environmental Protection Agency ("EPA") to take any necessary
response actions at such sites, including ordering PRPs to cleanup or
contribute to the cleanup of a Superfund site. Courts have interpreted CERCLA
to impose strict, joint and several liability upon all persons liable for
response cost.
In June 1987, the U.S. District Court of Los Angeles, in U.S. et al, vs.
Stringfellow, granted partial summary judgment against the Company and 14 other
defendants on the issue of liability under CERCLA. On November 30, 1993, the
special master released his "Findings of Fact, Conclusions of Law and Reporting
Recommendations of the Special Master Regarding the State Share Fact Finding
Hearing," allocating liability between the State of California and other
parties. See "Legal and Environmental Proceedings--Stringfellow." The most
recent estimate the Company has made of its liability, assuming the court order
allocating substantial liability to the State of California is upheld, assuming
the 1989 EPA estimate of total cleanup costs is not exceeded (although the EPA
cautioned the actual costs could have a variation of 30% less or 50% higher
than its estimate), and assuming tentative allocations among the Company and
all other users of the site will approximate the final allocation of aggregate
user liability, shows a Company expenditure ranging from $5 to $8 million over
and above sums spent to date. This amount is within the sums accrued on the
books of the Company for potential offsite environmental liability. However,
the Company estimates further assume that the EPA selects a final remedial
action of moderate technology and cost, rather than one of several more radical
ones previously suggested, but apparently discarded at this point, by the EPA.
The decision on the final remedial action is still being studied and may be
made in 1994 or later.
Expenditures by the Company for cleanup of this site during fiscal 1993 were
not material, although cleanup costs for Stringfellow are expected to be
approximately $1 million during fiscal 1994. From inception to July 31, 1993,
the Company has expended approximately $2.5 million on cleanup costs for this
site. Amounts within the above estimated $5 to $8 million range of future
liability are expected to be paid for remedial work over the next several years
under agreements and consent decrees entered into between the EPA, the Company
and numerous other PRPs. Applicable law provides for continuing liability for
future remedial work beyond these agreements and consent decrees, although the
Company believes its reserves are adequate for its portion of such liability if
all of the above assumptions are correct. The Company also has claims against
its comprehensive general liability insurers for insurance reimbursement, for
past and future costs, none of which has yet been recorded in the financial
records of the Company except for sums actually paid in certain insurance
settlements and certain legal fees which the insurers have been reimbursing.
Based on the foregoing analysis, the Company believes that costs of remedial
actions for the Stringfellow site will not have a material effect on the
Company's financial condition, liquidity or results of operation.
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The Company is also involved in several other proceedings and investigations
related to waste disposal sites and other environmental matters. The Company
has made claims against its insurance carriers for certain of these items, and
has received claims acknowledgment letters reserving the rights of such
carriers. As in the case of the Stringfellow site, the insurers have alleged or
may allege defenses to coverage, although no litigation has been commenced. It
is difficult to estimate the ultimate level of environmental expenditures for
these various other environmental matters due to a number of uncertainties at
this early stage, including the complexity of the related laws and their
interpretation, alternative cleanup technologies and methods, insurance and
other recoveries, and in some cases the extent or uncertainty of the Company's
involvement. See "Legal and Environmental Proceedings" for a more detailed
discussion of the range of the Company's potential liability.
During the year ended July 31, 1993, the Company expended, for the
environmental items described above and also for other environmental matters
(including environmental protection activities in the normal operation of its
plants), a total of approximately $6 million. These expenditures covered
various environmental elements, including hazardous waste treatment and
disposal costs, environmental permits, environmental consultants, fines or
donations (which were not material, either individually or in the aggregate)
and environmental remediation (including Stringfellow), no significant part of
which was capitalized. Assuming the usage of all of these various environmental
elements remains substantially the same for fiscal 1994 as in fiscal 1993,
which the Company anticipates, costs for these elements in fiscal year 1994
should be comparable to the expenditures for fiscal 1993, except for the
indicated higher sum expected to be paid for Stringfellow remediation in fiscal
1994.
Based upon presently available information, the Company believes that
aggregate costs in relation to all environmental matters of the Company will
not have a material adverse effect on the Company's financial condition,
liquidity, results of operations or capital expenditures.
ACCOUNTING CHANGES
In the third quarter of fiscal 1993, the Company changed certain elements of
its application of accounting principles relating to long-term programs and
contracts, effective August 1, 1992. As a result of these changes, certain
costs previously carried in inventory for amortization over future deliveries
are now being expensed. These costs include certain pre-certification costs,
consisting primarily of tooling and design expenses in excess of negotiated
contractual values, that are now expensed as identified. In addition, general
and administrative costs that were previously capitalized are now being
expensed as incurred. Following a thorough review of its accounting policies,
the Company concluded there was a need, particularly in light of the current
aerospace environment, to have financial results more closely reflect near-term
program economics (cash flow and internal rate of return). As a result, these
changes generally reduce the number of production units and spares used in the
calculation of overall profit margins. While the previous methods of applying
the Company's accounting principles were in accordance with generally accepted
accounting principles (GAAP), the changed policies are preferable. The
application of these policies produces program and contract estimates that are
based on shorter delivery periods, allowing a better matching of revenues and
expenses. The cumulative effect of these changes for the periods through July
31, 1992 was a charge of $219.7 million, net of income tax benefits of $136.3
million. The effect of these changes on the year ended July 31, 1993 was to
increase the net loss before the cumulative effect of the changes in accounting
principles by $24.6 million ($1.37 per average common share), net of income tax
benefits of $15.3 million.
In accordance with Accounting Principles Board Opinion No. 20, "Accounting
Changes," pro forma amounts are shown for net loss and net loss per average
share of common stock for all prior periods presented. The pro forma amounts
presented in the Consolidated Statements of Operations reflect the retroactive
application of these accounting changes, net of income tax benefits (which were
allocated ratably over the pro forma restated periods) for each period
presented. Primarily as a result of these changes, excess-over-average
inventory decreased from $323.7 million at July 31, 1992 to $75.4 million at
July 31, 1993. Pre-production inventory also decreased from $258.4 million at
July 31, 1992 to $181.0 million at July 31, 1993, primarily as a result of the
accounting changes. See "Notes to the Consolidated Financial Statements--Note
4."
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In the third quarter of fiscal 1993, the Company also adopted, effective
August 1, 1992, SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions." The accumulated post-retirement benefit
obligation for active employees and retirees was recorded using the immediate
recognition transition option. See "Notes to the Consolidated Financial
Statements--Note 9b." This standard requires companies to accrue the expected
cost of providing health care benefits to retired employees and their
dependents during the employees' service periods. The Company previously
charged the cost of providing these benefits on a pay-as-you-go basis. The
cumulative effect of this change for the periods through July 31, 1992, was a
charge of $4.3 million, net of income tax benefits of $2.7 million. The effect
of the change on the year ended July 31, 1993 was not material.
In the third quarter of fiscal 1993, the Company also adopted, effective
August 1, 1992, SFAS No. 109, "Accounting for Income Taxes." See "Notes to the
Consolidated Financial Statements--Note 6." The cumulative effect of this
change for periods through July 31, 1992, was not material by itself. However,
under this standard, the Company recorded a substantial net deferred tax asset
as a result of the other changes in accounting principles and certain other
charges recorded in the year ended July 31, 1993. See "Notes to the
Consolidated Financial Statements--Note 6."
The combined effect of adopting the new accounting changes for the year ended
July 31, 1993 was a charge to net income of $24.6 million ($1.37 per average
common share). The cumulative effect through July 31, 1992 of adopting the new
accounting changes was a one-time charge of $224.0 million, net of income taxes
($12.50 per average common share), with a corresponding reduction in
shareholders' equity. As a result of adopting the accounting changes, combined
with the results of operations for the year ended July 31, 1993, the Company
reported a loss of $254.5 million ($14.21 per average common share).
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 112, Employers' Accounting for Post-Employment
Benefits. The new standard is effective for fiscal years beginning after
December 15, 1993 and requires employers to recognize the obligation to provide
post-employment benefits to former or inactive employees, their beneficiaries,
and covered dependents, when certain conditions are met. The Company does not
expect there to be a material adverse effect on its financial position or
results of operations in the year of adoption.
INCOME TAXES
First Six Months of Fiscal 1994
The Company provided $3.1 million for income taxes during the first six
months of fiscal year 1994, offset by a tax benefit of $2.8 million due to the
change in federal tax rates under the Omnibus Budget Reconciliation Act of
1993. The Company's deferred tax asset of $102.6 million remained substantially
unchanged from the amount at July 31, 1993 but is expected to increase by
approximately $30 million due to increased pension liability by the end of
fiscal year 1994. See "Risk Factors--Underfunded Pension Plans," "Risk
Factors--Deferred Tax Asset" and "--Liquidity and Capital Resources." Based on
currently available information, the Company believes that sufficient future
taxable income will be generated to fully utilize the increased deferred tax
asset. The Company's ability to utilize its deferred tax asset is discussed in
greater detail below.
The IRS has audited the Company's tax returns through fiscal 1985. In fiscal
1993, the IRS issued a Revenue Agent's Report challenging the Company's
adoption in 1984 of the completed contract method of accounting ("CCMA"), the
Company's tax deduction for funding liabilities related to a Voluntary Employee
Benefit Association ("VEBA") and certain other matters. The Company filed a
protest with the Appeals Office of the IRS and, subsequent to the end of the
second quarter of fiscal 1994, the IRS conceded that the Company was entitled
to use CCMA. The Company is negotiating a resolution of the remaining
adjustment issues with the IRS. The Company believes that the resolution
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of these remaining issues will not have a material adverse effect on the
Company and its financial position, even if the IRS were to prevail with
respect to all of such issues.
Fiscal 1993
In the third quarter of fiscal 1993, the Company adopted, effective August 1,
1992, SFAS No. 109, "Accounting for Income Taxes." This standard requires the
recognition of future tax benefits, predicated upon current tax law,
attributable to tax credit carryforwards, temporary differences, and NOLs that
will result in deductible amounts in the future. The value of the tax asset is
effectively reduced through the establishment of a valuation allowance if,
based on the weight of available evidence, it is "more likely than not" that
some or all of the deferred tax asset will not be realized.
When tax effected at July 31, 1993 tax rates, the Company's deductible
temporary differences, tax credit carryforwards and NOLs result in a deferred
tax asset of $103.0 million, consisting of $85.3 million for federal tax
purposes and $17.7 million for state tax purposes. Based on tax rates in effect
on July 31, 1993, the Company must generate approximately $271 million of
future taxable income (net of $233 million of taxable income that the Company
will report as a result of the automatic reversal of existing taxable temporary
differences between asset and liability values for financial reporting and
income tax purposes) prior to the expiration of the Company's NOLs in 2003
through 2008 for full realization of the net deferred tax asset. The Company
believes it will be able to generate, on average, at least $27 million in net
income for each of the next 10 years, in order to fully utilize the deferred
tax asset (assuming all temporary differences between asset and liability
values for financial reporting and income tax purposes reverse during that
period). This level of net income would be $57.6 million in excess of reported
fiscal 1993 net loss of $30.6 million before the effect of the accounting
changes.
The ultimate realization of the Company's deferred tax asset is dependent
upon the generation of sufficient future taxable income during the available
federal and state NOL carryforward periods. Although the Company has reported
taxable losses during recent fiscal years primarily as a result of the
significant non-recurring events described below, management expects that a
sufficient level of taxable income will result in years subsequent to fiscal
1993 and prior to the expiration of the NOLs to realize the deferred tax asset
recorded at July 31, 1993. The Company's long-term contracts and programs
require long range sales and profit forecasts, but also provide the Company
opportunities to generate future taxable income necessary to realize the
deferred tax asset recorded. Following is a summary of the positive evidence
which leads the Company to believe that a valuation allowance is not necessary,
as it is more likely than not that the deferred tax assets will be realized:
. During fiscal years 1990 through 1993, there were a number of highly
unusual and unpredictable events and other industry factors that caused
the Company to have poor financial results. These items are generally
described below.
The aerospace industry was experiencing unprecedented growth in the
late 1980s and through 1991. The Company was required to deliver its
products more rapidly and was involved in several new product
development efforts for a number of engine nacelles and pylons. The
Company added a significant number of engineers to handle design
changes for new products under development, and experienced even
greater engineering demands due mostly to difficulties in changing the
PW4000 nacelle from the Airbus A300/A310 configuration to the new MD-
11 configuration and in developing the MD-11 pylon.
The Company's rapid expansion of its work force, introduction of new
programs and start-up of satellite facilities were extremely
disruptive and cost consuming. As the Company worked to produce
initial units under new programs, a substantial portion of work was
being performed by relatively inexperienced employees. Additionally,
there were significant start-up costs in relocating production among
facilities. The Company also experienced difficulties on its
government programs as a result of disagreements over redefined
acceptance criteria.
33
<PAGE>
. The conditions leading to an expanding work force, transfers to satellite
plants and heavy use of engineers on new programs have drastically
changed. Currently, the Company and the industry are in a downturn with
orders being delayed and/or cancelled. The Company has been downsizing
and will continue to do so in response to the market. Management has
implemented and will continue to make significant cost reductions in
response to the industry downturn in order to enhance overall
profitability. Additionally, the Company should be able to utilize its
resources in a more balanced and stable manner. Engineering needs have
been drastically reduced as most of the programs that were in the
development stage throughout the late 1980s and early 1990s have been
introduced to the market. Significant design costs for new product
development are not anticipated over the next several years.
. The Company's direct sales of spare parts to the airlines are expected to
increase as nacelle programs on which the Company sells spare parts
directly to the airlines mature. Generally, the Company earns a higher
margin on the direct sales of spare parts to airlines than it does on the
sales of spare parts to prime contractors (for resale to the airlines).
Prices for direct spare part sales are higher than prices for spare parts
sold to prime contracts, in part, because of additional costs related to
the technical and customer support activities provided to the airlines.
. The Company's assets present significant opportunities to accelerate
taxable income into the NOL carryforward period. Tax planning strategies
such as leveraged lease transactions, the sale-leaseback of certain
property, the revision of depreciation methods for tax purposes and
reductions in foreign sales corporation commissions could generate
taxable income of approximately $16 million, $32 million, $28 million and
$35 million, respectively.
The following table shows the taxable income that will need to be generated
over the next 20 years in order to realize the deferred tax asset:
<TABLE>
<CAPTION>
5-YEAR TIME INTERVAL
---------------------------------------
1994-98 1999-2003 2004-08 2009 & BEYOND
------- --------- ------- -------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
NOLs................................... $ 0 $27 $159 $ 0
Tax credits............................ 0 14 8 0
Future deductible temporary differ-
ences................................. 0 0 0 296
--- --- ---- ----
Total.............................. $ 0 $41 $167 $296
=== === ==== ====
</TABLE>
Future deductible temporary differences begin to reverse in fiscal 1994.
Taxable income needed to realize the portion of the deferred tax asset related
to future deductible temporary differences will need to be generated before the
end of the 15-year period following the reversal of those temporary
differences.
The availability of the Company's NOLs may be limited under the Tax Reform
Act of 1986 as a result of changes that may occur in the ownership of the
Company's stock in the future, principally relating to a change in control.
Management has considered this factor in reaching its conclusion that it is
"more likely than not" that future taxable income will be sufficient to realize
fully the deferred tax asset reflected on the Balance Sheet.
34
<PAGE>
BUSINESS
GENERAL
The Company designs, develops, manufactures, sells and supports complete
nacelle and pylon systems for large aircraft engines. The Company has over 50
years of experience in the aerospace industry and is the leading independent
supplier of nacelle and pylon systems to the world's major commercial airframe
and engine manufactures ("OEMs"). Rohr manages projects from the early design
stage through production and systems integration to lifetime customer support.
In addition, the Company has the right to provide customer and product support
directly to approximately 145 airlines around the world, including on-site
field services and the sale of spare parts.
Nacelles are aerodynamic structures which surround and attach jet engines to
aircraft. A nacelle system generally includes the nose cowl or inlet, fan cowl,
nozzle systems, thrust reverser and engine build-up. Pylons (sometimes referred
to as struts) are structures that attach the jet engines to the aircraft.
Nacelle and pylon systems are highly engineered, critical to fuel efficiency
and integral to all of the key interfaces between the jet engine and the
airframe.
The Company believes that it is competitively well-positioned in its core
business. Management estimates that the Company supplied, by value,
approximately 45% of the nacelle systems and 25% of the pylons for all large
commercial aircraft produced worldwide in 1993, including products represented
on the Boeing 737, 747, 757 and 767, the Airbus A300, A310, A320, A321, A330
and A340, and the McDonnell Douglas MD-80, and MD-11. The Company attributes
its strong market position to its leading technologies, its focus on a narrow
product line and its competitive cost structure. Management believes that this
market position is protected by (i) long-term contracts including some life-of-
program agreements, (ii) substantial costs for the airframe or engine OEMs to
change supply sources, (iii) significant up-front design, development, tooling
and certification costs which must be borne before production on a program may
begin and (iv) a strong reluctance by airlines to support different nacelle
systems manufactured by more than one supplier in their fleets.
MARKETS
Commercial Airline Industry
Commercial airlines' demand for new aircraft is highly dependent upon
consumer demand for air travel, stability of fuel and ticket prices,
replacement of older aircraft (which is influenced by the time required for,
and the economics of, compliance with noise and maintenance regulations), the
availability of temporarily deactivated aircraft, and the financial
capabilities of the airlines and leasing companies to accept ordered aircraft
and to exercise aircraft purchase options. Such demands and capabilities
historically have been related to the stability and health of the United States
and world economies. Since the production of aircraft can take up to two years,
production in the aircraft manufacturing industry (including production by
subcontractors such as the Company) can lag behind changes in the general
economy.
In 1990 through 1992, airlines' passenger capacity increased rapidly as the
commercial aircraft industry produced record numbers of aircraft, peaking with
830 aircraft in 1991. During this same period, the United States and world
economies experienced recession and slow growth, United States scheduled
airlines reported operating losses averaging approximately $2 billion per year,
while non-United States scheduled airlines reported significantly reduced
profits. In 1991, United States and world airline passenger traffic decreased
by 1.9% and 2.8%, respectively. This was the first year in the history of the
industry that world airline passenger traffic had decreased. As a result of
these conditions, orders for new aircraft slowed substantially and some
existing orders and options for new commercial aircraft were cancelled or
rescheduled to later dates.
35
<PAGE>
In 1993, United States scheduled airlines achieved approximately $1 billion
of operating profit. In addition, world airline passenger traffic grew by 6.9%
in 1992 and 4.5% in 1993. Industry analysts have predicted that worldwide
airline passenger traffic will grow approximately 5% to 6% per year over the
long-term.
The following table sets forth the worldwide revenue passenger miles ("RPMs")
and the percentage growth in RPMs, as reported in the March 1993 Boeing Current
Market Outlook--World Market Demand and Airplane Supply Requirements, and the
number of commercial aircraft (over 100 passengers), as reflected in Boeing
World Jet Airplane Inventory Year-End 1992 (after adjustment for deliveries of
aircraft to the military), delivered during each of the last 15 calendar years.
<TABLE>
<CAPTION>
COMMERCIAL
AIRCRAFT
PERCENT (OVER 100
WORLD RPMS GROWTH PASSENGERS)
YEAR (IN BILLIONS) IN RPMS DELIVERED
---- ------------- ------- -----------
<S> <C> <C> <C>
1979................................... 645.4 12.0% 407
1980................................... 652.0 1.0 442
1981................................... 662.4 1.6 431
1982................................... 683.7 3.2 287
1983................................... 714.9 4.6 320
1984................................... 771.2 7.9 265
1985................................... 831.1 7.8 346
1986................................... 888.0 6.8 393
1987................................... 983.9 10.8 418
1988................................... 1061.2 7.9 511
1989................................... 1097.6 3.4 563
1990................................... 1165.7 6.2 671
1991................................... 1133.6 (2.8) 830
1992................................... 1211.8 6.9 785
1993................................... 1298.7(a) 4.5(a) 628(b)
</TABLE>
- --------
(a) Estimated by the Company based upon data for the first eight months of
fiscal 1993 as reported by The Airline Monitor.
(b) Based upon Company estimates.
Commercial Aircraft Manufacturing Industry
As shown above, aircraft deliveries have been declining. The industry
delivered 830 new commercial transport aircraft in 1991, 785 in 1992 and 628 in
1993. In response to the deferral and cancellation of orders from their
customers, airframe and engine manufacturers have rescheduled future production
levels, laid off workers, shortened employee work periods, and passed
production slowdowns on to their suppliers, including the Company. Although
aircraft order backlog remains relatively high, excess capacity currently
exists in the airline industry due to the high number of deliveries in the
early 1990s, unused aircraft which were previously delivered and the weakened
condition of the airline industry. In connection with the current contraction
in the commercial aircraft industry, subcontractors such as the Company have
been experiencing pressures from their customers to reduce prices. The Company,
in turn, is exerting similar pressure on its own suppliers to reduce prices and
thus enable the Company to manufacture products at lower costs. The Company's
commercial airline customers have also reduced their spare parts inventory
levels. The Company expects that orders for and deliveries of commercial
aircraft will continue to be affected through calendar 1995 by the adverse
United States and world economic conditions which existed in recent periods.
36
<PAGE>
Government Sales
The Company's government business is declining as a result of the completion
of older production programs and, in the case of the Titan rocket motor casing
program, reduced demand. Government business represented 12% of the Company's
sales for the six months ended January 30, 1994, as compared to 13% in fiscal
1993, 14% in fiscal 1992 and 20% in fiscal 1991.
CONTRACTS
Most of the Company's major commercial contracts establish a firm unit price,
subject to cost escalation, over a number of years or, in certain cases, over
the life of the related program. Life-of-program agreements generally entitle
the Company to work as a subcontractor in the program during the entire period
the customer produces its aircraft or engine. While the customer retains the
right to terminate these long-term and life-of-program arrangements, there are
generally significant costs for doing so.
The Company's long-term contracts generally contain escalation clauses for
revising prices based on published indices which reflect increases in material
and labor costs. Furthermore, in almost all cases, when a customer orders
production schedule revisions (outside of a range provided in the contract) or
design changes, the contract price is subject to adjustment. These long-term
contracts provide the Company with an opportunity to obtain increased profits
if the Company can improve production efficiencies over time, and the potential
for significant losses if it cannot produce the product for the agreed upon
price.
The Company's other commercial contracts generally provide a fixed price for
a specified number of units which, in many cases, are to be delivered over a
specified period of time. Under these contracts, prices are re-negotiated for
each new order. As a result, the Company has the opportunity to negotiate price
increases for subsequent units ordered if production costs are higher than
expected. The Company's customers, however, may seek price reductions from the
Company in connection with any new orders they place.
On its longer-term contracts, the Company bases initial production prices on
estimates of the average cost for a portion of the units which it and its
customer believe will be ordered. Generally, production costs on initial units
are substantially higher during the early years of a new contract or program,
when the efficiencies resulting from learning are not yet fully realized, and
decline as the program matures. Learning typically occurs on a program as tasks
and production techniques become more efficient through repetition of the same
manufacturing operation and as management implements actions to simplify
product design and improve tooling and manufacturing techniques. If the
customer orders fewer than the expected number of units within a specified time
period, certain of the Company's contracts have repricing clauses which
increase the prices for units that have already been delivered. However, other
contracts do not include such repricing provisions and force the Company to
bear certain market risks. The Company analyzed the potential market for the
products under such contracts and agreed to prices based on its estimate of the
average costs for the units it expected to deliver under the program.
Many of the Company's contracts have provided for the recovery of a specified
amount of nonrecurring, pre-production costs, consisting primarily of design
and tooling costs. In some cases, a significant portion of such pre-production
costs have been advanced by the customer. However, in negotiating some
contracts, the Company has agreed to defer recovery of pre-production costs and
instead to recover a certain amount of such costs with the sale of each
production unit over an agreed number of production units plus spare
equivalents. In addition, on some of these contracts, based on its analysis of
the potential market for the products covered by such contracts, the Company
agreed to amortize pre-production costs over a number of units which was larger
than the anticipated initial fabrication orders without the protection of a
repricing clause or guaranteed quantities of orders. On
37
<PAGE>
other commercial contracts, the Company receives advance payments with orders,
or other progress or advance payments, which assist the Company in meeting its
working capital requirements for inventories. In government contracts, the
Company receives progress payments for both pre-production and inventory costs.
To reduce its pre-production and inventory requirements and market risks, the
Company has subcontracted substantial portions of several of its programs. See
"--Subcontractors."
In accordance with practices in the aircraft industry, most of the Company's
commercial orders and contracts are subject to termination at the convenience
of the customer and on many programs the tooling and design prepared by the
Company are either owned by the customer or may be purchased by it at a nominal
cost. The contracts generally provide, upon termination of firm orders, for
reimbursement of costs incurred by the Company, plus a reasonable profit on the
work performed. The costs of terminating an entire contract or program can be
significantly greater for the customer than the costs of terminating specific
firm orders. All of the Company's government contracts are subject to
termination at the convenience of the government. In such a situation, the
Company is entitled to recover the costs it incurred prior to termination, plus
a reasonable profit on the work performed. If a government contract is
terminated for default, the government's remedies against the Company are
similar to those for breach of a commercial contract.
PRODUCTS
General
The Company designs and manufactures nacelle systems, nacelle components,
pylons, non-rotating components for jet engines, and other components for
commercial, military and business aircraft. A nacelle system generally includes
the nose cowl or inlet, fan cowl, nozzle systems, thrust reverser and EBU. The
nacelle houses electrical, mechanical, fluid and pneumatic systems together
with various panels, firewalls and supporting structures; the aircraft engine
(which is provided by the customer); and engine equipment such as electrical
generators, starters, fuel pumps and oil coolers (which are purchased or
customer-furnished). The Company also performs EBU by assembling nacelle
systems and the related electrical, mechanical, fluid and pneumatic systems
onto core aircraft engines.
The following page contains a picture of major propulsion system components,
including the nacelle system, jet engine and pylon.
38
<PAGE>
PROPULSION SYSTEM COMPONENTS
39
<PAGE>
During fiscal 1993, sales to the commercial (including business jets) and
government (military and space) aerospace industries were approximately 87% and
13% of sales, respectively.
Commercial
The Company manufactures nacelle systems (including thrust reversers),
nacelle components and related parts for commercial aircraft pursuant to the
customer's design or to the Company's design based on the customer's
specifications. In addition, beginning in approximately 1985, the Company
expanded its role and became a systems integrator for nacelle systems on
several programs, with responsibility for the integration and management of the
design, tooling, manufacture and delivery of the complete nacelle system.
Approximately 85% of the existing commercial aircraft fleet contain one or more
Company products as part of their nacelle, thrust reverser or pylon systems.
The following tables identify all of the large commercial aircraft currently
in production or committed to production, list all of the engine options
available on such aircraft, and identify with an "X" the components which the
Company delivers on each aircraft and engine combination.
CURRENT NARROW-BODY AIRCRAFT
<TABLE>
<CAPTION>
NACELLE
- -------------------------------------------------------------------------------------
NOSE FAN CORE NOZZLE THRUST
AIRCRAFT ENGINE COWL COWL COWL & PLUG EBU REVERSER PYLON
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing 737-3/4/500 CFM56-3 X X .
- -------------------------------------------------------------------------------------
Boeing 737-700 CFM56-7 * * .
- -------------------------------------------------------------------------------------
Boeing 757 RB211-535 X . X X X
------------------------------------------------------
PW2037 X
- -------------------------------------------------------------------------------------
McDonnell Douglas MD-80/-87 JT8D-209/-217 X X . . X X X
- -------------------------------------------------------------------------------------
McDonnell Douglas MD-90 V2500 X X . X X X
- -------------------------------------------------------------------------------------
Airbus A319 CFM56-5 X X . X X X
------------------------------------------------------
V2500 X X . X X X
- -------------------------------------------------------------------------------------
Airbus A320 CFM56-5 X X . X X X
------------------------------------------------------
V2500 X X . X X X
- -------------------------------------------------------------------------------------
Airbus A321 CFM56-5 X X . X X X
------------------------------------------------------
V2500 X X . X X X
- -------------------------------------------------------------------------------------
British Aerospace BAe 146 ALF502
- -------------------------------------------------------------------------------------
Fokker 100 RR TAY
</TABLE>
* The Company is negotiating with Boeing to supply these components under a
directed procurement.
. This nacelle configuration does not contain this component.
40
<PAGE>
CURRENT WIDE-BODY AIRCRAFT
------------------------
<TABLE>
<CAPTION>
NACELLE
- ------------------------------------------------------------------------------
NOSE FAN CORE NOZZLE THRUST
AIRCRAFT ENGINE COWL COWL COWL & PLUG EBU REVERSER PYLON
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Boeing 747 CF6-80C X X X
---------------------------------------------------
PW4000
---------------------------------------------------
RB211-524G X
- ------------------------------------------------------------------------------
Boeing 767 CF6-80C X X X
---------------------------------------------------
PW4000
---------------------------------------------------
RB211-524H X
- ------------------------------------------------------------------------------
Boeing 777 GE90 X
---------------------------------------------------
PW4084
---------------------------------------------------
TRENT 800
- ------------------------------------------------------------------------------
Airbus A300 CF6-80C X X X X
---------------------------------------------------
PW4000 X X . X X X
- ------------------------------------------------------------------------------
Airbus A310 CF6-80C X X X X
---------------------------------------------------
PW4000 X X . X X X
- ------------------------------------------------------------------------------
Airbus A330 CF6-80E X X X X
---------------------------------------------------
PW4168
---------------------------------------------------
TRENT 700 X
- ------------------------------------------------------------------------------
Airbus A340 CFM56-5C2 X X . X X X
- ------------------------------------------------------------------------------
McDonnell Douglas MD-11 CF6-80C2 X X X X X
---------------------------------------------------
PW4000 X X . X X X X
</TABLE>
This nacelle configuration does not contain this component.
41
<PAGE>
Principal Programs
- ------------------
The following descriptions provide more information on certain of the
Company's major programs. For more detailed financial data (including the
amounts of pre-production and excess-over average inventories at January 30,
1994) for certain programs, see "Notes to the Consolidated Financial
Statements--Note 4."
A340
The Company's 1989 contract with CFM International, the manufacturer of the
jet engine used on the Airbus A340, is a life-of-program contract. The Company
has delivered 182 production units to CFM International through January 30,
1994. The Company's contract establishes prices for the entire contract period,
subject to adjustment based on labor and material cost changes in the industry,
for each nacelle delivered. If the Company does not recover a contractually
specified amount of its nonrecurring costs by June 1997, CFM International will
reimburse it for the unamortized portion of such costs (and, correspondingly,
the Company will reimburse its subcontractors for the unamortized portions of
their investments, to contractually specified amounts, in nonrecurring tooling
and design). Although the contract provides for the recovery of recurring costs
over 600 units, CFM International only guaranteed the recovery of such costs
for the first 200 units. Accordingly, if the Company sells fewer than 600
units, it would not have manufactured enough units to bring its costs down to
anticipated levels and in such case would not recover all of its recurring
manufacturing costs. This is the only nacelle installed on the A340 aircraft.
The Company acts as the systems integrator on this program and has
subcontracted most of the A340 nacelle production to third parties. Generally,
the Company's subcontractors have assumed the market risk associated with the
failure to sell sufficient units to permit full recovery of all of their
manufacturing costs if less than 600 units are delivered. The Company performs
engine build-up for the CFM International engine used with this nacelle at its
factory in Toulouse, France. The Company has the right to sell A340 nacelle
spare parts directly to the airlines.
CF6-80C
Under the contract for the CF6-80C nacelle program entered in 1982 with
General Electric, the Company supplies the nacelle system, excluding the thrust
reverser, nozzle and plug, for installation with the General Electric CF6-80C
engine on the Airbus A300 and A310 and the McDonnell Douglas MD-11. In total,
the Company has delivered 1,499 production units through January 30, 1994. This
is a life-of-program agreement, although General Electric retains the right to
seek bids on the design and production of significantly modified CF6-80C
components. In addition, since 1983, the Company has sold CF6-80C nacelle
components directly to Boeing (under a license agreement with General Electric)
for installation with General Electric engines on Boeing 747 and 767 aircraft.
The Company's contract with Boeing runs through 1995; Boeing has an option to
renew the contract at that time. The sales prices to General Electric and
Boeing are established for the life of the program, subject to adjustment based
on material and labor cost changes in the industry. The Company has the right
to sell CF6-80C spare parts directly to the airlines. Although the Company
subcontracts some portion of this contract, most of the production effort is
performed by the Company.
CFM56
The Company acts as a systems integrator to provide the nacelle system to
Airbus for the CFM International engine installed on the A320 and A321 aircraft
and to be installed on the future A319 aircraft. Since entering the contract in
1984, the Company has delivered 626 production CFM56 nacelles through January
30, 1994. As on other programs in which the Company acts as systems integrator,
the Company subcontracts a major portion of the CFM56 nacelle system effort to
third parties. The Company also manufactures the inlet barrels for the nacelle.
It also performs engine build-up for this engine and nacelle combination at its
factory in Toulouse, France and intends to perform
42
<PAGE>
engine build-up for a version of this engine and nacelle combination at its
factory in Hamburg, Germany. The Company's sales prices to Airbus are
determined for a combined total of 2,000 units, subject to adjustment based on
labor and material cost changes in the industry. The Company has the right to
sell CFM56 nacelle system spare parts directly to airlines.
MD-11
Under its 1988 contract with McDonnell Douglas for the MD-11 pylon, the
Company supplies the wing and tail pylons that attach the General Electric CF6-
80C and Pratt & Whitney PW4000 nacelles onto the McDonnell Douglas MD-11 jumbo
jet. In total, the Company has delivered 364 production units through January
30, 1994. The contract entitles the Company to supply the first 900 pylons
(i.e. 300 shipsets) required by McDonnell Douglas. The contract establishes
prices for the units to be delivered, subject to adjustment based on labor and
material cost changes in the industry. On the basis of its market analysis of
demand for the MD-11 aircraft, the Company accepted certain market risks with
respect to the engineering, development and flight test costs on the MD-11
pylon program. The Company subcontracts the wing pylon structure and
aerodynamic pylon fairings. The Company's subcontractor assumed the market risk
associated with the pre-production costs for the subcontracted work. The
Company produces the tail pylon structure, installs all electrical, hydraulic
and pneumatic systems on the wing and tail pylons and provides pylon product
support (including the sale of spare parts) directly to the airlines who
purchase the MD-11.
MD-90
The Company acts as a systems integrator for the nacelle used with the
International Aero Engines V2500 engine on the McDonnell Douglas MD-90, an
aircraft currently undergoing flight certification. The Company has delivered
only the initial certification units on this program. The first production
units are scheduled for delivery in mid-1994. As with other programs on which
it acts as a systems integrator, the Company subcontracts a substantial portion
of the MD-90 nacelle effort to third parties, retaining production of the
nozzle and other parts and engine build-up services. The Company's 1990
contract with International Aero Engines specifies that the Company shall be
the sole source for the first 750 MD-90 nacelles. The Company's contract
establishes prices, subject to adjustments based on labor and material cost
changes in the industry, for MD-90 nacelles through the year 2010. This is the
only engine and nacelle combination used on the MD-90. Based upon its analysis
of the market for the MD-90, the Company accepted certain market risks in the
contract for this nacelle. As a result, if the Company sells fewer MD-90
nacelles than it assumed for pricing purposes, it would not receive sufficient
payments from International Aero Engines to offset its pre-production costs and
would not receive retroactive price increases to compensate it for production
costs on delivered units that are higher than expected average production costs
over the life of the program. The Company's subcontractors on the MD-90 nacelle
have assumed those market risks associated with pre-production and higher-than-
average initial production costs on the components they manufacture. The
Company has the right to sell MD-90 nacelle spare parts directly to the
airlines.
PW4000
Under the PW4000 nacelle program, the Company produces substantially the
entire nacelle system, including thrust reverser (except for the tail fan cowl
for the MD-11, which is subcontracted). An existing contract was amended in
1985 to include this program, and the Company has delivered 556 production
units to its customer, Pratt & Whitney, through January 30, 1994. The Company
is currently developing design changes intended to result in cost savings on
this program. The PW4000 nacelle is installed on the Airbus A300 and A310 and
the McDonnell Douglas MD-11. The Company has the right to produce PW4000
nacelles through 2002 and has negotiated prices, subject to adjustment based on
cost changes in the industry, through the 1,117th unit (or through the year
2002,
43
<PAGE>
if sooner). The contract provides for an equitable price adjustment if 500
units are not delivered after January 1993 and prior to December 31, 2002. The
Company sells PW4000 spare parts to Pratt & Whitney, which remarkets them to
the airlines.
RB211-535
Since entering a production contract with Rolls-Royce in 1978, the Company
has delivered approximately 708 production units of the RB211-535 nacelle
through January 30, 1994. The Company manufactures substantially all of the
components under this program, which includes the fan cowl, nozzle and plug and
thrust reverser for installation on Boeing 757 aircraft. Under the contract,
the Company has the right to produce the nacelle through the earlier of January
2001 or the delivery of 1,000 units. The Company's contract gives it the right
to compete to produce variations of RB211-535 nacelle components for
installation on other aircraft. It is possible that the RB211-535 engine and
nacelle may be installed as replacement equipment on the Tupolov 204 to improve
its performance and efficiency. The Company's contract with Rolls-Royce
establishes prices for the entire contract period, subject to adjustment based
on labor and material cost changes in the industry. The Company has the right
to sell RB211-535 nacelle spare parts directly to the airlines.
V2500
The Company also acts as a systems integrator on the nacelle it provides for
the International Aero Engines V2500 engine. It subcontracts a major portion of
the V2500 nacelle effort to third parties. The Company manufactures the thrust
reverser inner fixed structure and the nozzle and plug, and performs engine
build-up for this engine and nacelle combination at its factories in Toulouse,
France and Hamburg, Germany. This engine and nacelle combination is installed
on the Airbus A320 and A321 aircraft. Since entering the contract in 1985, the
Company has delivered 327 production V2500 nacelles to International Aero
Engines through January 30, 1994. The Company's sales prices to International
Aero Engines are established for the entire contract period, subject to
adjustment based on labor and material cost changes in the industry. Based upon
its analysis of the market for this engine and nacelle combination, the Company
accepted certain market risks in the contract for this nacelle. As a result, if
the Company sells fewer V2500 nacelles than it assumed for pricing purposes, it
may not receive sufficient payments from International Aero Engines to offset
its pre-production costs (primarily tooling and design). In addition, the
Company would have delivered units at prices below the expected average
production costs over the life of the program and may not receive retroactive
price increases on the delivered units to reflect their actual costs. The
Company's subcontractors on the V2500 nacelle have assumed those market risks
associated with pre-production and higher-than-average initial production costs
for the components they manufacture. The contract, which was entered into in
March of 1985, provides that it may be terminated by either party upon two
years' written notice, but not earlier than ten years from the contract date.
In accordance with that provision, the Company has notified International Aero
Engines that it will not continue the program under the current contractual
terms for orders received after mid-year 1995. The Company and International
Aero Engines are discussing possible alternative contractual arrangements under
which the Company would continue on this program. The Company has the right to
sell V2500 nacelle spare parts directly to the airlines.
Government (Military and Space)
For military aircraft, the Company manufactures nacelles for the Lockheed
Corporation ("Lockheed") C-130 propjet transport aircraft and nacelle
components for re-engining of existing Boeing KC-135 military aerial refueling
tankers. For the U.S. space program, the Company is delivering solid fuel
rocket motor nozzles and insulated casings for boosters which are used on the
Titan Space Launch Vehicle.
44
<PAGE>
Spare Parts
The Company sells spare parts for both commercial and military aircraft,
including those for aircraft in use but no longer in production. Such sales
were approximately $227 million in fiscal 1991, $192 million in fiscal 1992,
$169 million in fiscal 1993 and $66 million in the first six months of fiscal
1994. The Company generally attributes recent reductions in spares sales to the
surplus aircraft in the current marketplace. As a result of such surplus,
aircraft deliveries have declined and the initial spares sold to support newly
delivered aircraft have also declined. In addition, airlines are maintaining
lower spares levels; the existence of surplus aircraft has reduced the need for
spares supplies sufficient to keep an airline's entire fleet in operation.
Also, improved production quality appears to have reduced spares requirements.
Historically, the Company has sold spare parts for commercial programs to
airframe or engine manufacturers which then resold them to the end user.
However, in recent years, under certain programs, the Company has acquired the
right from its customers to sell spare parts directly to airlines (although on
certain programs royalty payments to its customers are required). The contracts
that grant these rights to the Company generally require that the Company
provide technical and product support directly to the airlines. Thus, the
Company has the right to provide customer and product support directly to
approximately 145 airlines worldwide. The Company's direct sales of spare parts
to the airlines are expected to increase in the future as nacelle programs on
which the Company sells spare parts directly to the airlines mature and as the
aircraft using those nacelles age. Generally, the Company earns a higher margin
on the direct sale of spare parts to airlines than it does on the sale of spare
parts to prime contractors (for resale to the airlines). Prices for direct
spare part sales are higher than prices for spare parts sold to prime
contractors, in part, because of additional costs related to the technical and
customer support activities provided to the airlines. The Company's direct
sales of spare parts as a percentage of total sales of spare parts were 48.7%,
36.6%, 27.4% and 18.8% in the first half of fiscal 1994 and in fiscal 1993,
1992 and 1991, respectively.
PROGRAM FUNDING
The highly competitive nature of the aerospace market has required the
Company to commit substantial financial resources, largely for working capital,
to participate with its customers on certain long-term programs. Those working
capital requirements consist primarily of nonrecurring pre-production costs
such as design and tooling, recurring costs for inventories and accounts
receivable.
In some cases, a significant portion of the pre-production costs have been
advanced by the customer. However, in negotiating some contracts, the Company
has agreed to defer recovery of pre-production costs and instead to recover a
certain amount of such costs with the sale of each production unit over an
agreed number of production units plus spares equivalents. On some commercial
contracts, the Company receives advance payments with orders, or other progress
or advance payments, which assist the Company in meeting its working capital
requirements for inventories. In government contracts, the Company receives
progress payments for both pre-production and inventory costs. To reduce both
its pre-production funding requirements and the build-up of program
inventories, the Company has entered into agreements with subcontractors to
provide a portion of the program funding needs and has subcontracted to these
entities substantial portions of many of its programs. See "--Subcontractors."
Advances and progress payments have varied in the past and are subject to
change in the future based on changes in both commercial and government
procurement practices and governmental regulations. Any future change could
affect the Company's need for program funding.
Accounts receivable balances vary in accordance with various payment terms
and other factors including the periodic receipt of large payments from
customers for reimbursement of nonrecurring costs or for amounts which had been
deferred pending aircraft certification.
45
<PAGE>
Given the large number of major commercial aircraft programs introduced since
1985, and the present industry environment, the Company expects few new
programs to be introduced within the next several years and, accordingly, the
Company believes that its financing requirements for new programs have been
reduced as compared to prior periods.
The Company's primary sources of program funding have been funds generated
from operations and borrowings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
MANUFACTURING
The Company's products are manufactured and assembled at its facilities in
the United States and Europe by an experienced workforce. The Company considers
its facilities and equipment generally to be in good operating condition and
adequate for the purpose for which they are being used. In addition, it has a
substantial number of raw material suppliers and numerous subcontractors to
produce components, and in some cases, major assemblies.
The Company has state-of-the-art capabilities, and one of the largest
capacities in the aircraft industry, for metal and composite bonding of
lightweight honeycomb panels used in its nacelles, pylons and thrust reversers.
In its bonding process, the Company uses autoclaves (industrial ovens), which
are up to 20 feet in diameter and 35 feet long, to cure adhesives and
composites under controlled pressures up to 20 atmospheres and temperatures up
to 850 degrees Fahrenheit. The Company also employs other heavy equipment, such
as fluid forming presses which use highly pressurized oil to form sheet metal
against single-sided dies at pressures up to 20,000 pounds per square inch and
other traditional hydraulic forming equipment, to create the highly specialized
parts used in its products. The Company uses state-of-the-art superplastic
forming to heat metal until it is pliable and then to form it under gas
pressure into a complex part; utilizes advanced laser cutting in a variety of
applications; and has established modern assembly operations in its satellite
plants.
The Company's European final assembly sites, which are located adjacent to
the Company's major European customer, Airbus, allow the Company to respond
quickly to this customer's needs. The Company believes that these European
sites provide it with advantages in obtaining certain contracts with Airbus
because they allow the Company to perform a portion of the required work in
Europe.
PRINCIPAL CUSTOMERS
Rohr conducts substantial business with each of the three major commercial
airframe manufacturers: Boeing, Airbus and McDonnell Douglas. In addition, Rohr
conducts business with each of the major commercial jet engine manufacturers:
General Electric, Rolls-Royce, Pratt & Whitney, CFM International (a
corporation jointly owned by General Electric and Societe Nationale d'Etude et
de Construction de Moteurs d'Aviation) and International Aero Engines (a
corporation owned by Rolls-Royce, Pratt & Whitney, Fiat Aviazione, SpA,
Japanese Aero Engines Corporation and MTU Motoren und Turbinen Union Munchen
GmbH). With respect to government (military and spares) sales, the Company's
major customers include Boeing, Lockheed, United Technologies Corporation
(Chemical Systems Division) and the United States government.
46
<PAGE>
The Company's direct sales to its major customers, including related program
spares, expressed as a percentage of total sales, during the following periods
are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JULY 31,
----------------------- ----------------
JANUARY 30, JANUARY 31,
1994 1993 1993 1992 1991
----------- ----------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pratt & Whitney....................... 17% 19% 17% 15% 16%
General Electric...................... 16 12 14 12 12
International Aero Engines............ 15 8 9 7 4
CFM International..................... 9 8 8 2 --
McDonnell Douglas..................... 8 13 11 18 14
Boeing................................ 8 11 11 15 14
Rolls-Royce........................... 8 6 8 7 8
Lockheed.............................. 4 2 3 3 3
Airbus Industrie...................... 2 8 6 8 12
U.S. Government*...................... 1 1 1 2 4
Grumman............................... 0 0 0 1 6
Other................................. 12 12 12 10 7
--- --- --- --- ---
100% 100% 100% 100% 100%
</TABLE>
- --------
* Total sales to the U.S. Government (including direct sales and indirect
sales through prime contractors) accounted for 12%, 11%, 13%, 14% and 20%
for the first six months in fiscal 1994 and 1993, and in fiscal 1993,
1992 and 1991, respectively.
The Company's percentage of total sales by customer varies from period to
period based upon the mix of products delivered in such periods.
Commercial products sold by the Company to jet engine manufacturers are
ultimately installed on aircraft produced by one of the three major commercial
airframe manufacturers. Sales to foreign customers accounted for 23%, 25%,
25%, 22% and 21% for the first six months of fiscal 1994 and 1993, and for
fiscal 1993, 1992 and 1991, respectively.
BACKLOG
The Company's backlog is significant to its business because the production
of most Company products involves a long lead time from order to shipment
date. Firm backlog represents the sales price of all undelivered units for
which the Company has fabrication authority. Firm backlog includes units
ordered by a customer although the Company and the customer have not yet
agreed upon a sales price. In such cases, the Company records in backlog an
amount it believes (based upon all available information) is a reasonable
price estimate. The Company also reports anticipated backlog, which represents
the sales price of units which the Company expects (based upon all available
information) that its customers will order under existing contracts and the
Company will deliver within the next seven years.
The Company's firm backlog at January 30, 1994, was approximately $1.3
billion, compared to $1.4 billion at July 31, 1993. Of such backlog,
approximately $0.4 billion is scheduled for delivery on or before July 31,
1994, with the balance to be delivered in subsequent periods. A portion of the
Company's expected sales from January 30, 1994, through July 31, 1994, is not
included in firm backlog. Anticipated backlog approximated $2.7 billion at
January 30, 1994 compared to $2.6 billion at July 31, 1993.
All of the Company's firm and anticipated backlog is subject to termination
or rescheduling at the customer's convenience. The Company's contracts
generally provide for reimbursement of costs incurred, plus a reasonable
profit on such costs, with respect to any firm orders that are terminated.
Historically, it has been rare for a customer to cancel units in firm backlog
because of its obligations to the Company with respect to such units and its
obligations to suppliers of components other than nacelles and pylons, who
frequently are producing concurrently components for use with the units
ordered from the Company.
47
<PAGE>
MARKET SHARE AND COMPETITION
The Company believes that, based upon its estimates of market values, it
supplied approximately 45% of the nacelle, thrust reverser and engine build-up
products (approximately 70% excluding products produced by Boeing for its own
aircraft), and over 25% of the jet engine pylons (approximately 90% excluding
pylons produced by Boeing and a partner of Airbus for Boeing and Airbus
aircraft, respectively), delivered to the commercial aircraft market in 1993.
The Company's share of these market segments includes the value of products
produced by the Company's subcontractors and is subject to fluctuation each
year depending upon the mix of aircraft models delivered to customers.
Approximately 85% of the existing commercial aircraft fleet contain one or more
Company products on their nacelle, thrust reverser or pylon systems. The
Company sells products and services to the three major commercial airframe
manufacturers, to the five major jet engine manufacturers and, in the case of
spare parts and certain product support services, to a substantial number of
airlines. The Company's commercial products represented 87% of its business in
the fiscal year ended July 31, 1993. Market discussions and references to
aircraft production exclude consideration of the markets in the former U.S.S.R.
Over the next several years, the Company expects its key subcontractors to
produce components and, in some cases, major assemblies, representing
approximately one-third of the value of the products and services to be
delivered by the Company during such period. See "Subcontractors."
The Company's principal competition is Boeing (which in addition to being a
Company customer also manufactures nacelle systems and pylons for its own
aircraft), other significant aerospace corporations who have development and
production experience with respect to portions of the nacelle system and the
companies to whom the Company has subcontracted various components and who
could (and have) bid on contracts in competition with the Company. See "--
Subcontractors." Military aerospace contractors are also potential competitors,
as excess capacity created by reductions in defense spending could cause some
of these contractors to look to expand in commercial markets.
The Company believes that its capabilities and technology, which range from
research and development through component design and testing, flight
certification assistance, component production and integration and airframe
production line assistance, contribute significantly to its market position.
The Company also believes that its contractual rights to participate on
programs for long periods of time or, in some cases, over the life of programs
also contribute to the maintenance of its market position. See "--Contracts."
Even with respect to its shorter term contracts, the Company is very likely
to continue working as a subcontractor for the prime contractors well beyond
the end of the existing shorter term contracts. The Company has long standing
relationships with all of its significant customers. The Company's continued
participation on existing programs provides cost advantages to the prime
contractors because it avoids the cost of disassembling, moving, reassembling
and recalibrating the customized tooling used to manufacture aerospace products
which would be necessary if a program were transferred to a new subcontractor
at the end of a short-term contract. In addition, the delays inherent in such
transfer are likely to disrupt the prime contractor's own production schedule
as the flow of deliveries from the subcontractor is interrupted during the
transfer. It is also generally more expensive for a new subcontractor to begin
producing products in the middle of an existing program than it is for the
Company to continue producing the required products. A new subcontractor's
employees must learn program specific tasks with which the Company's employees
will already be familiar. See "Contracts." As a result of all of these factors,
it is very unusual for a prime contractor to shift a major aerospace
subcontract from one manufacturer to another at the end of a short-term
contract.
Competitive factors include price, quality of product, design and development
capability, ability to consistently achieve scheduled delivery dates,
manufacturing capabilities and capacity, technical
48
<PAGE>
expertise of employees, the desire or lack thereof of airframe and engine
manufacturers to produce certain components in-house, and the willingness, and
increasingly the ability, of the Company and other nacelle manufacturers to
accept financial and other risks in connection with new programs.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are designed to improve its
existing products and manufacturing processes, to enhance the competitiveness
of its new products, and to broaden the Company's aerospace product base.
Most of its product development is funded through regular production
contracts. The Company developed the world's first all composite nacelle and
its large cascade thrust reverser technology under such contracts. The Company
also performs self-funded research and development through which it developed
proprietary products which control noise and prevent ice formation on nacelles.
The Company seeks research and development contracts from the U.S. government
and from commercial customers in targeted areas of interest such as composite
materials and advanced low-cost processing and joining of new materials. From
time to time, the Company also enters into joint research and development
programs with its customers, such as its existing laminar flow nacelle study,
which seeks to significantly reduce the aerodynamic drag of nacelles and
thereby reduce fuel consumption.
PATENTS AND PROPRIETARY INFORMATION
The Company has obtained patents and developed proprietary information which
it believes provide it with a competitive advantage. For example, the Company
holds patents on the DynaRohr family of honeycomb sound attenuation structures,
the state-of-the-art RohrSwirl system which prevents ice formation on the
leading edges of nacelles and bonding processes for titanium and other metals.
In addition, the Company has developed proprietary information covering such
matters as nacelle design, sound attenuation, bonding of metallic and advanced
composite structures, material specifications and manufacturing processes. The
Company protects this information through invention agreements and
confidentiality agreements with its employees and other third parties. Although
the Company believes that its patents and proprietary information allow it to
produce superior products, it also believes that the loss of any such patent or
disclosure of any item of proprietary information would not have a material
adverse effect on the Company.
RAW MATERIALS AND SUPPLIERS
The principal raw materials used by the Company are sheet, plate, rod, bar,
tubing, and extrusions made of aluminum, steel, Inconel and titanium;
electrical wire; rubber; adhesives; and advanced composite products. The
principal purchased components are aircraft engine equipment, custom machined
parts, sheet metal details, and castings and forgings. All of these items are
procured from commercial sources. Supplies of raw materials and purchased parts
historically have been adequate to meet the requirements of the Company.
However, from time to time, shortages have been encountered, particularly
during high industry production and demand. While the Company endeavors to
assure the availability of multiple sources of supply, there are many instances
in which, either because of a customer requirement or the complexity of the
item, the Company may rely on a single source. The failure of any of these
single source suppliers or subcontractors to meet the Company's needs could
seriously delay production on a program. The Company monitors the delivery
performance, product quality and financial health of its critical suppliers,
including all of its single source suppliers. Over the last ten years, which
includes the period from 1987 through 1991 when the Company's sales grew
rapidly, there have been occasions of periodic, short-term delays from
suppliers, but none of these delays has had a material adverse effect on the
Company or its ability to deliver products to its customers.
49
<PAGE>
SUBCONTRACTORS
Both to reduce the burden and risk of program investments, and also in some
cases to participate in foreign programs, the Company has subcontracted the
design, development and production of substantial portions of several of its
major contracts to other foreign and domestic corporations. In return, those
companies provided a portion of the investment and assumed a portion of the
risk associated with various of the Company's contracts. See "--Products--
Commercial," "--Market Share and Competition" and "--Program Funding."
The Company's performance and ultimate profitability on these programs is
dependent on the performance of its subcontractors, including the timeliness
and quality of their work, as well as the ability of the Company to monitor and
manage its subcontractors.
EMPLOYEES
At January 30, 1994, the Company had approximately 5,150 full-time employees,
of whom approximately 1,710 were represented by the International Association
of Machinists and Aerospace Workers, and approximately 190 were represented by
the International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America. Collective bargaining agreements between the
Company and these labor unions expire on February 11, 1996 and October 29,
1995, respectively. The Company considers its relationship with its employees
generally to be satisfactory.
PROPERTIES
All owned and leased properties of the Company are generally well maintained,
in good operating condition, and adequate and sufficient for the Company's
business. The Company's properties are substantially utilized; however, due to
the downturn in the aerospace industry, the Company has excess manufacturing
capacity. All significant leases (except for leases associated with industrial
revenue bond financings) are renewable at the Company's option on substantially
similar terms, except for increases of rent which must be negotiated in some
cases. See "Notes to the Consolidated Financial Statements--Note 8."
50
<PAGE>
The following table sets forth the location, principal use, approximate size
and acreage of the Company's major production facilities. Those which are
owned by the Company and it subsidiaries are owned free of material
encumbrances, except as noted below:
<TABLE>
<CAPTION>
OWNED LEASED
----------------------- -----------------------
APPROXIMATE APPROXIMATE
TYPE OF SQUARE FEET APPROXIMATE SQUARE FEET APPROXIMATE
FACILITY(1) OF FACILITY ACREAGE OF FACILITY ACREAGE
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Alabama
Fairhope(2)(3)........ A,B 123,000 70.6 -- --
Foley(2).............. A,B 341,000 163.7 -- --
Arkansas
Arkadelphia(4)........ A,B 225,000 65.2 -- --
Heber Springs(2)...... A,B 161,000 70.5 -- --
Sheridan(2)........... A,B 155,000 79.4 -- --
California
Chula Vista........... A,B,C,D 2,789,000 98.5 215,000 78.4
Moreno Valley......... A,B,C 244,000 37.5 -- --
Riverside............. A,B,C,D 1,150,000 75.3 152,000 15.1
France
Toulouse/St. Martin... A,B 132,000 7.0 18,000 3.2
Toulouse/Gramont(2)... A,B 170,000 23.0 -- --
Germany
Hamburg............... A,B 28,000 5.3 -- --
Maryland
Hagerstown(3)(5)...... A,B 423,000 56.8 6,200 --
Texas
San Marcos............ A,B 169,000 55.0 -- --
Washington
Auburn(6)............. A,B 87,000 23.8 -- --
--------- ----- ------- ----
Approximate Totals.... 6,197,000 831.6 391,200 96.7
========= ===== ======= ====
</TABLE>
- --------
(1) The letters indicated for each location describe the principal activities
conducted at that location: A-Office; B-Manufacturing; C-Warehouse; and D-
Research and Testing.
(2) Subject to a capital lease.
(3) The Company is in the process of selling or seeking to sell this facility.
(4) The completion of construction of this facility has been deferred.
(5) The Company has announced that it will close this facility.
(6) The Company has sold this facility.
51
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and positions of the directors and officers of the Company
are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James J. Kerley........... 71 Chairman of the Board
Robert H. Rau............. 57 President, Chief Executive Officer and Director
Wallace Barnes............ 68 Director
Wallace W. Booth.......... 71 Director
Prof. Eugene E. Covert.... 68 Director
Wayne M. Hoffman.......... 71 Director
Dr. D. Larry Moore........ 57 Director
Robert M. Price........... 63 Director
Dr. William P. Sommers.... 60 Director
Dr. Jack D. Steele........ 69 Director
Laurence A. Chapman....... 45 Senior Vice President and Chief Financial Officer
John R. Johnson........... 56 Senior Vice President, Programs and Support
Graydon A. Wetzler........ 52 Senior Vice President, Operations
Richard W. Madsen......... 55 Vice President, General Counsel and Secretary
Alvin L. Majors........... 53 Vice President and Controller
Ronald M. Miller.......... 49 Vice President and Treasurer
</TABLE>
MR. KERLEY became Chairman of the Board, Chief Executive Officer and Chief
Financial Officer on January 7, 1993. On April 19, 1993, he relinquished the
title of Chief Executive Officer and on October 31, 1993, he relinquished the
title of Chief Financial Officer when he ceased being an employee of the
Company. He chairs the Finance Committee of the Company's Board of Directors,
is a member of its Nomination and Management Succession Committee, and, as the
non-employee Chairman of the Board, serves on all other committees of the Board
as an ad-hoc, non-voting, member. He retired as Vice Chairman of Emerson
Electric Company, St. Louis, Missouri, at the end of 1985, and from its Board
of Directors in February 1987, positions he had held since September 1981. He
also served as the Chief Financial Officer at Emerson Electric Company from
September 1981 to March 1984 and as the Chief Financial Officer of Monsanto
Company from September 1971 to August 1981. He has served on the Board of
Directors of approximately 25 publicly held companies during his career and
currently serves as a director of Sterling Chemicals, Inc.; Kellwood Company;
ESCO Electronics Corporation, Borg Warner Automotive, Inc. and DTI Industries,
Inc. He has been a director of Rohr since October 1980, and previously served
as a director from June 1976 to February 1980.
MR. RAU was elected President and Chief Executive Officer of the Company in
April 1993. Prior to joining the Company, Mr. Rau was an Executive Vice
President of Parker Hannifin Corporation and for the past ten years served as
President of the Parker Bertea Aerospace segment of Parker Hannifin. Parker
Bertea designs and produces a broad line of hydraulic, fuel and pneumatic
systems and components for commercial, military and general aviation aircraft.
He joined Parker Hannifin in 1969, and held positions in finance, program
management and general management. Mr. Rau has extensive experience in the
aerospace industry. In addition, Mr. Rau is a member of the Board of Governors
of the Aerospace Industries Association. He was appointed a director of the
Company in April 1993.
MR. BARNES has been the Chairman of Barnes Group Inc. since March 1977, was
Chief Executive Officer from 1977 to 1991, and served as President of that
company from 1964 to 1977. Barnes Group, headquartered in Bristol, Connecticut,
is a publicly traded Fortune 500 company with three groups involved in
automotive maintenance and repair parts, precision springs and custom metal
parts, and aerospace components for gas turbine engines. He was appointed a
director of the Company in February 1989. He is also a director of Aetna Life &
Casualty Co., Loctite Corporation, Rogers Corp., and BGI. He serves on the
Audit and Ethics Committee of the Company's Board of Directors, its
Compensation and Benefits Committee and its Technology Committee.
52
<PAGE>
MR. BOOTH retired as Chairman of the Board of Ducommun Incorporated, Los
Angeles, California, in December 1988. From June 1978 until July 1988 he served
as Chairman of the Board, President and Chief Executive Officer and a director
of that company. Mr. Booth has been a director of Rohr since February 1982. He
is also a director of Litton Industries, Inc.; First Interstate Bank of
California; and Navistar International Corporation. He is a Trustee of the
University of Chicago. Mr. Booth is also a director of the Children's Bureau
Foundation of Southern California. He serves on the Compensation and Benefits
Committee of the Company's Board of Directors and its Finance Committee.
PROFESSOR COVERT has been a Professor in the Department of Aeronautics and
Astronautics of the Massachusetts Institute of Technology, Cambridge,
Massachusetts, since 1968, and from 1985 to 1990, he served as Department Head.
Professor Covert is also a consultant to a number of major corporations as well
as to agencies of the United States and foreign governments. He is a director
of Allied-Signal Corp. and Physical Sciences, Inc., and a member of the
American Institute of Aeronautics and Astronautics. He has been a director of
Rohr since December 1986, and serves on the Audit and Ethics Committee of the
Company's Board of Directors and its Technology Committee.
MR. HOFFMAN is the former Chairman of Tiger International, Inc., and Flying
Tiger Line, Los Angeles, California, having served in those positions beginning
in September 1967 until his retirement in March 1986. Between March 1978 and
August 1985, he also served as Chief Executive Officer and from August 1973 to
August 1985, he served as President of Tiger International, Inc. He is also a
director of SunAmerica, Inc., and trustee of Aerospace Corporation. He has been
a director of Rohr since December 1982, and serves on the Audit and Ethics
Committee of the Company's Board of Directors and its Nomination and Management
Succession Committee.
DR. MOORE has been the President and Chief Operating Officer of Honeywell,
Inc., a provider of electronic automation and control systems located in
Minneapolis, Minnesota, since April 1993. From December 1990, until assuming
his current position, he served as Executive Vice President and Chief Operating
Officer of that company. Dr. Moore has been employed by Honeywell, Inc., since
December 1986 having also served as President of its Space Aviation Division.
Dr. Moore was appointed a director of the Company on December 7, 1991. He is
also a director of Honeywell, Inc.; the General Aviation Manufacturing
Association; the Aerospace Industries Association; the National Association of
Manufacturers; and Abbott Northwestern Hospital in Minneapolis, Minnesota. He
serves on the Finance Committee of the Company's Board of Directors and its
Nomination and Management Succession Committee.
MR. PRICE has been a business consultant to a number of major American
corporations since January 1990, when he retired as Chairman of Control Data
Corporation (now renamed Ceridian), Minneapolis, Minnesota. He was named
President and Chief Operating Officer of Control Data Corporation in 1980, and
Chairman and Chief Executive Officer in 1986, continuing as President until
1988. He is also a director of International Multifoods, Premark International,
and Public Service Co. of New Mexico. Additionally, he is a Chairman of the
Alpha Center for Public and Private Initiatives and serves on the boards of the
Minnesota Opera, the Minneapolis United Way, and the Duke University's Fuqua
School of Business Board of Visitors. He was appointed a director of the
Company on June 7, 1991. He serves on the Compensation and Benefits Committee
of the Company's Board of Directors and its Technology Committee.
DR. SOMMERS has served as the President and Chief Executive Officer of SRI
International since January 1994. SRI International is one of the world largest
contract research firms, employing more than 2,000 professionals engaged in
research in areas including engineering, science and technology, business and
policy. Prior to joining SRI International, Dr. Sommers was Executive Vice
President of Iameter, Inc., a firm specializing in health care quality and cost
control. From 1973 until joining Iameter in 1972, he served as a Senior Vice
President, director and member of the Office of the Chairman of Booz.Allen &
Hamilton, Inc., San Francisco, California, having served in other senior
management positions with that firm since 1963. Dr. Sommers has extensive
experience as a management
53
<PAGE>
consultant to some of the world's largest technology-based manufacturing and
service firms. He was appointed a director of the Company on September 9, 1992.
He is a member of the board of trustees of the Kemper Mutual Funds and a
director of Therapeutic Discovery Corp. He serves on the Finance Committee of
the Company's Board of Directors and its Technology Committee.
DR. STEELE is the former Chairman, Board Services Division, Korn Ferry
International, Los Angeles, California, a position he assumed in June 1987.
From 1975 to 1986, he was the Dean, School of Business Administration,
University of Southern California, Los Angeles, California. He has held
professorships at Texas Tech University, the University of Kansas, Stanford
University, and Harvard University. He is an author in the marketing and
business fields and a consultant to a number of major American corporations. He
is also a director of Glendale Federal Bank; Storage Properties, Inc.; and
Public Storage, Inc. He has been a director of Rohr since December 1976, and
serves on the Finance Committee of the Company's Board of Directors and its
Nomination and Management Succession Committee.
MR. CHAPMAN has served as Senior Vice President and Chief Financial Officer
since May 1, 1994. Prior to that and since 1981, he worked for Westinghouse
Electric Company ("Westinghouse"). He had been the Vice President and Treasurer
of Westinghouse since January 1992. He was previously the Chief Financial
Officer of Westinghouse Financial Services, Inc., a wholly-owned subsidiary of
Westinghouse. Prior to that assignment, Mr. Chapman held positions in Corporate
Finance and Corporate Planning with Westinghouse.
MR. JOHNSON has served as Senior Vice President, Programs and Support since
March 1, 1993. Prior to that and since April 1982, he has served in other
senior management positions. He joined the Company in September 1979.
MR. WETZLER has served as Senior Vice President, Operations since January
1994. Prior to that and since April 1986, he has served as Vice President of
Technology, Assembly Plant Operations and Information Systems at various times.
He has been an employee of the Company since 1979.
MR. MADSEN has served as Vice President, General Counsel and Secretary since
December 5, 1987. Prior to that and since August 1979, he served as Secretary
and Corporate Counsel and has been an employee of the Company since 1974.
MR. MAJORS has served as Vice President and Controller (Chief Accounting
Officer) since May 1989. Prior to that and since December 1987, he served as
the Company's Controller. Prior to that and since 1971, he has served in other
senior management positions. He has been an employee of the Company since 1971.
MR. MILLER has served as Vice President and Treasurer since May 1989. Prior
to that and since December 1987, he served as the Company's Treasurer and has
been an employee of the Company since February 1969.
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LEGAL AND ENVIRONMENTAL PROCEEDINGS
C-5 LITIGATION
During fiscal year 1992, the U.S. Air Force filed a termination notice for
alleged default under the C-5 spare pylon contract, and the Company then
commenced the appeal process to convert the termination to one for convenience
of the government. Contemporaneously, the Company filed a notice of breach of
contract with the government on the C-5 spare pylon contract. The Company also
filed a variety of actions before the Armed Services Board of Contract Appeals
("ASBCA") requesting payment of sums owed the Company due to the government's
imposition of redefined acceptance criteria under the C-5 pylon program and the
KC-135 re-engining program. The Company also recorded special provisions for
this matter in prior periods.
Following the end of the Company's fiscal 1994 second quarter, the Company
and the U.S. Air Force settled all of these disputes. The most significant
aspects of this settlement were:
(1) The C-5 spare pylon contract will be converted to termination for
government convenience, and the Company will retain approximately $27.3
million of unliquidated progress payments previously made by the U.S. Air
Force.
(2) The Company will retain most of the C-5 spare pylon work-in-process
and raw material inventories.
(3) The Company will provide a warranty on certain, specified C-5 pylon
panels which will end for each panel seven years after the original
delivery date for such panel to the Air Force. The original delivery dates
for the warranted panels range from 1989 to 1991. The Company has
established a reserve for this warranty obligation.
U.S. ATTORNEY INVESTIGATION
Contemporaneously with the C-5 settlement with the U. S. Air Force discussed
above, the Company and the United States Attorney for the Central District of
California settled the civil and criminal aspects of an investigation, which
had been on-going since 1990, concerning the production of parts, the recording
of information which is a part of that production process, and the testing
practices utilized by the Company on many programs. The Company cooperated
fully in the investigation and does not believe there was any adverse effect on
the safety or utilization of its products. The Company recorded special
provisions in prior periods reflecting its assessment of the ultimate costs
which it believed would be incurred. Under this settlement the Company paid $4
million to the U.S. Attorney's office for the civil claims. In connection with
this settlement, a recently unsealed qui tam lawsuit filed by former employees
against the Company on behalf of the U.S. Government with respect to certain of
the activities that had been under investigation has been dismissed with
prejudice. With regard to the criminal aspects of this matter, the Company
admitted making eight false statements and paid approximately $3.7 million in
fines. In connection with this matter, the Company is also engaged in
discussions with government officials who have the discretion to temporarily
suspend or to debar the Company from entering into government contracts in the
future. The discussions are designed to demonstrate that the Company is a
presently-responsible contractor and that it should be entitled to continue to
be eligible to receive additional governmental contracts.
RECEIVABLES AND INVENTORIES
Accounts receivable and inventories include estimated recoveries on
constructive change claims the Company has asserted against the United States
Navy with respect to the F-14 and E3/E6 programs because of costs the Company
incurred as a result of government imposed redefined acceptance criteria.
Management believes that the amounts reflected in the financial statements are
a reasonable estimate of the amount for which these matters will be settled.
The resolution of these
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matters may take several years. See "Notes to the Consolidated Financial
Statements--Note 3." The Company is vigorously pursuing these claims and
believes, based on currently available information, that the ultimate
resolution will not have a material adverse effect on the financial position or
results of operations of the Company.
STRINGFELLOW SITE
In June 1987, the U.S. District Court of Los Angeles, in U. S. et al. vs.
Stringfellow (United States District Court for the Central District of
California, Civil Action No. 83-2501 (JMI)), granted partial summary judgment
against the Company and 14 other defendants on the issue of liability under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). This suit alleges that the defendants are jointly and severally
liable for all damage in connection with the Stringfellow hazardous waste
disposal site in Riverside County, California. In June 1989, a federal jury and
a special master appointed by the federal court found the State of California
also liable for the cleanup costs. On November 30, 1993, the special master
released his "Findings of Fact, Conclusions of Law and Reporting
Recommendations of the Special Master Regarding the State Share Fact Finding
Hearing." In it, he allocated liability between the State of California and
other parties. As this hearing did not involve the valuation of future tasks
and responsibilities, the order did not specify dollar amounts of liability.
The order, phrased in percentages of liability, recommended allocating
liability on the CERCLA claims as follows: 65% to the State of California and
10% to the Stringfellow entities, leaving 25% for the
generator/counterclaimants (including the Company) and other users of the site
(or a maximum of up to 28% depending on the allocation of any Stringfellow
entity orphan share). On the state law claims, the special master recommended a
95% share for the State of California, and 5% for the Stringfellow entities,
leaving 0% for the generator/counterclaimants. The special master's finding is
subject to a final decision and appeal. The Company and other defendants for
the Stringfellow site, which include numerous companies with assets and equity
significantly larger than the Company, are jointly and severally liable for the
cleanup. Notwithstanding this, CERCLA liability is sometimes allocated among
hazardous waste generators who used a waste disposal site based on the volume
of hazardous substances they disposed at the site. The Company is the second
largest generator of wastes by volume disposed at the site, although it and
certain other generators have argued the final allocation of cleanup costs
among generators should not be determined solely by volume. The largest volume
generator of wastes disposed at the Stringfellow site has indicated it is
significantly dependent on insurance to fund its share of any cleanup costs,
and that it is in litigation with certain of its insurers. The Company and the
other generators of wastes disposed at the Stringfellow site, which include
numerous companies with assets and equity significantly greater than the
Company, are jointly and severally liable for the share of cleanup costs for
which the generators, as a group, may ultimately be responsible. The Company
intends to continue to vigorously defend this matter and believes, based upon
currently available information, that the ultimate resolution will not have a
material adverse effect on the financial position or results of operations of
the Company.
The Company has claims against its comprehensive general liability insurers
for reimbursement of its cleanup costs at the site. These claims are the
subject of separate litigation, although the insurers nevertheless are paying
substantially all of the Company's costs of defense in the CERCLA and State
actions against the generators of wastes disposed at the site. Certain of these
insurance policies have pollution exclusion clauses which are being argued as a
defense and the insurers are alleging various other defenses to coverage. The
Company has entered settlements with some of the insurance carriers and is
engaged in settlement discussions with certain others. The Company intends to
continue to vigorously defend this matter and believes, based upon currently
available information, that the ultimate resolution will not have a material
adverse effect on the financial position, liquidity or results of operations of
the Company.
SEC INQUIRY
In 1990, the Division of Enforcement of the Securities and Exchange
Commission (the "Enforcement Division") began conducting an informal inquiry
regarding various Company production
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programs, program and contract estimates at completion and related accounting
practices. Following the filing of a registration statement with the
Commission, the Company received on August 17, 1993, and shortly thereafter
responded to, a request for documents from the Enforcement Division concerning
its decision to change its accounting practices relating to long-term programs
and contracts, and its previous practice of capitalizing pre-certification and
certain general and administrative costs. There have been no further comments
from the Enforcement Division since that date. The Enforcement Division's
request for documents indicated that the inquiry "should not be construed as an
indication by the Commission or its staff that any violation of the law has
occurred; nor should it be considered a reflection on any person, entity, or
security." The Company cooperated fully with the Enforcement Division's
requests and cannot predict the ultimate result of the inquiry or its impact,
if any, on the Company. The Company has been advised by the Division of
Corporation Finance of the Commission that because the Company's use of program
accounting is based in significant part on practices which it believes are
generally followed and/or accepted, rather than on the basis of authoritative
literature, the Staff is not in a position presently to object or concur with
the Company's utilization of such accounting method. The Staff informed the
Company last August that it intends to survey practice and conduct other
inquiries regarding generally accepted practices relating to long-term
contracts and program accounting. The Company has not received any indication
from the Commission of the likely outcome of this survey. By declaring
effective the Registration Statement of which this Prospectus is a part, the
Commission is not passing upon the adequacy or accuracy of the information
contained herein including, without limitation, the appropriateness of the
Company's accounting methods and practices.
MARYLAND CONSENT ORDER
In December 1989, the Maryland Department of the Environment ("MDE") served
the Company with a Letter and Consent Order No. CO-90-093. The Consent Order
calls for investigation and remediation of chemicals detected in soil and
ground water at the Company's bonding facility in Hagerstown, Maryland. The
Company and MDE subsequently negotiated a mutually acceptable Consent Order
under which the Company has developed a work plan to determine the nature and
extent of the pollution at the bonding plant. The Company had acquired the
bonding plant from Fairchild Industries, Inc. ("Fairchild"), in September 1987
and Fairchild had agreed to retain responsibility for and to indemnify the
Company against any claims and fees in connection with any hazardous materials
or pollutants released into the environment at or near the bonding plant or any
other property before the closing date of the sale. In October 1990, after
initially-unsuccessful negotiations with Fairchild, the Company filed a lawsuit
in the United States District Court for the Central District of California
requesting, among other things, a declaration that it is entitled to
indemnification under the Purchase and Sale Agreement for the costs associated
with conducting the work requested by MDE. On March 11, 1993, the Company and
Fairchild executed a settlement agreement pursuant to which Fairchild
substantially reimbursed the Company for past costs relating to environmental
investigations at the bonding plant. The parties agreed to dismiss the lawsuit
and agreed on a procedure to perform the work required under the MDE Consent
Order. Based on currently available information, the Company believes that the
resolution of this matter will not have a material adverse effect on the
financial position or results of operation of the Company.
PROPOSITION 65 MATTERS
On March 23, 1992, a Deputy Attorney General for the State of California
advised the Company that it may be subject to suit pursuant to Proposition 65
on the basis of data contained in a health risk assessment ("HRA") of the
Company's Chula Vista facility conducted pursuant to the Air Toxics Hot Spots
Act, also known as California Assembly Bill AB-2588. Proposition 65 requires
manufacturers who expose any person to a chemical resulting in an increased
risk of cancer to issue a clear and reasonable warning to such person and
imposes substantial penalties for non-compliance. AB-2588 requires
manufacturers to inventory their air emissions and to submit an HRA to assess
and quantify health risks associated with those emissions. On April 9, 1993,
representatives of the Company met with the Deputy
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Attorney General to discuss this matter and agreed to supply certain requested
data to the government. The Company is presently working on the procedures
required to produce this data. Based on currently available information, the
Company believes that the resolution of this matter will not have a material
adverse effect on the financial position or results of operation of the
Company.
RIO BRAVO SITE
In January 1993, the Department of Toxic Substances Control of the State of
California Environmental Protection Agency ("DTSC") notified the Company and
approximately 25 other individuals and companies that the DTSC expected a
payment of approximately $1.1 million within thirty days of its notice. The
demand for payment, which is joint and several, was for expenses allegedly
incurred by DTSC personnel in the oversight of the cleanup of the Rio Bravo
deep injection well disposal site in Shafter, California. The cleanup is
currently being conducted by a group of cooperating potentially responsible
parties ("PRPs"), including the Company ("the Cooperating PRPs"). The DTSC
advised that failure to pay said sum within the specified time limit would
result in a referral of the matter to its legal office for collection. The
Company was further advised that it could submit objections to this action by
contacting DTSC's Cost Recovery Unit. In February 1993, the Cooperating PRP
group wrote to DTSC and advised them, among other things, of the Cooperating
PRPs' continuing efforts at the site and suggested that DTSC seek recovery of
the oversight funds from the non-cooperating PRPs. Since the demand of the DTSC
was joint and several, and would arguably cover all generators including the
non-cooperating PRPs, none of the $1.1 million demanded by the DTSC has been
allocated to the Cooperating PRPs. Some PRPs estimate the potential cost of
cleanup to be approximately $7 million and the Company's share (based on
estimated, respective volumes of discharge into such site by all generators,
all of which cannot now be known with certainty) could approximate $450,000.
The Company and other PRPs could face joint and several liability for the
entire amount of clean-up costs, regardless of Cooperating PRP or non-
cooperating PRP status. Based on currently available information, the Company
believes that the resolution of this matter will not have a material adverse
effect on the financial position or results of operation of the Company.
CHATHAM SITE
The Company previously reported that the DTSC informed the Company and
approximately 100 other individuals and companies that DTSC considered the
recipients to be potentially PRPs liable for cleanup at the Chatham Brothers
Barrel Yard Site located in Escondido, California (the "Chatham Site"). By
letter dated April 13, 1993, DTSC again notified the Company that it believed
the Company was one of a number of companies who were liable for the cleanup of
the Chatham Site. After a thorough review of the Company's records and
information possessed by DTSC, and interviews of present and former Company
employees, the Company remains convinced that it has no relationship whatsoever
with the Chatham Site and, therefore, is not liable for the cleanup of that
site. In addition, the Company has discussed this matter with a group of PRPs
for the Chatham Site and has indicated its lack of involvement with the site.
If the Company fails to persuade DTSC that it is not a PRP with regard to the
Chatham Site, the Company could face joint and several liability for the
amounts involved. The potential cost of cleanup for the Chatham Site is
estimated by some PRPs to be approximately $30 million. If suit is filed
against the Company, the Company intends to defend vigorously this matter.
Based on currently available information, the Company believes that the
resolution of this matter will not have a material adverse effect on the
financial position or results of operation of the Company.
SCAQMD COMPLIANCE
The Company's Riverside, California facility is working along with the
California Aerospace Group ("CAG") to meet the South Coast Air Quality
Management District ("SCAQMD") compliance deadline for adhesive bonding
primers. The deadline for compliant primers was originally January 1, 1992. It
has been extended and is now set for January 1, 1997. The Company and the CAG
continue to work with
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manufacturers of adhesive bonding primers to see if a compliant primer can be
developed and tested, and although no compliant primers currently exist, five
potential candidates have been identified for extensive testing. The Company
believes the ultimate resolution of the matter will not have a material adverse
impact on the financial condition or results of operations of the Company.
CASMALIA SITE
During the third quarter of fiscal year 1993, Region IX of the United States
Environmental Protection Agency ("EPA") named the Company as a first-tier
generator of hazardous wastes that were transported to the Casmalia Resources
Hazardous Waste Management Facility (the "Casmalia Site") in Casmalia,
California. Approximately 80 other companies and individuals have also been
identified as first-tier generators. First-tier generators are the top 82
generators by volume of waste disposed of at the Casmalia Site. The size of
this group was chosen by the EPA. The EPA has given the first-tier generators a
list of work-related elements needing to be addressed in a good faith offer to
investigate and remediate the site. The first-tier generators believe a
collaborative approach early in the site cleanup and closure process offers all
parties an opportunity to help determine a technical course of action at this
site before the EPA has made final decisions on the matter. The Company has
joined approximately 49 other companies in the Casmalia Resources Site Steering
Committee which recently made a good faith offer to the EPA. The Company could
be found jointly and severally liable for the total amount of cleanup cost. The
Company does not yet know the ability of all other PRPs at this site, which
include companies of substantial assets and equity, to fund their allocable
share. Some PRPs have made preliminary estimates of cleanup costs at this site
of approximately $60 to $70 million and the Company's share (based on
estimated, respective volumes of discharge into such site by all generators,
all of which cannot now be known with certainty) could approximate $1,750,000.
Based on currently available information, the Company believes that the
resolution of this matter will not have a material adverse effect on the
financial position or results of operation of the Company.
CHULA VISTA SITE
From time to time, various environmental regulatory agencies request that the
Company conduct certain investigations on the nature and extent of pollution,
if any, at its various facilities. For example, such a request may follow the
spill of a reportable quantity of certain chemicals. At other times, the
request follows the removal, replacement or closure of an underground storage
tank pursuant to applicable regulations. At present, the Company's Chula Vista
facility is conducting certain investigations pursuant to discussions with the
San Diego County Department of Health Services, Hazardous Materials Management
Division and the San Diego Regional Water Quality Control Board. The Company
intends to cooperate fully with the various regulatory agencies.
GENERAL
In addition to the litigation discussed above, from time to time the Company
is a defendant in lawsuits involving claims based on the Company's alleged
negligence or strict liability as a manufacturer in the design or manufacture
of various products and also claims based upon environmental protection laws.
The Company believes that in those types of cases now pending, or in claims
known by the Company to be asserted against it whether or not reduced to a
legal proceeding, it either has no material liability or any such liability is
adequately covered by its reserves or its liability insurance, subject to
certain deductible amounts. The Company is aware that various of its insurers
may assert, and in some such cases have asserted, that their insurance coverage
does not provide protection against punitive damages in any specific lawsuit.
While there can be no assurances that the Company will not ultimately be found
liable for material punitive damages, the Company does not now believe that it
has an exposure to any material liability for punitive damages.
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DESCRIPTION OF CERTAIN FINANCINGS
The following is a summary of certain terms of the Company's principal
financing agreements, effective on the Closing Date of the sale of the
Securities.
REVOLVING CREDIT AGREEMENT
Effective upon the completion of the Offerings, the Company's unsecured
Revolving Credit Agreement with a group of banks will provide the following
loan commitments during the indicated periods:
<TABLE>
<CAPTION>
PERIOD COMMITMENT
------ ------------
<S> <C>
Through October 24, 1995..................................... $110 million
October 25, 1995 to April 24, 1996........................... $100 million
April 25, 1996 to October 24, 1996........................... $ 90 million
October 25, 1996 to April 24, 1997........................... $ 80 million
</TABLE>
This Revolving Credit Agreement is immediately available for borrowing (or to
support the issuance of up to $30 million of letters of credit). Borrowings
under this agreement incur interest at an annual rate equal to one of the
following at the Company's option: (1) prime rate plus 0% to 2.25%; (2) London
Interbank Offered Rate plus 0.75% to 3.25%; (3) or a Domestic Money Market Bid
Rate plus 0.875% to 3.375%; or (4) competitive bid. The weighted average
interest rate for borrowings under this credit agreement was 5.22% per annum
during the second quarter of fiscal 1994. The agreement provides a facility fee
payable on a monthly basis, at the rate of 0.35% to 0.75% on each lender's
total commitment. The specific interest rate and facility fee payable at any
time is based upon the Company's credit rating and various other factors.
Effective upon the completion of the Offerings, the Revolving Credit
Agreement will require the Company to maintain Consolidated Tangible Net Worth
(as defined) of $125 million plus 50% of positive consolidated net income
beginning on August 1, 1994. At January 30, 1994, the Company's Consolidated
Tangible Net Worth was $184.6 million. Consolidated Tangible Net Worth is
expected to decrease in the third quarter of fiscal 1994 in connection with
anticipated increases in the Company's underfunded pension liabilities. See
"Risk Factors--Underfunded Pension Plans." The agreement will also require the
Company to maintain a ratio of Consolidated Net Income Available for Fixed
Charges for each period of 365 days to Fixed Charges (each as defined) for such
period, after completion of the offering, at least equal to the following:
<TABLE>
<CAPTION>
MINIMUM
PERIOD RATIO
------ -------
<S> <C>
Through July 31, 1994............................................. 1.40:1
August 1, 1994 through July 31, 1995.............................. 1.55:1
August 1, 1995 through July 31, 1996.............................. 1.90:1
August 1, 1996 and thereafter..................................... 2.00:1
</TABLE>
For purposes of this test, Consolidated Net Income Available for Fixed
Charges is calculated without regard to the cumulative effect through May 2,
1993, of the accounting changes adopted by the Company effective August 1,
1992, and $38 million of provisions and charges taken by the Company in the
third quarter of fiscal 1993. For the 365-day period ended at January 30, 1994,
the Company's ratio of Consolidated Net Income Available for Fixed Charges to
Fixed Charges was 2.04:1.
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Effective upon the completion of the Offerings, the Revolving Credit
Agreement will also require the Company to maintain a ratio of Debt (as
defined) to Consolidated Tangible Net Worth not to exceed the following:
<TABLE>
<CAPTION>
MAXIMUM
PERIOD RATIO
------ -------
<S> <C>
Through July 31, 1994............................................. 5.60:1
August 1, 1994 through July 31, 1995.............................. 5.00:1
August 1, 1995 through July 31, 1996.............................. 4.10:1
August 1, 1996 and thereafter..................................... 3.20:1
</TABLE>
In calculating this ratio, Debt includes the Company's underfunded pension
liabilities, but does not include the Company's off-balance sheet financings.
See "Capitalization." At January 30, 1994, the Company's ratio of Debt to
Consolidated Tangible Net Worth was 2.82:1.
Other covenants in the Revolving Credit Agreement prohibit the Company from
adding collateral to or otherwise supporting its existing debt, accelerating
the maturity of such debt, or revising any covenant or other term of such debt
to make it materially more restrictive for the Company or any of its
subsidiaries.
9.35% SENIOR NOTES DUE 2000 AND 9.33% SENIOR NOTES DUE 2002
The Company's 9.35% senior notes due 2000 mature on January 29, 2000 and
require principal payments of $12.5 million in January of each year until
repaid. The Company's 9.33% senior notes due 2002 mature on December 15, 2002
and require principal payments of approximately $8.9 million in December of
each year commencing in 1996 until repaid. With respect to each of these issues
of senior notes, the Company may make principal prepayments at its option,
which may include a premium for yield adjustment. The holders of these notes
can require the Company to purchase the remaining principal amount of the
respective notes, plus accrued interest and premium for yield adjustment, in
the event of certain changes in control or ownership of the Company. A covenant
in the agreements governing these two issuances of senior notes prohibits the
Company from amending its Revolving Credit Agreement to reduce the amount or
availability of the bank's commitment to lend to the Company under such
agreement. Other covenants in these senior note agreements are substantially
similar to the covenants in the Revolving Credit Agreement.
9.25% SUBORDINATED DEBENTURES
The Company's 9.25% subordinated debentures mature in 2017. These debentures
are subject to mandatory annual sinking-fund payments of $7.5 million beginning
March 1998. The Company may redeem an additional $15 million on each sinking-
fund date. The subordinated debentures are redeemable at the Company's option,
at 106.5% of the outstanding principal amount at May 2, 1993, declining
annually to 100.5% in 2006, plus accrued interest. However, no such redemption
may be effected prior to March 1997, directly or indirectly, from borrowed
money having an interest cost of less than 9.25% per annum. These debentures
will be subordinated to the Senior Notes and pari passu with the Convertible
Subordinated Notes.
7% CONVERTIBLE SUBORDINATED DEBENTURES
The Company's 7% convertible subordinated debentures mature in 2012. These
debentures are convertible prior to maturity, unless previously redeemed, at a
conversion price of $43 per share, subject to adjustment under certain
conditions. The debentures are redeemable at the option of the Company, in
whole or in part, at a redemption price of 102.8% declining annually to 100.7%
in 1996, together with accrued interest to the date of redemption. Annual
sinking-fund payments of 5% of the aggregate principal amount of the debentures
originally issued are to be applied to the redemption of debentures
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at 100% of principal amount plus accrued interest, commencing October 1998. The
Company has the option of delivering repurchased debentures to the sinking-fund
in lieu of cash. The mandatory sinking-fund is calculated to retire 70% of the
aggregate principal amount of the debentures originally issued prior to
maturity. The debentures are subordinated to all existing or future senior debt
of the Company and rank on equal terms with the Company's outstanding 9.25%
subordinated debentures due 2017. These debentures will be subordinated to the
Senior Notes and pari passu with the Convertible Subordinated Notes.
ACCOUNTS RECEIVABLE FACILITY
The Company is a party to an accounts receivable facility under which it
sells all of its accounts receivable from specified customers through a
subsidiary to a trust on an on-going basis. Investors purchased beneficial
interests in the trust for $60 million, which was paid indirectly to the
Company for the accounts receivable initially transferred to the trust. The
Company sells additional accounts receivable through its subsidiary to the
trust to maintain the investor's beneficial interest at $60 million. The
Company's subsidiary holds the residual beneficial interest in the trust. Under
the arrangement, the Company acts as an agent for the trust by performing all
record keeping and collection functions with respect to the accounts receivable
that have been sold. The investors' beneficial interest in the trust is
reflected as a decrease in accounts receivable. The cost associated with the
sale of accounts receivable under the facility is 7.57% per year (calculated as
a percentage of the investors' $60 million beneficial interest) and is
reflected as a reduction in sales. As a result of the slow-down in the
aerospace industry, the amount of outstanding receivables owned by the trust
has fallen below levels which existed at the start of the facility. If the
outstanding receivables owned by the trust fall below levels required to
support the investors' $60 million beneficial interest in the trust, the
Company may deposit certain receivables collections and the proceeds of
receivables sales in a reserve fund or may allow receivables collections to
reduce the investors' interest in the trust. From time to time the Company has
deposited amounts into the reserve fund and has withdrawn such amounts when
they are no longer required to be deposited. The Company does not believe any
changes in the receivables facility resulting from a decrease in the total
amount of receivables sold to the trust or in the outstanding receivables
balance will have a material adverse effect on the Company's liquidity or
financial condition.
SALE-LEASEBACK TRANSACTIONS
The Company is also a party to a group of sale-leaseback transactions
pursuant to which it sold furniture and certain significant items of the
equipment utilized in its manufacturing processes for approximately $52.3
million and leased such furniture and equipment back from the investors who
purchased it. The Company has granted the equipment lessors a security interest
in all of the Company's accounts receivable from a particular customer and/or
cash securing $10 million of obligations. At January 30, 1994, the balance of
these accounts receivable was $15.8 million. The security interest will be
released at such time as the existing equipment lessors assign approximately
one-half of their beneficial interests in the leased equipment. If such
assignments do not occur by January 1995, the existing equipment lessors may
apply the collateral against the Company's then remaining lease obligations.
The Company's leases are treated as operating leases for financial reporting
purposes. The costs of the lease transactions average approximately 6.8%
annually over the term of the leases (calculated as a percentage of the $52.3
million sales price of the leased furniture and equipment). The agreements
governing the equipment lease transactions contain the same consolidated
tangible net worth, fixed charge coverage ratio and debt to consolidated
tangible net worth ratio covenants as are in the Revolving Credit Agreement.
The agreements governing these transactions permit the Company to purchase the
investors' interest in the equipment before the investors can repossess upon a
default by the Company, subject to certain time limitations. The investors'
repossession of any substantial portion of such equipment would have a material
adverse effect on the Company's ability to meet its production contract
commitments.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Common Stock of the Company has a par value of $1 per share. Subject to
the preferential dividend rights of the Preferred Stock (no shares of which are
currently outstanding), the holders of Common Stock may from time to time
receive out of assets legally available therefor dividends as and when declared
by the Board of Directors. Several of the Company's principal financing
agreements contain a covenant restricting the Company's right to pay dividends
on, and to redeem, retire or acquire, its stock. See "Price Range of Common
Stock and Dividends."
Each share of Common Stock entitles the holder thereof to one vote, except
that in any election of directors votes may be cumulated. The directors of the
Company are divided into three classes and at each annual meeting of
stockholders only one of these classes is subject to election. The board
presently consists of ten directors, of whom three are subject to election at
the annual meeting in 1994 and each three years thereafter, three at the annual
meeting in 1995 and each three years thereafter and four at the annual meeting
in 1996 and each three years thereafter. The division of the directors into
three classes may make a proposed takeover of the Company which is not
supported by the incumbent directors more difficult to achieve than if the
directors constituted a single class.
In the event of a proposed merger or consolidation with, or a sale of assets
to, a company which itself, or with its affiliates, owns or controls 5% or more
of the outstanding Common Stock of the Company, an affirmative vote of three-
fourths of the total outstanding voting stock is required unless such merger,
consolidation or sale of assets was approved by the Board of Directors prior to
the acquisition of such 5% of Common Stock by such company or its affiliates.
This provision is in the Restated Certificate of Incorporation, as amended (the
"Certificate"), and the provisions for cumulative voting and a three-class
Board of Directors may only be changed by a three-fourths vote of the total
outstanding voting stock. Similarly, before the Company may enter into a merger
or consolidation with, sell a substantial part of its assets to, or agree to
certain other transactions with a company which itself, or with its affiliates,
beneficially owns 10% or more of the Company's outstanding voting stock, the
transaction must be approved by a three-fourths vote of the total outstanding
voting stock and by a majority of the outstanding voting stock which is not
beneficially owned by the other company and its affiliates; provided, however,
that the voting requirements described in this sentence do not apply if the
proposed transaction is approved by a majority of the continuing directors, as
defined in the Certificate, or certain other provisions are met.
PREFERRED STOCK
The Certificate authorizes the Company to issue multiple classes of Preferred
Stock, the substantive rights of which are to be fixed by the directors. The
Board of Directors can authorize, without stockholder approval, the issuance of
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of the holders of Common Stock.
SHAREHOLDER RIGHTS PLAN
The Company has adopted a shareholder rights plan, and on August 15, 1986,
declared a dividend distribution of one purchase right for each outstanding
share of Common Stock of the Company to shareholders of record at the close of
business on August 26, 1986. The Company has issued one purchase right with
each share of Common Stock issued after August 26, 1986, and subject to the
expiration of the rights in 1996, will issue one such right for each share of
Common Stock issued upon conversion of the Convertible Subordinated Notes. Each
right generally entitles the holder thereof to purchase one one-hundredth of a
preferred share from the Company for $100, subject to adjustment. Such
preferred stock purchase rights, which expire on August 25, 1996 and are
redeemable by the
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Company, become exercisable and separated from the Common Stock under certain
circumstances generally related to the acquisition (or the right to acquire) by
a person or group of affiliated persons of 15% or more of the Company's
outstanding Common Stock or where such a person or group has made a tender
offer to acquire 15% or more of such stock. Under certain additional
circumstances, each right would entitle the holder to purchase a certain number
of shares of the Company's Common Stock at one-half of the Common Stock's fair
market value.
The provisions discussed above may make it more difficult for a third party
to acquire control of the Company or could discourage such a party from
attempting to acquire control.
GENERAL
Upon liquidation, dissolution or winding up of the Company, the assets
legally available for distribution to stockholders shall be distributed ratably
among the holders of Common Stock at the time outstanding, subject to the
preferential rights of any series of Preferred Stock of the Company then
outstanding. The Common Stock has no preemptive, conversion or redemption
rights, and when fully paid is not subject to assessment.
The outstanding Common Stock of the Company is listed on the New York Stock
Exchange, the Pacific Stock Exchange and The Stock Exchange in London.
The transfer agent and registrar for the Common Stock is the First Chicago
Trust Co. of New York.
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DESCRIPTION OF NOTES
The Convertible Subordinated Notes will be issued under an indenture to be
dated as of May 15, 1994 (the "Indenture") between the Company and The Bank of
New York, a New York State banking corporation, as trustee (the "Trustee"), a
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The terms of the Convertible Subordinated
Notes will include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"), as in effect on the date of the Indenture. The Convertible Subordinated
Notes will be subject to all such terms, and holders of the Convertible
Subordinated Notes are referred to the Indenture and the TIA for a statement of
such terms. The following is a summary of important terms of the Convertible
Subordinated Notes and does not purport to be complete. Reference should be
made to all provisions of the Indenture, including the definitions therein of
certain terms and all terms made a part of the Indenture by reference to the
TIA. Certain definitions of terms used in the following summary are set forth
under "--Certain Definitions" below.
As used in this section, the "Company" means Rohr, Inc., but not any of its
subsidiaries, unless the context requires otherwise.
GENERAL
The Convertible Subordinated Notes will be general unsecured subordinated
obligations of the Company, will mature on , 2004, and will be
limited to an aggregate principal amount of $50,000,000 (assuming no exercise
of the Underwriter's over-allotment option). The Convertible Subordinated Notes
will be issued in denominations of $1,000 and integral multiples of $1,000 in
fully registered form. The Convertible Subordinated Notes are exchangeable and
transfers thereof will be registrable without charge therefor, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge in connection therewith.
The Convertible Subordinated Notes will accrue interest at a rate of % per
annum from , 1994, or from the most recent interest payment date to
which interest has been paid or duly provided for, and accrued and unpaid
interest will be payable semi-annually on May 15 and November 15 of each year
beginning November 15, 1994. Interest will be paid to the Person in whose name
each Convertible Subordinated Note is registered at the close of business on
the May 1 or November 1 immediately preceding the relevant interest payment
date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Interest on overdue principal and (to the extent permitted by law) on
overdue installments of interest will accrue at a rate equal to % per annum.
Initially, the Trustee will act as paying agent and registrar of the
Convertible Subordinated Notes. The Company may change any paying agent and
registrar without notice.
CONVERSION
The holders of Convertible Subordinated Notes will have the right,
exercisable at any time prior to maturity, to convert the principal amount
thereof (or any portion thereof that is an integral multiple of $1,000) into
shares of Common Stock at a conversion price of $ per share of Common
Stock, subject to adjustment as described below (the "Conversion Price"),
except that if a Convertible Subordinated Note is called for redemption, the
conversion right will terminate at the close of business on the date fixed for
redemption (unless the Company defaults in making the redemption payment when
due, in which case the conversion right will terminate at the close of business
on the date such default is cured). Upon conversion, no adjustment or payment
will be made for interest or dividends, but if any holder of a Convertible
Subordinated Note surrenders a Convertible Subordinated Note for conversion
after the close of business on the record date for the payment of an
installment of interest and prior to
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the opening of business on the next interest payment date (unless such
Convertible Subordinated Note or portion thereof is called for redemption on a
redemption date in that period), then, notwithstanding such conversion, the
interest payable on such interest payment date will be paid to such registered
holder. In such event, such Convertible Subordinated Note, when surrendered for
conversion, must be accompanied by payment of an amount equal to the interest
payable on such interest payment date on the portion so converted.
No fractional shares will be issued upon conversion but a cash payment will
be made for any fractional interest.
The Conversion Price is subject to adjustment upon the occurrence of certain
events, including (a) the issuance of shares of Common Stock as a dividend or
distribution on the Common Stock; (b) the subdivision, combination or
reclassification of the outstanding Common Stock; (c) the issuance to all or
substantially all holders of Common Stock of rights or warrants to subscribe
for or purchase Common Stock (or securities convertible into Common Stock) at a
price per share less than the then current market price per share, as defined
in the Indenture; (d) the distribution of shares of Capital Stock of the
Company (other than Common Stock) to all holders of Common Stock, evidences of
indebtedness or other assets (excluding dividends in cash); (e) the
distribution to all or substantially all holders of Common Stock of rights or
warrants to subscribe for securities (other than those referred to in clause
(c) above) (f) the issuance of Common Stock to an Affiliate for a net price per
share less than the current market price per share (determined as set forth
below) on the date the Company fixes the offering price of such additional
shares (other than issuances of Common Stock under certain employee benefit
plans of the Company), (g) the distribution, by dividend or otherwise, of cash
(including any cash that is distributed as part of a distribution described in
(d) above) to all holders of Common Stock in an aggregate amount that, together
with the aggregate of any other distributions of cash that did not trigger a
Conversion Price adjustment to all holders of its Common Stock within the 12
months preceding the date fixed for determining the stockholders entitled to
such distribution plus the aggregate of any cash and the fair market value of
consideration that did not trigger a Conversion Price adjustment payable in
respect of any tender offer by the Company or any of its subsidiaries for
Common Stock (as described in (h) below) consummated within the 12 months
preceding the date fixed for determining the stockholders entitled to such
distribution, exceeds 15% of the product of the current market price per share
(determined as set forth below) on the date fixed for the determination of
stockholders entitled to receive such distribution times the number of shares
of Common Stock outstanding on such date; and (h) the completion of a tender
offer made by the Company or any of its subsidiaries for Common Stock involving
an aggregate consideration that, together with the aggregate of any cash and
the fair market value of any other consideration that did not trigger a
Conversion Price adjustment paid or payable in respect of any previous tender
offer by the Company or its subsidiary for Common Stock consummated with the 12
months preceding the consummation of such tender offer plus the aggregate
amount of any distributions of cash that did not trigger a Conversion Price
adjustment (as described in (g) above) to all holders of Common Stock within
the 12 months preceding the consummation of such tender offer, exceeds 15% of
the product of the current market price per share (determined as set forth
below) immediately prior to the expiration of such offer times the number of
shares of Common Stock outstanding at the expiration of such offer. In the
event of a distribution to all or substantially all holders of Common Stock of
rights to subscribe for additional shares of the Company's Capital Stock (other
than those referred to in clause (c) above), the Company may, instead of making
an adjustment in the Conversion Price, make proper provision so that each
holder of a Convertible Subordinated Note who converts such Convertible
Subordinated Note after the record date for such distribution and prior to the
expiration or redemption of such rights shall be entitled to receive upon such
conversion, in addition to shares of Common Stock, an appropriate number of
such rights. No adjustment of the Conversion Price will be made until
cumulative adjustments amount to one percent or more of the Conversion Price as
last adjusted. No adjustment of the Conversion Price will be made for cash
dividends.
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In the Indenture, the "current market price" per share of Common Stock on
any date shall be deemed to be the average of the Daily Market Prices (as
defined in the Indenture) for the shorter of (i) 30 consecutive business days
ending on the last full trading day on the exchange or market referred to in
determining such Daily Market Prices prior to the time of determination or
(ii) the period commencing on the date next succeeding the first public
announcement of the issuance of such rights or warrants or such distribution
through such last full trading day prior to the time of determination.
If the Company reclassifies or otherwise changes its outstanding Common
Stock, or consolidates with or merges into or transfers or leases all or
substantially all its assets to any Person, or is a party to a merger that
reclassifies or changes its outstanding Common Stock, the Convertible
Subordinated Notes will become convertible into the kind and amount of
securities, cash or other assets which the holders of Convertible Subordinated
Notes would have owned immediately after the transaction if the holders had
converted the Convertible Subordinated Notes immediately before the effective
date of the transaction.
SUBORDINATION
The Convertible Subordinated Notes will be subordinate and junior in right
of payment to all "Senior Indebtedness" of the Company to the extent and in
the manner set forth below. The Indenture will define "Senior Indebtedness"
generally as all present or future Indebtedness of the Company described in
clauses (a)(i), (a)(ii), (a)(iv) and (c) of the definition of Indebtedness
created, incurred, assumed or, except to the extent described below,
guaranteed (to the extent of the guarantee) by the Company (and all renewals,
modifications, extensions or refundings thereof), together with all other
obligations owing in connection therewith, including principal, interest
(including interest accruing on any such indebtedness which is Designated
Senior Indebtedness after the filing of a petition by or against the Company
under any bankruptcy law, whether or not the claim for such interest is
allowed as a claim after such filing in any proceeding under such bankruptcy
law), premium, if any, fees, costs, expenses and indemnities, unless the
instrument under which such Indebtedness is created, incurred, assumed or
guaranteed provides that such Indebtedness is not senior or superior in right
of payment to the Convertible Subordinated Notes. Notwithstanding anything to
the contrary in the foregoing, Senior Indebtedness shall not include (a) any
Indebtedness of the Company owing to any of its subsidiaries, (b) Capitalized
Lease Obligations (as defined in this section), (c) Indebtedness or other
obligations in respect of the Pooling and Servicing Agreement, (d) the
Company's 9.25% Subordinated Debentures due 2017 or its 7% Convertible
Subordinated Debentures due 2012 and (e) any advances, deposits or partial
progress payments, payables, unpaid wages and related employee obligations,
trade accounts, and accrued liabilities.
By reason of such subordination, in the event of a liquidation or
dissolution of the Company or a bankruptcy, reorganization, insolvency,
receivership or other similar proceeding or upon assignment for the benefit of
creditors relating to the Company or its property, or a marshalling of assets
or liabilities of the Company, upon any distribution of assets (a) holders of
Senior Indebtedness will be entitled to be paid all obligations owing in
respect thereof in full in cash or Cash Equivalents (as defined in this
section) before payments may be made on or in respect of the Convertible
Subordinated Notes, except to the extent that holders receive securities that
are subordinated to Senior Indebtedness to at least the same extent as the
Convertible Subordinated Notes (the "Other Subordinated Securities") and (b)
holders of Convertible Subordinated Notes (or the Trustee on their behalf)
will be required to pay over their share of any such distribution directly to
any Representative of the holders of Senior Indebtedness for payment thereto
or, if such holders have no Representative, directly to such holders of Senior
Indebtness, until such Senior Indebtedness is paid in full in cash or Cash
Equivalents, except to the extent that holders of Convertible Subordinated
Notes receive Other Subordinated Securities.
In the event of any acceleration of the Convertible Subordinated Notes, the
holders of any Senior Indebtedness then outstanding would be entitled to
payment in full in cash or Cash Equivalents of all amounts then due on or in
respect of such Senior Indebtedness before the holders of the Convertible
Subordinated Notes are entitled to receive any payment or distribution in
respect thereof.
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The Company may not make any direct or indirect payment on or in respect of
the Convertible Subordinated Notes and may not acquire any Convertible
Subordinated Notes for cash or property (other than Other Subordinated
Securities) if (a) a default in the payment of any principal of or other
obligation in respect of Designated Senior Indebtedness (as defined below)
occurs and is continuing beyond any applicable grace period or (b) a default,
other than a default, referred to in clause (a) above on any Designated Senior
Indebtedness occurs and is continuing that then permits holders of such
Designated Senior Indebtedness to accelerate the maturity and the Trustee
receives a notice of the default from the agent under the Revolving Credit
Agreement, or other person permitted to give such notice under the Indenture,
requesting that payment on or in respect of the Convertible Subordinated Notes
be prohibited. Notwithstanding the foregoing, and so long as the terms of the
Indenture otherwise permit such payment, the Company may resume payments on
the Convertible Subordinated Notes upon the earlier of (x) the date upon which
such default is cured or waived or (y) in the case of a default referred to in
(a) above, 179 days pass after notice is received by the Trustee (a "Payment
Blockage Period"). Only one Payment Blockage Period may be commenced within
any consecutive 365-day period with respect to the Convertible Subordinated
Notes. "Designated Senior Indebtedness" will be defined in the Indenture to
mean Senior Indebtedness of the Company now or hereafter outstanding under (i)
the Revolving Credit Agreement; (ii) the Company's 9.35% Senior Notes due 2000
and 9.33% Senior Notes due 2002; (iii) the Senior Notes; and (iv) any other
Senior Indebtedness issued in one or more substantially concurrent issuances
on substantially similar terms, the aggregate principal amount which is $50
million or more. Neither the Trustee nor the holders of the Convertible
Subordinated Notes are required to give notice to any holders of Senior
Indebtedness (or their representatives) prior to acceleration of the
obligations evidenced by the Convertible Subordinated Notes.
Although the Convertible Subordinated Notes rank pari passu in right of
payment to the Company's 9.25% Subordinated Debentures due 2017 and its 7%
Convertible Subordinated Debentures due 2012, such indebtedness may be
entitled to receive principal and interest payments at a time when such
payments would be blocked in respect of the Convertible Subordinated Notes,
unless the holders of the Convertible Subordinated Notes accelerate the
maturity of the obligations owing on the Convertible Subordinated Notes.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company, whether in cash, property or securities
(other than Other Subordinated Securities), shall be received by the Trustee
[or the holders of] Convertible Subordinated Notes at a time when such payment
or distribution is prohibited by the foregoing provisions, such payment or
distribution shall be segregated and held in trust for the benefit of the
holders of Senior Indebtedness of the Company, and shall be paid or delivered
by the Trustee or such holders, as the case may be, to the Representative of
the holders of Senior Indebtedness for payments thereto, or, if such holders
have no Representative, directly to such holders of Senior Indebtedness, as
their respective interests may appear, for application to the payment of all
Senior Indebtedness of the Company remaining unpaid to the extent necessary to
pay or to provide for the payment of all such Senior Indebtedness in full in
cash and Cash Equivalents after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
As a result of these subordination provisions, in the event of a liquidation
or dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding or an assignment for the benefit of the
creditors of the Company or a marshalling of assets or liabilities of the
Company, holders of Convertible Subordinated Notes may receive ratably less
than other creditors.
There are no restrictions in the Indenture on the creation of additional
Senior Indebtedness (or any other Indebtedness) and, under certain
circumstances, the incurrence of significant amounts of additional
Indebtedness could have an adverse effect on the Company's ability to service
its Indebtedness, including the Convertible Subordinated Notes.
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OPTIONAL REDEMPTION
The Convertible Subordinated Notes may be redeemed at the option of the
Company, in whole or from time to time in part, on and after ,
1998, on not less than 30 nor more than 60 days' prior written notice to the
holders thereof by first class mail, at the following redemption prices
(expressed as percentages of the principal amount), plus accrued and unpaid
interest to the date fixed for redemption, if redeemed during the twelve-month
period beginning of each year indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1998........................................................... %
1999........................................................... %
2000........................................................... %
2001........................................................... %
2002........................................................... %
2003........................................................... %
2004........................................................... 100%
</TABLE>
If less than all the Convertible Subordinated Notes are to be redeemed, the
Trustee will select Convertible Subordinated Notes for redemption pro rata or
by lot or by any other method that the Trustee considers fair and appropriate.
The Trustee may select for redemption a portion of the principal of any
Convertible Subordinated Note that has a denomination larger than $1,000.
Convertible Subordinated Notes and portions thereof will be redeemed in the
amount of $1,000 or integral multiples of $1,000. The Trustee will make the
selection from Subordinated Notes outstanding and not previously called for
redemption.
Provisions of the Indenture that apply to Convertible Subordinated Notes
called for redemption also apply to portions of Convertible Subordinated Notes
called for redemption. If any Convertible Subordinated Note is to be redeemed
in part, the notice of redemption will state the portion of the principal
amount to be redeemed. Upon surrender of a Convertible Subordinated Note that
is redeemed in part only, the Company will execute and the Trustee will
authenticate and deliver to the holder a new Convertible Subordinated Note
equal in principal amount to the unredeemed portion of the Convertible
Subordinated Note surrendered. On and after the redemption date, unless the
Company shall default in the payment of the redemption price, interest will
cease to accrue on the principal amount of the Convertible Subordinated Notes
or portions thereof called for redemption and for which funds have been set
apart for payment.
CHANGE OF CONTROL
Following a Change of Control (as defined below), the Company shall comply
with each of the procedures set forth in the Indenture in respect of such
event, and pursuant to the Indenture shall make an offer (a "Change of Control
Offer") to purchase all Convertible Subordinated Notes then outstanding at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the date of such purchase. Notice of a
Change of Control shall be mailed by or at the direction of the Company to the
holders of record of Convertible Subordinated Notes as shown on the register
of such holders maintained by the registrar not less than 15 days nor more
than 30 days after the date of such Change of Control (the "Change of Control
Date") at the addresses as shown on the register of holders maintained by the
registrar, with a copy to the Trustee and the paying agent. The Change of
Control Offer shall remain open until a specified date (the "Change of Control
Offer Termination Date") which is at least 20 business days from the date such
notice is mailed. During the period specified in such notice, holders of
Convertible Subordinated Notes may elect to tender their Convertible
Subordinated Notes in whole or in part in integral multiples of $1,000 in
exchange for cash. Payment shall be made by the Company in respect of
Convertible Subordinated Notes properly tendered as set forth herein on a
specified business day which shall be no earlier than 3 business days after
the applicable Change of Control Offer Termination Date and no later than 60
days after the applicable Change of Control Date.
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"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the Board of Directors of the Company): (a)
an event or series of events by which any Person or other entity or group of
Persons or other entities acting in concert as determined in accordance with
Section 13(d) of the Exchange Act, whether or not applicable (a "Group of
Persons"), shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases, merger or otherwise (i) be or
become, directly or indirectly, the beneficial owner (within the meaning of
Rule 13d-3 and Rule 13d-5 under the Exchange Act, whether or not applicable)
of 50% or more of the combined voting power of the then outstanding Voting
Stock of the Company or (ii) have or has the ability to elect, directly or
indirectly, a majority of the members of the Board of Directors of the Company
or other equivalent governing body thereof, (b) the shareholders of the
Company shall approve any Plan of Liquidation of the Company (whether or not
otherwise in compliance with the provisions of the Indenture), (c) individuals
who at the beginning of any period of two consecutive calendar years
constituted the Board of Directors of the Company (together with any new
directors whose election or appointment by the Board of Directors of the
Company or whose nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the members of the Board of
Directors of the Company then still in office who either were members of the
Board of Directors of the Company at the beginning of such period or whose
election, appointment or nomination for election was previously so approved)
cease for any reason to constitute a majority of the members of the Board of
Directors of the Company then in office or (d) the direct or indirect sale,
lease, exchange or other transfer, in one transaction or a series of related
transactions, of all or substantially all of the property or assets of the
Company to any Person or Group of Persons (whether or not otherwise in
compliance with the provisions of the Indenture).
If an offer is made to redeem Convertible Subordinated Notes as a result of
a Change of Control, the Company will be required to comply with all tender
offer rules under state and Federal securities laws, including, but not
limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to
the extent applicable to such offer.
None of the provisions relating to a purchase upon a Change of Control is
waivable by the Board of Directors of the Company or the Trustee. In the event
that the Company is required to purchase outstanding Convertible Subordinated
Notes pursuant to a Change of Control Offer, the Company expects that it would
need to seek third-party financing to the extent it does not have available
funds to meet its purchase obligations. However, there can be no assurance
that the Company would be able to obtain such financing. The occurrence of a
Change of Control would constitute an event of default under the Revolving
Credit Agreement and the agreements governing the Company's 9.33% Senior Notes
and 9.35% Senior Notes, and would permit the holders of that Indebtedness to
declare all amounts outstanding thereunder to be immediately due and payable.
Further, in the event of a Change of Control, the Company would be required to
make an offer to purchase all Senior Notes then outstanding at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of such purchase. On January 30, 1994,
after giving pro forma effect to the Offerings and the use of proceeds thereof
(assuming no exercise of the Underwriter's over-allotment option), there would
have been $256.8 million outstanding of Senior Indebtedness. See
"Capitalization." The Company could, in the future, enter into certain
transactions, including certain recapitalizations of the Company, that would
not constitute a Change of Control with respect to the Convertible
Subordinated Notes, but would increase the amount of Indebtedness outstanding
at such time. The rights of the holders of Convertible Subordinated Notes to
receive the Change of Control purchase price for the Convertible Subordinated
Notes or any other amount due on the Convertible Subordinated Notes are
subordinated to the rights of the holders of Senior Indebtedness (including
the Revolving Credit Agreement, the 9.33% Senior Notes, the 9.35% Senior Notes
and the Senior Notes) in the manner set forth in the Indenture. See "--
Subordination" and "--Events of Default."
Failure by the Company to purchase the Convertible Subordinated Notes when
required constitutes an Event of Default with respect to the Convertible
Subordinated Notes. If such an Event of Default resulted
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in a default under any Senior Indebtedness of the Company, the right of the
holders to receive the Change of Control purchase price (whether at the Change
of Control Payment Date or upon acceleration) or any other amounts due on
acceleration of the Convertible Subordinated Notes would be subordinated to
the rights of the holders of Senior Indebtedness of the Company. See "--Events
of Default."
The Change of Control provision of the Convertible Subordinated Notes may in
certain circumstances make more difficult or discourage a takeover of the
Company and thus the removal of incumbent management. The Change of Control
provision is not, however, the result of management's knowledge of any
specific effort to obtain control of the Company by means of merger, tender
offer, solicitation or otherwise, or part of a plan by management to adopt a
series of anti-takeover provisions.
LIMITATIONS ON SALE OF ASSETS
The Company will not, and will not permit any of its subsidiaries to,
consummate any Asset Sale (as defined in this section) unless such Asset Sale
is for at least Fair Market Value and at least 80% of the consideration
therefrom received by the Company or such subsidiary is in the form of cash or
Cash Equivalents.
Following any Asset Sale, an amount equal to the Net Cash Proceeds of such
Asset Sale shall be applied by the Company or such subsidiary within 365 days
of the date of the Asset Sale, at its election, to either (a) the payment of
Senior Indebtedness provided, however, any Net Cash Proceeds which are applied
to reduce Indebtedness under the Revolving Credit Agreement shall result in a
permanent reduction of the borrowing availability thereunder; (b) make any
Permitted Program Investment or any other investment in capital assets usable
in the Company's or its subsidiaries' lines of business or in an asset or
business in the same line of business as the Company; or (c) a combination of
payment and investment permitted by the foregoing clauses (a) and (b). On the
earlier of (A) the 366th day after the date of an Asset Sale or (B) such date
as the Board of Directors of the Company or of such subsidiary determines (as
evidenced by a written resolution of said Board of Directors) not to apply an
amount equal to the Net Cash Proceeds relating to such Asset Sale as set forth
in the immediately preceding sentence (each of (A) and (B), an "Asset Sale
Offer Trigger Date"), the Company would be obligated to apply or cause its
subsidiary to apply an amount equal to the aggregate amount of Net Cash
Proceeds which have not been applied on or before such Asset Sale Offer
Trigger Date as permitted by the foregoing clauses (a), (b) and (c) of the
immediately preceding sentence (each an "Asset Sale Offer Amount") to make an
offer to purchase for cash (an "Asset Sale Offer") from all holders on a pro
rata basis that amount of Convertible Subordinated Notes equal to the Asset
Sale Offer Amount at a price equal to 100% of the principal amount of the
Convertible Subordinated Notes to be repurchased, plus accrued and unpaid
interest thereon to the date of repurchase. Notwithstanding the foregoing, if
an Asset Sale Offer Amount is less than $10 million, the application of such
Asset Sale Offer Amount to an Asset Sale Offer may be deferred until such time
as such Asset Sale Offer Amount plus the aggregate amount of all Asset Sale
Offer Amounts arising subsequent to such Asset Sale Offer Trigger Date from
all Asset Sales by the Company and its subsidiaries aggregates at least $10
million, at which time the Company or such subsidiary shall apply all Asset
Sale Offer Amounts that have been so deferred to make an Asset Sale Offer (the
first date the aggregate of all such deferred Asset Sale Offer Amounts is
equal to $10 million or more shall be deemed to be an "Asset Sale Offer
Trigger Date").
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company as an entirety to a Person in a transaction
permitted under "--Merger and Consolidation" below, the successor Person shall
be deemed to have sold the properties and assets of the Company not so
transferred for purposes of this covenant, and shall comply with the
provisions of this covenant with respect to such deemed sale as if it were an
Asset Sale.
Each Asset Sale Offer will be mailed to the holders of the Convertible
Subordinated Notes at the addresses shown on the register of holders
maintained by the registrar, with a copy to the Trustee and
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the paying agent, within ten days following the applicable Asset Sale Offer
Trigger Date, and shall comply with each of the procedures for notice set
forth in the Indenture. Each Asset Sale Offer shall remain open until a
specified date (the "Asset Sale Offer Termination Date") which is at least 20
business days from the date such Asset Sale Offer is mailed. During the period
specified in the Asset Sale Offer, holders may elect to tender their
Convertible Subordinated Notes in whole or in part in integral multiples of
$1,000 in exchange for cash. Payment shall be made by the Company (or
applicable subsidiary) in respect of Convertible Subordinated Notes properly
tendered pursuant to this section on a specified business day which shall be
no earlier than 3 business days after the Asset Sale Offer Termination Date
and no later than 60 days after such applicable Asset Sale Offer Trigger Date.
To the extent holders properly tender Convertible Subordinated Notes in an
amount exceeding the Asset Sale Offer Amount, Convertible Subordinated Notes
of tendering holders will be repurchased on a pro rata basis (based on amounts
tendered).
If an offer is made to repurchase the Convertible Subordinated Notes
pursuant to an Asset Sale Offer, the Company will and will cause its
subsidiaries to comply with all tender offer rules under state and federal
securities laws, including, but not limited to, Section 14(e) under the
Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such
offer.
Any event which would require the Company or its subsidiary to offer to
purchase Convertible Subordinated Notes after an Asset Sale would also require
the Company to repay amounts outstanding under its Revolving Credit Agreement,
and to offer to repay its 9.33% Senior Notes due 2002 and 9.35% Senior Notes
due 2000. The rights of the holders of the Convertible Subordinated Notes to
receive the Asset Sale Offer Amount or any other amount due on the Convertible
Subordinated Notes are subordinated to the rights of the holders of Senior
Indebtedness (including Indebtedness under the Revolving Credit Agreement, the
9.35% Senior Notes due 2000 and the 9.33% Senior Notes due 2002) in the manner
set forth in the Indenture. See "--Subordination" and "--Events of Default."
The Company's and its subsidaries' ability to repurchase the Convertible
Subordinated Notes in an Asset Sale Offer may also be restricted or otherwise
limited by the terms of other then-existing borrowing agreements and by the
Company's financial position.
REPORTS
So long as any Convertible Subordinated Note is outstanding, the Company
shall file with the Commission and, within 15 days after it files them with
the Commission, file with the Trustee and thereafter promptly mail or promptly
cause the Trustee to mail to the holders of the Convertible Subordinated Notes
at their addresses as set forth in the register of the Convertible
Subordinated Notes, copies of the annual reports and of the information,
documents and other reports which the Company is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act or which the
Company would be required to file with the Commission if the Company then had
a class of securities registered under the Exchange Act. In addition, the
Company shall cause its annual report to stockholders and any quarterly or
other financial reports furnished to its stockholders generally to be filed
with the Trustee no later than the date such materials are mailed or made
available to the Company's stockholders, and thereafter mailed promptly to the
holders of the Convertible Subordinated Notes at their addresses as set forth
in the register of Convertible Subordinated Notes.
MERGER AND CONSOLIDATION
Under the terms of the Indenture, the Company shall not, in a single
transaction or series of related transactions, consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to, any Person or adopt a Plan of Liquidation
unless: (a) either (i) the Company shall be the surviving or continuing
corporation or (ii) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged, or the Person which
acquires by conveyance, transfer or lease the properties and assets of the
Company substantially as an
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entirety or, in the case of a Plan of Liquidation, the Person to which all or
substantially all of the assets of the Company have been transferred (1) shall
be a corporation organized and validly existing under the laws of the United
States or any State thereof or the District of Columbia and (2) shall
expressly assume, by supplemental indenture, executed and delivered to the
Trustee, the due and punctual payment of the principal of, and premium, if
any, and interest on all of the Convertible Subordinated Notes and the
performance of every covenant of the Convertible Subordinated Notes and the
Indenture on the part of the Company to be performed or observed; (b)
immediately after giving effect to such transaction and any assumption
contemplated by clause (a) (ii) (2) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction), the Company (in the
case of clause (i) of the foregoing clause (a)) or such Person (in the case of
clause (ii) thereof) shall have a Consolidated Net Worth (immediately after
the transaction but prior to any purchase accounting adjustments relating to
such transaction) equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction; (c) immediately before and
after giving effect to such transaction and any assumption contemplated by
clause (a)(ii)(2) above (including giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred in connection
with or in respect of the transaction) no Default and no Event of Default
shall have occurred and be continuing; and (d) the Company or such Person
shall have delivered to the Trustee (i) an officers' certificate and an
opinion of counsel (which counsel may be in-house counsel of the Company),
each stating that such consolidation, merger, conveyance, transfer or lease or
Plan of Liquidation and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture, comply with the Indenture
and that all conditions precedent in the Indenture relating to such
transaction have been satisfied and (ii) a certification from the Company's
independent certified public accountants stating that the Company has made the
calculations required by clause (b) above in accordance with the terms of the
Indenture.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more subsidiaries of
the Company, the Capital Stock of which constitutes all or substantially all
of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
Upon any such consolidation, merger, sale, assignment, conveyance, lease or
transfer in accordance with the foregoing, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
assignment, conveyance, lease or transfer is made will succeed to, and be
substituted for, and any exercise every right and power of, the Company under
the Indenture with the same effect as if such successor had been named as the
Company therein, and thereafter (except in the case of a sale, assignment,
transfer, lease, conveyance or other disposition) the predecessor corporation
will be relieved of all further obligations and covenants under the Indenture
and the Convertible Subordinated Notes.
EVENTS OF DEFAULT
The following are the Events of Default under the Indenture:
a. default in the payment of principal of, or premium, if any, on the
Convertible Subordinated Notes when due at maturity, upon repurchase, upon
acceleration or otherwise, including, without limitation, failure of the
Company to repurchase the Convertible Subordinated Notes on the date
required pursuant to "--Limitation on Sale of Assets" above or following a
Change of Control or failure to make any optional redemption payment when
due, whether or not any such payment is prohibited by the provisions
described under "--Subordination" above, or
b. default in the payment of any installment of interest on the
Convertible Subordinated Notes when due (including any interest payable in
connection with any optional redemption payment) and
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continuance of such default for more than 30 days, whether or not such
payment is prohibited by the provisions described under "--Subordination"
above, or
c. failure of the Company to observe, perform or comply with any of the
provisions described under "--Change of Control," "--Limitation on Sale of
Assets" and "--Merger and Consolidation" above, and the failure to remedy
such failure prior to the receipt of written notice from the Trustee or the
holders of at least 25% in aggregate principal amount of the then
outstanding Convertible Subordinated Notes, or
d. default (other than a default set forth in clauses (a), (b) and (c)
above) in the performance of, or breach of, any other covenant or warranty
of the Company in the Indenture or the Convertible Subordinated Notes and
failure to remedy such default or breach within a period of 60 days after
the receipt of written notice from the Trustee or the holders of at least
25% in aggregate principal amount of the then outstanding Convertible
Subordinated Notes, or
e. if any Indebtedness (other than the Convertible Subordinated Notes) of
the Company or of any subsidiary of the Company, whether such Indebtedness
exists on the Issue Date or shall be incurred thereafter, having,
individually or in the aggregate, an outstanding principal amount of $15
million or more, either (i) is declared due and payable prior to its stated
maturity or (ii) is not paid upon the final maturity of such Indebtedness;
or
f. the entry by a court of competent jurisdiction of one or more
judgments or orders against the Company or any subsidiary of the Company or
any of their respective property or assets in an aggregate amount in excess
of $15 million and that are not covered by insurance written by third
parties, which judgments or orders have not been vacated, discharged,
satisfied or stayed pending appeal within 60 days from the entry thereof,
or
g. certain events of bankruptcy, insolvency or reorganization involving
the Company or any Material Subsidiary of the Company.
If an Event of Default (other than an Event of Default specified in clause
(g) above) occurs and is continuing, then and in every such case the Trustee,
by written notice to the Company (with a copy to the Bank Agent and each of
the holders of the Company's 9.33% Senior Notes and its 9.35% Senior Notes and
any other representative of Designated Senior Indebtedness), or the holders of
not less than 25% in aggregate principal amount of the then outstanding
Convertible Subordinated Notes, by written notice to the Company and the
Trustee (with a copy to the Bank Agent and each of the holders of the
Company's 9.33% Senior Notes and its 9.35% Senior Notes and any other
representative of Designated Senior Indebtedness), may declare the unpaid
principal of, premium, if any, and accrued and unpaid interest on, all the
Convertible Subordinated Notes then outstanding to be due and payable,
provided, however, that failure to provide a copy of such notice to any party
other than the Company and the Trustee shall have no effect on any such
declaration. Upon such declaration such principal amount, premium, if any, and
accrued and unpaid interest will become immediately due and payable,
notwithstanding anything contained in the Indenture or the Convertible
Subordinated Notes to the contrary, but subject to the provisions limiting
payment described in "--Subordination" provided, further, that so long as any
Designated Senior Indebtedness is outstanding, any such declaration shall not
be effective until the earlier of (a) five business days after the delivery of
such notice to the Company or (b) the acceleration of any Designated Senior
Indebtedness. If any Event of Default specified in clause (g) above occurs,
all unpaid principal of, and premium, if any, and accrued and unpaid interest
on, the Convertible Subordinated Notes then outstanding will automatically
become due and payable, subject to the provisions described in "--
Subordination", without any declaration or other act on the part of the
Trustee or any holder of Convertible Subordinated Notes.
Holders of the Convertible Subordinated Notes may not enforce the Indenture
or the Convertible Subordinated Notes except as provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request, order or direction of any of the
holders, unless such holders have offered to
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the Trustee an indemnity satisfactory to it against any loss, liability or
expense. Subject to all provisions of the Indenture and applicable law, the
holders of a majority in aggregate principal amount of the then outstanding
Convertible Subordinated Notes have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustees or
exercising any trust or power conferred on the Trustee. If a Default or Event
of Default occurs and is continuing and is known to the Trustee, the Indenture
requires the Trustee to mail a notice of Default or Event of Default to each
holder of Convertible Subordinated Notes within 60 days of the occurrence of
such Default or Event of Default, provided, however, that the Trustee may
withhold from such holders notice of any continuing Default or Event of
Default (except a Default or Event of Default in the payment of principal of,
or premium, if any, or interest on the Convertible Subordinated Notes) if it
determines that withholding notice is in their interest. The holders of a
majority in aggregate principal amount of the Convertible Subordinated Notes
then outstanding by notice to the Trustee may rescind any acceleration of the
Convertible Subordinated Notes and its consequences if all existing Events of
Default (other than the nonpayment of principal of and premium, if any, and
interest on the Convertible Subordinated Notes which has become due solely by
virtue of such acceleration) have been cured or waived and if the rescission
would not conflict with any judgment or decree of any court of competent
jurisdiction. No such rescission shall affect any subsequent Default or Event
of Default or impair any right consequent thereto.
The holders of a majority in aggregate principal amount of the Convertible
Subordinated Notes then outstanding may, on behalf of the holders of all the
Convertible Subordinated Notes, waive any past Default or Event of Default
under the Indenture and its consequences, except Default in the payment of
principal of or premium, if any, or interest on the Convertible Subordinated
Notes (other than the non-payment of principal of and premium, if any, and
interest on the Convertible Subordinated Notes which has become due solely by
virtue of an acceleration which has been duly rescinded as provided above) or
in respect of a covenant or provision of the Indenture which cannot be
modified or amended without the consent of all holders of Convertible
Subordinated Notes.
Under the Indenture, two officers of the Company are required to provide a
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default
or Event of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof. In addition, for each
fiscal year, the Company's independent certified public accountants are
required to certify to the Trustee that they have reviewed the terms of the
Indenture and the Convertible Subordinated Notes as they relate to accounting
matters and whether, during the course of their audit examination, any Default
or Event of Default has come to their attention, and specifying the nature and
period of existence any such Default or Event of Default.
AMENDMENT, SUPPLEMENT AND WAIVER
The Indenture (including the terms and conditions of the Convertible
Subordinated Notes) may be modified or amended by the Company and the Trustee,
without the consent of the holder of any Convertible Subordinated Notes, for
the purposes of (a) adding to the covenants of the Company for the benefit of
the holders of Convertible Subordinated Notes; (b) surrendering any right or
power conferred upon the Company; (c) providing for conversion rights of
holders of Convertible Subordinated Notes in the event of consolidation,
merger or sale of all or substantially all of the assets of the Company; (d)
evidencing the succession of another Person to the Company and the assumption
by such successor of the covenants and obligations of the Company thereunder
and in the Convertible Subordinated Notes as permitted by the Indenture; (e)
reducing the Conversion Price, provided that such reduction will not adversely
affect the interests of holders of Convertible Subordinated Notes in any
material respect; or (f) curing any ambiguity or correcting or supplementing
any defective provision contained in the Indenture, or making any other
changes in the provisions of the Indenture which the Company and the Trustee
may deem necessary or desirable and which will not adversely affect the
interests of the holders of Convertible Subordinated Notes in any material
respect.
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The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the then outstanding Convertible Subordinated Notes, to
enter into any supplemental indenture for the purpose of adding, changing or
eliminating any of the provisions of the Indenture, or of modifying in any
manner the rights of the holders under the Indenture, provided that no such
supplemental indenture may without the consent of the holder of each
outstanding Convertible Subordinated Note affected thereby: (a) reduce the
amount of Convertible Subordinated Notes whose holders must consent to an
amendment or waiver; (b) reduce the rate of, or extend the time for payment
of, interest, including defaulted interest, on any Convertible Subordinated
Note; (c) reduce the principal of or premium on or change the fixed maturity
of any Convertible Subordinated Note or alter the redemption provisions with
respect thereto; (d) make the principal of, or premium, if any, or interest
on, any Convertible Subordinated Note payable in money other than as provided
for in the Indenture and the Convertible Subordinated Notes; (e) waive
continuing default in the payment of the principal of or premium, if any, or
interest on, or redemption or repurchase payment with respect to, any
Convertible Subordinated Notes, including, without limitation, a continuing
failure to make payment when required upon a Change of Control or after an
Asset Sale Offer Trigger Date; (f) after the Company's obligation to purchase
the Convertible Subordinated Notes arises under the Indenture amend, modify or
change the obligation of the Company to make or consummate a Change of Control
Offer in the event of a Change of Control or an Asset Sale Offer in the event
of an Asset Sale Offer Trigger Date or waive any default in the performance
thereof or modify any of the provisions or definitions with respect to any
such offers; (g) modify the provisions of the Indenture relating to conversion
of or subordination of the Convertible Subordinated Notes in a manner adverse
to the holders thereof; or (h) make any change in provisions relating to
waivers of defaults, the ability of holders to enforce their rights under the
Indenture or the matters discussed in these clauses (a) through (h).
An amendment to the Indenture may not adversely affect the rights under the
subordination provisions thereof of the holders of any issue of Senior
Indebtedness (including the Senior Notes) without the consent of such holders.
DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Convertible
Subordinated Notes ("legal defeasance") except for (i) the rights of holders
of outstanding Convertible Subordinated Notes to receive payments in respect
of the principal of, premium, if any, and interest on such Convertible
Subordinated Notes when such payments are due, (ii) the Company's obligations
with respect to the Convertible Subordinated Notes concerning issuing
temporary Convertible Subordinated Notes, registration of Convertible
Subordinated Notes, mutilated, destroyed, lost or stolen Convertible
Subordinated Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the legal defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect
to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("covenant defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Convertible Subordinated
Notes. In the event covenant defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Convertible Subordinated Notes.
In order to exercise either legal defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Convertible Subordinated Notes, cash in U.S. dollars,
non-callable government securities, or a combination thereof, in such amounts
as will be sufficient, in the opinion of the Chief Financial Officer of the
Company, to pay
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the principal of, premium, if any, and interest on the outstanding Convertible
Subordinated Notes on the stated maturity or on the applicable redemption
date, as the case may be, of such principal or installment of principal of,
premium, if any, or interest on the outstanding Convertible Subordinated
Notes; provided that such deposit does not violate the subordination
provisions of the Indenture (ii) in the case of legal defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the IRS a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the holders of the outstanding
Convertible Subordinated Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such legal defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such legal defeasance had not
occurred; (iii) in the case of covenant defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the holders of the outstanding
Convertible Subordinated Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasance had
not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit; (v) such legal defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a
default under any material agreement or instrument (other than the Indenture)
to which the Company or any of its subsidiaries is bound; (vi) the Company
shall have delivered to the Trustee an opinion of counsel to the effect that
after the 91st day following the deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; (vii) the Company shall
have delivered to the Trustee an officers' certificate stating that the
deposit was not made by the Company with the intent of preferring the holders
of Convertible Subordinated Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company shall have delivered to the Trustee
an officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the legal defeasance or the
covenant defeasance have been complied with.
GOVERNING LAW
The Indenture will provide that the Convertible Subordinated Notes will be
governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflicts of law.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. In case an Event of Default shall occur (and shall not
be cured) and holders of the Convertible Subordinated Notes have notified the
Trustee, the Trustee will be required to exercise its powers with the degree
of care and skill of a prudent person in the conduct of such person's own
affairs. Subject to such provisions, the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
of the holders of Convertible Subordinated Notes, unless they shall have
offered to the Trustee security and indemnity satisfactory to it.
The Indenture and the TIA will contain certain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received in respect
of any such claim as security or otherwise. Subject to the TIA, the Trustee
will be permitted to engage in other transactions, provided, however, that if
it acquires any conflicting interest (as described in the TIA), it must
eliminate such conflict or resign.
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CERTAIN DEFINITIONS
"Acquired Indebtedness" of any specified Person means Indebtedness of any
other Person and its subsidiaries existing at the time such other Person
merged with or into or became a subsidiary of such specified Person or assumed
by the specified Person in connection with the acquisition of assets from such
other Person including, without limitation, Indebtedness of such other Person
and its subsidiaries incurred in connection with or in anticipation of (a)
such other Person and its subsidiaries being merged with or into or becoming a
subsidiary of such specified Person or (b) such acquisition by the specified
Person.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, the referent Person, as the case may be, or any Person
who beneficially owns (within the meaning of Rule 13d-3 and Rule 13d-5 under
the Exchange Act), directly or indirectly, 10% or more of the equity interests
of the referent Person or warrants, options or other rights to acquire or hold
more than 10% of any class of equity interests of the referent Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct or cause the direction of management or
policies of the referent Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative of the foregoing.
"Asset Sale" means any sale, lease, transfer, exchange or other disposition
by the Company or any subsidiary (or series of related sales, leases,
transfers, exchanges or dispositions) in excess of $1,000,000, including,
without limitation, dispositions pursuant to merger, consolidation or sale and
leaseback transactions of (a) shares of Capital Stock of a subsidiary of the
Company (pro-rated to the extent of the Company's interest therein), (b) all
or substantially all of the properties and assets of any division or line of
business of the Company or any subsidiary of the Company or (c) any other
property or assets of the Company (pro-rated to the extent of the Company's
interest therein) or of any subsidiary of the Company (pro-rated to the extent
of the Company's interest therein), (each referred to for purposes of this
definition as a "disposition") by the Company or by any of its subsidiaries
(other than (i) dispositions by the Company to a wholly owned subsidiary of
the Company or by a subsidiary of the Company to the Company or to a wholly
owned subsidiary of the Company, (ii) sales or other dispositions of
inventory, (iii) any disposition of properties or assets in connection with a
Sale-Leaseback Financing or that is consummated in accordance with the
provisions of "--Merger and Consolidation" above, (iv) any disposition of any
account receivable pursuant to the Pooling and Servicing Agreement, (v)
dispositions by the Company or any subsidiary of the Company of the business
jet related product line, the overhaul and repair business as conducted by
Rohr Aero Services, Inc. and Rohr Aero Services Europe, respectively, on the
Issue Date, the Hagerstown, Maryland plant and the Auburn, Washington plant,
in each case including related assets and (vi) the disposition by the Company
or any subsidiary of the Company of interests owned on the Issue Date in two
trusts which own an Airbus A300 aircraft and a McDonnell Douglas DC10
aircraft, respectively and (vii) the disposition of Building 107 (at the
Company's facility in Chula Vista, California) to (a) any pension plan of the
Company or (b) to any other Person if the net proceeds of such disposition are
delivered to any pension plan referred to in clause (a) of this definition, in
either case resulting in the full satisfaction (or in case the full amount of
such net proceeds are so delivered and shall be insufficient to effect such
full satisfaction, the partial satisfaction) of the Company's funding
liabilities with respect to any such pension plan or plans).
"Bank Agent" means, at any time, the then-acting agent under the Revolving
Credit Agreement, which shall initially be Citicorp USA, Inc.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation, rights in, or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock, including
each class of Common Stock or Preferred Stock of such Person, whether
outstanding on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock (but excluding any debt security that is exchangeable for or convertible
into such capital stock).
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"Capitalized Lease Obligation" means any obligation under a lease that is
required to be classified and accounted for as a capital lease obligation under
GAAP and, for purposes of the Indenture, the amount of such obligations at any
date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Cash Equivalents" means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof, (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S & P") or Moody's
Investors Service, Inc. ("Moody's"), (c) commercial paper maturing no more than
one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S & P or at least P-1 from Moody's, (d)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any commercial bank organized under
the laws of the United State of America or any state thereof or the District of
Columbia or any United States branch of a foreign bank having at the date of
acquisition thereof combined capital and surplus of not less than $500 million,
(e) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (a) above entered into
with any bank meeting the qualification specified in clause (d) above and (f)
investments in money market funds which invest substantially all their assets
in securities of the types described in clauses (a) through (e) above.
"Common Stock" of any Person means any and all shares, interests or other
participation in, and other equivalents (however designated and whether voting
or non-voting) of any Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated Net Worth" of a Person at any date means the Consolidated
Stockholders' Equity for such Person less (a) the amount of any gain resulting,
directly or indirectly, from the extinguishment, retirement or repurchase of
any Indebtedness of such Person or any of its subsidiaries, (b) any revaluation
or other write-ups subsequent to the Issue Date in the book value of any asset
owned by such Person or a Consolidated Subsidiary and (c) any amounts
attributable to the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of Capital Stock of such Person or of
any of its subsidiaries. Notwithstanding any of the foregoing, net deferred
income tax assets recorded in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109"), shall be
calculated without regard to any valuation allowance with respect to such net
deferred tax asset recorded by the Company in accordance with SFAS 109.
"Consolidated Stockholders' Equity" as of any date means with respect to any
Person the amount by which the assets of such Person and of its subsidiaries on
a consolidated basis exceed (a) the total liabilities of such Person and of its
subsidiaries on a consolidated basis plus (b) any redeemable Preferred Stock of
such Person or any redeemable Preferred Stock of any of such Person issued to
any Person other than to such Person or to a wholly owned subsidiary of such
Person, in each case determined in accordance with GAAP.
"Consolidated Subsidiary" of any Person means a subsidiary which for
financial reporting purposes is or, in accordance with GAAP, should be
accounted for by such Person as a consolidated subsidiary.
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<PAGE>
"Default" means any event that is, or after notice of passage of time or both
would be, an Event of Default.
"Event of Default" has the meaning set forth under "--Events of Default"
herein.
"Fair Market Value" or "fair value" means, with respect to any asset or
property or Capital Stock, the price which could be negotiated in an arm's-
length, free market transaction, for cash, between an informed and willing
seller and an informed, willing and able buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined by the Board of Directors of the Company acting reasonably and in
good faith and shall be evidenced by a written resolution of said Board of
Directors (certified by the Secretary or Assistant Secretary of the Company)
delivered to the Trustee, provided that if the aggregate non-cash consideration
to be received by the Company or any of its subsidiaries from any Asset Sale
shall exceed $10,000,000 then Fair Market Value shall be determined by an
Independent Financial Advisor.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Indebtedness" means, with respect to any Person, at any date, any of the
following, without duplication, (a) any liability, contingent or otherwise, of
such Person (i) for borrowed money (whether or not the recourse of the lender
is to the whole of the assets of such Person or only to a portion thereof),
(ii) evidenced by a note, bond, debenture or similar instrument, (iii) for the
payment of money relating to a Capitalized Lease Obligation or (iv) with
respect to an obligation (whether issued or assumed) relating to the deferred
purchase price of property but excluding advances, deposits, partial and
progress payments, unpaid wages and related employee obligations, trade
accounts payable and accrued liabilities in each case arising in the ordinary
course of business that are not overdue by 180 days or more or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted; (b) all conditional sale obligations and all obligations
under any title retention agreement (even if the rights and remedies of the
seller under such agreement in the event of default are limited to repossession
or sale of such property); (c) reimbursement obligations of such Person with
respect to letters of credit and all obligations of such Person in respect of
any banker's acceptance or similar credit transaction entered into in the
ordinary course of business; (d) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any lien on any asset or property (including,
without limitation, leasehold interests and any other tangible or intangible
property) of such Person, whether or not such Indebtedness is assumed by such
Person or is not otherwise such Person's legal liability, provided that if the
obligations so secured have not been assumed in full by such Person or are
otherwise not such Person's legal liability in full, the amount of such
Indebtedness for the purposes of this definition shall be limited to the lesser
of the amount of such Indebtedness secured by such lien or the Fair Market
Value of the assets or property securing such lien; and (e) all Indebtedness of
others guaranteed (including all dividends of other Persons the payment of
which is guaranteed), directly or indirectly, by such Person or that is
otherwise its legal liability or which such Person has agreed to purchase or
repurchase or in respect of which such Person has agreed contingently to supply
or advance funds.
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable and
good faith judgment of the Board of Directors of the Company, qualified to
perform the task for which such firm has been engaged and disinterested and
independent with respect to the Company and its Affiliates.
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<PAGE>
"Issue Date" means the date on which the Convertible Subordinated Notes are
originally issued under the Indenture.
"Material Subsidiary" means, at any date of determination, any subsidiary of
the Company that, together with its subsidiaries, (i) for the most recent
fiscal year of the Company accounted for more than 5% of the consolidated
revenues of the Company or (ii) as of the end of such fiscal year, was the
owner of more than 5% of the consolidated assets of the Company, all as set
forth on the most recently available consolidated financial statements of the
Company and its Consolidated Subsidiaries for such fiscal year prepared in
conformity with generally accepted accounting principles as then in effect.
"Maturity Date" means , 2004.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any subsidiary of the Company) and
proceeds from the conversion of other property received when converted to cash
or Cash Equivalents, net of (a) reasonable third-party brokerage commissions
and other reasonable third-party fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale, (b)
provisions for all taxes as a result of such Asset Sale computed on a
consolidated basis reflecting the consolidated results of operations of the
Company and its subsidiaries, taken as a whole, (c) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset
Sale that was incurred in accordance with the Indenture and that either (i) is
secured by a lien incurred in accordance with the Indenture on the property or
assets sold or (ii) is required to be paid as a result of such sale, in each
case to the extent actually repaid in cash and (d) appropriate amounts to be
provided by the Company or any subsidiary of the Company as a reserve against
liabilities associated with such Asset Sale, including without limitation
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with
generally accepted accounting principles as then in effect. For purposes of
this definition and "--Limitations on Sales of Assets" "cash" means U.S.
dollars or such money as is freely and readily convertible into U.S. dollars.
"Permitted Program Investment" means an investment in design, engineering,
tooling or similar costs related to a program undertaken by the Company in the
ordinary course of its business.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan of Liquidation" means a plan (including by operation of law) that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously) (i) the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company otherwise than as an entirety or substantially as an
entirety and (ii) the distribution of all or substantially all of the proceeds
of such sale, lease, conveyance or other disposition and all or substantially
all of the remaining assets of the Company to holders of Capital Stock of the
Company.
"Pooling and Servicing Agreement" means the Pooling and Servicing Agreement
dated as of December 23, 1992, among the Company, the Company's wholly owned
subsidiary, R.I. Receivables, Inc. and Bankers Trust Company, as trustee on
behalf of the Certificateholders (as defined therein), and related
documentation and any extension, renewal, modification, restatement or
replacement thereof (in whole or in part), and as the same may be amended,
supplemented or otherwise modified from time to time; provided, however, the
investors in any such receivables program shall not obtain an
81
<PAGE>
interest in receivables sold under such program which exceeds $70 million in
aggregate principal amount at any one time.
"Preferred Stock" means the Capital Stock of any Person (other than the
Common Stock of such Person) of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding-up of
such Person, to shares of Capital Stock of any other class of such Person.
"Representative" means the Bank Agent and each trustee, agent or other
representative of the holders of any class of Senior Indebtedness (or, with
respect to any class of Senior Indebtedness which does not have any such
trustee, agent or other representative, any holder of such Senior Indebtedness
acting with the consent of the required lenders necessary to bind such class of
Senior Indebtedness) who has been so identified in writing to the Trustee and
the Company.
"subsidiary" of any Person means (a) a corporation a majority of whose Voting
Stock is at the time, directly or indirectly, owned by such Person, by one or
more subsidiaries of such Person or by such Person and one or more subsidiaries
of such Person or (b) any other Person (other than a corporation) in which such
Person, one or more subsidiaries of such Person or such Person and one or more
subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, have (i) at least a majority ownership interest or (ii)
the power to elect or direct the election of the directors or other governing
body of such Person.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock of such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the board of
directors or other governing body of such Person.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the federal income tax consequences
expected to result to holders of the Convertible Subordinated Notes from the
purchase, ownership and disposition of the Convertible Subordinated Notes. The
summary is based upon current provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), applicable Treasury regulations, judicial authority
and administrative rulings and practice. There can be no assurance that the IRS
will not take a contrary view, and no ruling from the IRS has been or will be
sought. Legislative, judicial or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conclusions set
forth herein. Any such changes or interpretations may or may not be retroactive
and could affect the tax consequences to holders.
The following summary of federal income tax consequences is based on current
law and is for general information only. The tax treatment of a holder of
Convertible Subordinated Notes may vary depending upon his or her particular
situation. Certain holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States) may be
subject to special rules not discussed below. EACH PURCHASER SHOULD CONSULT HIS
OR HER TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF
PURCHASING, HOLDING AND DISPOSING OF THE CONVERTIBLE SUBORDINATED NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
STATED INTEREST
A holder of a Convertible Subordinated Note will be required to report as
income for federal income tax purposes interest earned on a Convertible
Subordinated Note in accordance with the holder's method of tax accounting. A
holder of a Convertible Subordinated Note using the accrual method of
accounting for tax purposes is, as a general rule, required to include interest
in ordinary income as such interest accrues, while a cash basis holder must
include interest in income when cash payments of interest are received (or made
available for receipt).
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<PAGE>
TAX CONSEQUENCES OF A CONVERSION
A holder of Convertible Subordinated Notes should not recognize gain or loss
on the conversion of the Convertible Subordinated Notes into Common Stock
except with respect to cash, if any, received in lieu of fractional shares. To
the extent the Convertible Subordinated Notes converted are subject to accrued
market discount, the amount of the accrued market discount will carry over to
the Common Stock acquired on conversion and will be treated as interest income
on disposition of that Common Stock. The holding period of the Common Stock
received upon conversion of Convertible Subordinated Notes will include the
period during which the Convertible Subordinated Notes were held (provided the
Convertible Subordinated Notes were capital assets in the hands of the holder
prior to conversion), and the holder's aggregate tax basis in that Common Stock
will be equal to his or her tax basis in the Convertible Subordinated Notes so
converted (less the portion of such tax basis allocable to fractional shares of
Common Stock). A holder of Convertible Subordinated Notes will recognize
taxable gain or loss on cash received in lieu of fractional shares of Common
Stock equal to the difference between the amount of cash received and the
portion of the holder's tax basis in the Convertible Subordinated Notes
attributable to those fractional shares. Such gain or loss should be capital
gain or loss so long as the converted Convertible Subordinated Notes constitute
capital assets in the holder's hands and provided the receipt of the cash is
not essentially equivalent to a dividend.
Adjustments in the Conversion Price of the Convertible Subordinated Notes
made pursuant to the anti-dilution provisions thereof to reflect taxable
distributions of cash or property to holders of Common Stock may result in
constructive distributions to holders of Convertible Subordinated Notes that
could be taxable to them as dividends pursuant to Section 305 of the Code.
MARKET DISCOUNT
Purchasers of Convertible Subordinated Notes should be aware that the tax
consequences of holding and disposing of Convertible Subordinated Notes may be
affected by the market discount provisions of the Code. These rules generally
provide that, subject to a statutorily defined de minimis exception, if a
holder of a debt instrument purchases it for an amount less than its stated
redemption price at maturity (which, in the case of a Convertible Subordinated
Note, should equal its principal amount) (the difference being "market
discount") and thereafter recognizes gain upon a disposition, full or partial
redemption or gift of the debt instrument (or the Common Stock into which it
was converted), the lesser of such gain (or appreciation, in the case of a
gift) or the portion of the market discount that accrued while the debt
instrument was held by such holder will be treated as ordinary interest income
at the time of the disposition. The market discount rules also provide that a
holder who acquires a debt instrument at a market discount (and who does not
elect to include such market discount in income on a current basis) may be
required to defer a portion of any interest expense that may otherwise be
deductible on any indebtedness incurred or maintained to purchase or carry such
debt instrument until the holder disposes of such debt instrument in a taxable
transaction.
The Convertible Subordinated Notes provide that they may be redeemed, in
whole or in part, before maturity. If some or all of the Convertible
Subordinated Notes are redeemed in part, each holder of a Convertible
Subordinated Note acquired at a market discount would be required to treat the
principal payment as ordinary interest income to the extent of any accrued
market discount on such Convertible Subordinated Note.
A holder of a debt instrument acquired at a market discount may elect to have
market discount accrue on a constant interest rate basis (as opposed to a
straight line basis). In addition, a holder of a debt instrument acquired at a
market discount may elect to include the market discount in income as the
discount thereon accrues, either on a straight line basis or, if elected, on a
constant interest rate basis. The current inclusion election, once made,
applies to all market discount obligations acquired by such holder on or after
the first day of the first taxable year to which the election applies, and may
not
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<PAGE>
be revoked without the consent of the IRS. If a holder of a Convertible
Subordinated Note elects to include market discount in income as the market
discount accrues, the foregoing rules with respect to the recognition of
ordinary income on a sale or certain other dispositions of such Convertible
Subordinated Note and the deferral of interest deductions on indebtedness
related to such Convertible Subordinated Note would not apply, and the accrued
market discount will be added to the holder's basis in such Convertible
Subordinated Note.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital asset exceeds
the amount payable at maturity of the obligation, such excess, to the extent
it is not attributable to the conversion feature of the obligation, may
constitute "amortizable bond premium" that the holder may elect to amortize
under the constant interest rate method and deduct over the period from his or
her acquisition date to the obligation's maturity date. A holder who elects to
amortize bond premium must reduce his or her tax basis in the related
obligation by the amount of the aggregate deductions allowable for amortizable
bond premium.
In the case of a debt instrument, such as a Convertible Subordinated Note,
that may be redeemed at a premium prior to maturity, an earlier redemption
date of the debt instrument is treated as the maturity date of the debt
instrument and the amount of bond premium is determined by treating the amount
payable on such redemption date as the amount payable at maturity if such a
calculation produces a smaller amortizable bond premium for the period prior
to the earlier call date than the method described in the preceding paragraph.
If a holder of a debt instrument is required to amortize and deduct bond
premium by reference to a certain redemption date, the debt instrument will be
treated as maturing on such date for the amount payable, and, if not redeemed
on such date, the debt instrument will be treated as reissued on such date for
the amount so payable. If a debt instrument purchased at a premium is redeemed
prior to its maturity, a purchaser who has elected to deduct bond premium may
deduct any loss as an ordinary loss in the taxable year of redemption to the
extent of any remaining unamortized bond premium.
The amortizable bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes. Each
prospective purchaser is urged to consult his or her tax advisor as to the
consequences of the treatment of such bond premium as an offset to interest
income for federal income tax purposes.
DISPOSITION OF CONVERTIBLE SUBORDINATED NOTES OR COMMON STOCK
In general, a holder of a Convertible Subordinated Note (or the Common Stock
into which it was converted) will recognize gain or loss upon the sale,
exchange, redemption, retirement or other taxable disposition of the
Convertible Subordinated Note or Common Stock measured by the difference
between (i) the amount of cash and the fair market value of property received
and (ii) the holder's tax basis in the Convertible Subordinated Note or Common
Stock (as increased by any market discount previously included in income and
decreased by any amortizable bond premium deducted over the term of the
Convertible Subordinated Note). Subject to the market discount and amortizable
bond premium rules discussed above, any such gain or loss will generally be
long-term capital or loss, provided the Convertible Subordinated Notes or
Common Stock were capital assets in the hands of the holder and had been held
for more than one year. As stated above, the holding period of Common Stock
generally will include the holding period of the Convertible Subordinated Note
that was converted into such Common Stock.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of Convertible Subordinated Notes or Common Stock may be subject to
backup withholding at the rate of 31% with respect to interest paid on,
dividends paid on and gross proceeds from the sale of the Convertible
Subordinated Notes and Common Stock unless (a) such holder is a
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<PAGE>
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (b) provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding
rules. A holder of Convertible Subordinated Notes or Common Stock who does not
provide the Company with his or her correct taxpayer identification number may
be subject to penalties imposed by the IRS.
The Company will report to the holders of the Convertible Subordinated Notes
and Common Stock and the IRS the amount of any "reportable payments" (including
any interest paid on the Convertible Subordinated Notes) and any amount
withheld with respect to the Convertible Subordinated Notes and Common Stock
during the calendar year.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PURCHASER OF
CONVERTIBLE SUBORDINATED NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES TO HIM OR HER, INCLUDING THE TAX CONSEQUENCES
UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CONVERTIBLE SUBORDINATED NOTES.
DESCRIPTION OF CONCURRENT FINANCING
SENIOR NOTES DUE 2003
In connection with the Offering, the Company is concurrently offering,
pursuant to a separate prospectus, the Senior Notes which will mature on
, 2003. Interest on the Senior Notes is payable semiannually, on May
15 and November 15 of each year, commencing November 15, 1994. The Senior Notes
are redeemable at the option of the Company, in whole or in part, at any time
on and after , 1999, at the redemption prices specified in the
Senior Notes, plus accrued interest. The Senior Notes do not provide for any
sinking fund. Upon a Change of Control, the holders of the Senior Notes will
have the right, subject to certain restrictions and conditions, to require the
Company to purchase all or any part of the Senior Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. The Senior Notes will be general unsecured obligations of the
Company, senior in right of payment to all existing and future subordinated
indebtedness of the Company and pari passu in right of payment with all other
indebtedness of the Company.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), among the Company and the Underwriter, the
Company has agreed to sell to the Underwriter, and the Underwriter has agreed
to purchase, the principal amount of the Convertible Subordinated Notes set
forth below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CONVERTIBLE
UNDERWRITER SUBORDINATED NOTES
----------- ------------------
<S> <C>
Salomon Brothers Inc.................................. $50,000,000
</TABLE>
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will be
obligated to purchase the entire principal amount of the Convertible
Subordinated Notes offered hereby if any Convertible Subordinated Notes are
purchased.
The Company has been advised by the Underwriter that it proposes to offer the
Convertible Subordinated Notes directly to the public at the initial public
offering price set forth on the cover of this
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<PAGE>
Prospectus and to certain dealers at such price less a concession of not more
than % of the principal amount of the Convertible Subordinated Notes. The
Underwriter may allow, and such dealers may reallow, a concession not in excess
of % of the principal amount of the Convertible Subordinated Notes. After the
initial public offering of the Convertible Subordinated Notes, the public
offering price and such concessions may be changed.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Security Act, or contribute to payments that the Underwriter may be required to
make in respect thereof.
Except for certain exceptions pertaining to certain employee benefit plans,
outstanding options and warrants to purchase Common Stock and Securities
convertible into Common Stock, the Company has agreed that it will not, without
the prior written consent of the Underwriter, for a period of 180 days after
the date on which the Underwriting Agreement is executed, directly or
indirectly, offer to sell, sell, grant any option for the sale of or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for any shares of Common Stock, or any right or
option to acquire any such shares or securities. Sales by the Company to the
Underwriter are exempt from such restriction.
Application has been made to list the Convertible Subordinated Notes on the
New York Stock Exchange. However, no assurance can be given that any market for
the Securities will develop. See "Risk Factors--Absence of Public Market for
the Securities."
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Securities will
be passed upon for the Company by Gibson, Dunn & Crutcher, San Diego,
California, and for the Underwriter by Latham & Watkins, Los Angeles,
California.
EXPERTS
The financial statements and the related financial statement schedules as of
July 31, 1993 and 1992 and for each of the three years in the period ended July
31, 1993, included and incorporated by reference in this Prospectus, have been
audited by Deloitte & Touche, independent auditors, as stated in their reports
which are included and incorporated by reference herein, and have been so
included and incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
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ROHR, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets--January 30, 1994, July 31, 1993 and 1992 F-3
Consolidated Statements of Operations--For the Six Months Ended January
30, 1994 and January 31, 1993 and the Years Ended July 31, 1993, 1992
and 1991 F-4
Consolidated Statements of Shareholders' Equity--For the Six Months
Ended January 30, 1994 and the Years Ended July 31, 1993 and 1992 F-5
Consolidated Statements of Cash Flows--For the Six Months Ended January
30, 1994 and January 31, 1993 and for the Years Ended July 31, 1993,
1992 and 1991 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ROHR, INC.:
We have audited the accompanying consolidated balance sheets of Rohr, Inc.
and its subsidiaries as of July 31, 1993 and July 31, 1992, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended July 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Rohr, Inc. and its subsidiaries as
of July 31, 1993 and July 31, 1992, and the results of its operations and its
cash flows for each of the three years in the period ended July 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in fiscal
year 1993 the Company changed certain elements in the application of accounting
principles relating to long-term programs and contracts and changed its method
of accounting for income taxes and for post-retirement benefits other than
pensions.
Deloitte & Touche
San Diego, California
September 17, 1993
(March 28, 1994 as to Notes 7 and 8)
F-2
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
ASSETS JULY 31,
------ JAN. 30, ----------------------
1994 1993 1992
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and short-term investments............ $ 28,768 $ 42,186 $ 21,122
Accounts receivable........................ 94,126 94,140 133,153
Inventories:
Work-in-process.......................... 516,483 560,139 972,003
Raw materials, purchased parts and sup-
plies................................... 29,051 32,575 42,549
Less customers' progress payments and ad-
vances.................................. (133,380) (152,976) (181,575)
--------- ---------- ----------
Inventories--net......................... 412,154 439,738 832,977
Prepaid expenses and other current assets.. 15,539 16,861 21,118
Deferred tax asset......................... 13,723 13,654 --
--------- ---------- ----------
Total Current Assets................... 564,310 606,579 1,008,370
Property, Plant and Equipment.............. 499,388 496,452 531,239
Less accumulated depreciation and amorti-
zation.................................. (268,539) (257,407) (260,956)
--------- ---------- ----------
Property, plant and equipment--net....... 230,849 239,045 270,283
Investment in Leases....................... 37,735 38,233 39,446
Deferred Tax Asset......................... 88,915 89,348 --
Other Assets............................... 45,757 44,581 45,859
--------- ---------- ----------
$ 967,566 $1,017,786 $1,363,958
========= ========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Trade accounts and other payables.......... $ 155,691 $ 166,916 $ 162,638
Salaries, wages and benefits............... 33,955 38,623 67,194
Taxes on income............................ -- -- 30,247
Short-term debt............................ -- -- 20,000
Current portion of long-term debt.......... 16,211 50,719 27,517
--------- ---------- ----------
Total Current Liabilities.............. 205,857 256,258 307,596
Long-Term Deferred Taxes on Income......... -- -- 43,458
Long-Term Debt............................. 467,214 480,889 525,077
Pension and Post-Retirement Obligations.... 69,246 63,040 25,785
Other Obligations.......................... 35,020 35,356 13,176
Commitments and Contingencies (Note 8)
Shareholders' Equity:
Preferred stock, $1 par value per share,
10 million shares authorized, none is-
sued.................................... -- -- --
Common stock, $1 par value per share, au-
thorized 50,000,000 shares; issued and
outstanding 18,017,930, 17,995,866 and
17,833,076 shares, respectively......... 18,018 17,996 17,833
Additional paid-in capital............... 102,541 102,312 101,261
Retained earnings........................ 82,976 75,241 329,772
Minimum pension liability adjustment..... (13,306) (13,306) --
--------- ---------- ----------
Total Shareholders' Equity............. 190,229 182,243 448,866
--------- ---------- ----------
$ 967,566 $1,017,786 $1,363,958
========= ========== ==========
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-3
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JULY 31,
------------------- ----------------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991
-------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................... $484,823 $ 626,004 $1,175,152 $1,279,656 $1,385,086
Costs and Expenses...... 439,719 594,568 1,133,040 1,223,931 1,275,269
General and
Administrative
Expenses............... 13,446 22,467 43,800 10,167 9,239
-------- ---------- ---------- ---------- ----------
Operating Income (Loss). 31,658 8,969 (1,688) 45,558 100,578
Interest Income......... 520 405 928 3,666 1,119
Interest Expense........ 24,201 23,175 48,811 67,039 54,820
-------- ---------- ---------- ---------- ----------
Income (Loss) Before
Taxes and Cumulative
Effect of
Accounting Changes..... 7,977 (13,801) (49,571) (17,815) 46,877
Taxes (Benefit) on
Income................. 242 (5,286) (18,990) (19,270) 16,360
-------- ---------- ---------- ---------- ----------
Income (Loss) Before
Cumulative Effect of
Accounting Changes..... 7,735 (8,515) (30,581) 1,455 30,517
Cumulative Effect
Through July 31, 1992,
of Accounting Changes,
Net of Taxes........... -- (223,950) (223,950) -- --
-------- ---------- ---------- ---------- ----------
Net Income (Loss)....... $ 7,735 $ (232,465) $ (254,531) $ 1,455 $ 30,517
======== ========== ========== ========== ==========
Net Income (Loss) per
Average Share of Common
Stock:
Income (Loss) Before
Cumulative Effect of
Accounting Changes... $ 0.43 $ (0.48) $ (1.71) $ 0.08 $ 1.74
Cumulative Effect
Through July 31, 1992
of Accounting
Changes, Net of
Taxes................ -- (12.52) (12.50) -- --
-------- ---------- ---------- ---------- ----------
Net Income (Loss)....... $ 0.43 $ (13.00) $ (14.21) $ 0.08 $ 1.74
======== ========== ========== ========== ==========
Pro forma amounts
assuming the changes in
the application of
accounting principles
for
long-term programs and
contracts are applied
retroactively
(unaudited):
Net (Loss)............ $ (30,581) $ (36,271) $ (22,898)
Net (Loss) per Average
Share of Common
Stock................ $ (1.71) $ (2.05) $ (1.31)
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
MINIMUM
COMMON STOCK ADDITIONAL PENSION
PAR VALUE PAID-IN RETAINED LIABILITY
$1 A SHARE CAPITAL EARNINGS ADJUSTMENT
------------ ---------- -------- ----------
<S> <C> <C> <C> <C>
Balance at August 1, 1991......... $17,497 $ 95,587 $328,317 $ --
Common stock issued to employee
benefit plans.................. 319 4,995
Stock plans activity............ 17 679
Net income...................... 1,455
------- -------- -------- --------
Balance at July 31, 1992.......... 17,833 101,261 329,772 --
Common stock issued to employee
benefit plans.................. 67 673
Stock plans activity............ 96 378
Net loss........................ (254,531)
Minimum Pension Liability
Adjustment (See Note 9a)....... (13,306)
------- -------- -------- --------
Balance at July 31, 1993.......... 17,996 102,312 75,241 (13,306)
Stock plans activity............ 22 229
Net Income...................... 7,735
------- -------- -------- --------
Balance at Jan. 30, 1994
(unaudited)...................... $18,018 $102,541 $ 82,976 $(13,306)
======= ======== ======== ========
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE>
ROHR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JULY 31,
------------------- -----------------------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net Income (loss)......... $ 7,735 $(232,465) $(254,531) $ 1,455 $ 30,517
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating
activities:
Cumulative effect of
accounting changes--net
of taxes............... -- 223,950 223,950 -- --
Depreciation and
amortization........... 11,693 12,648 25,578 27,855 27,721
Changes due to
(increase) decrease in
operating assets:
Accounts receivable... 6,998 (34,527) 84,013 53,174 (38,791)
Net inventories....... 27,584 9,954 34,447 5,990 (31,122)
Prepaid expenses and
other assets......... 1,322 8,106 4,514 10,910 (2,392)
Changes due to increase
(decrease) in operating
liabilities:
Trade accounts and
other payables....... (11,817) (13,848) (17,478) 27,362 (47,757)
Taxes on income and
deferred taxes....... 364 (9,717) (29,432) (20,816) (2,684)
Other................... 1,049 328 7,607 4,412 1,738
-------- --------- --------- -------- --------
Net Cash Provided by (Used
in) Operating Activities.. 44,928 (35,571) 78,668 110,342 (62,770)
-------- --------- --------- -------- --------
Investing Activities:
Proceeds from sale-lease-
back transactions........ -- 52,247 52,247 -- --
Purchase of property,
plant and equipment...... (2,949) (18,878) (27,536) (62,933) (32,383)
Other, including
investment in leases..... (390) (2,522) (1,180) 21,789 13,528
-------- --------- --------- -------- --------
Net Cash Provided by (Used
in) Investing Activities.. (3,339) 30,847 23,531 (41,144) (18,855)
-------- --------- --------- -------- --------
Financing Activities:
Issuance of 9.33% senior
notes.................... -- 62,000 62,000 -- --
Annual principal payment
on 9.35% senior notes.... (12,500) (12,500) (12,500) -- --
Issuance (repayment) of
medium-term notes........ (35,000) (10,000) (10,000) (5,000) 50,000
Net short-term borrowings
(repayments)............. -- 5,000 (20,000) (57,000) 17,000
Long-term borrowings
under revolving credit
agreement................ 81,000 80,000 90,000 300,000 180,000
Repayment of borrowings
under revolving credit
agreement................ (81,000) (50,000) (120,000) (290,000) (150,000)
Repayment of other long-
term borrowings.......... (649) (18,712) (36,387) (11,890) (11,883)
Net repayment of
receivable and
equivalents.............. -- (45,000) (45,000) (15,000) --
Proceeds from cash values
in insurance policies.... -- -- 9,984 -- --
Cash collateral for
receivables sales
program.................. (6,984) -- -- -- --
Stock contributions to
employee benefit plans... -- 741 741 5,314 --
Repurchase of common
stock on open market..... -- -- -- -- (3,375)
Other..................... 126 11 27 (58) (77)
-------- --------- --------- -------- --------
Net Cash Provided by (Used
in) Financing Activities.. (55,007) 11,540 (81,135) (73,634) 81,665
-------- --------- --------- -------- --------
Increase (Decrease in Cash
and Short-Term
Investments............... (13,418) 6,816 21,064 (4,436) 40
Cash and Short-Term
Investments, Beginning of
Period.................... 42,186 21,122 21,122 25,558 25,518
-------- --------- --------- -------- --------
Cash and Short-Term
Investments, End of
Period.................... $ 28,768 $ 27,938 $ 42,186 $ 21,122 $ 25,558
======== ========= ========= ======== ========
Supplemental Cash Flow
Information:
Cash paid for interest,
net of amounts
capitalized.............. $ 21,353 $ 20,422 $ 47,758 $ 53,936 $ 81,914
Cash paid (refunded) for
income taxes............. (178) 4,392 9,802 2,243 19,501
Non-Cash Investing and
Financing Activities:
Sale of receivables..... 60,000 20,000
Repurchase of
receivables or
inventory equivalents.. (105,000) (20,000)
</TABLE>
The accompanying notes to the Consolidated Financial Statements are an integral
part of these statements.
F-6
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIODS ENDED JANUARY 30, 1994 AND JANUARY 31, 1993,
(UNAUDITED) AND THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
The consolidated balance sheets of the Company as of July 31, 1993 and 1992
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years ended July 31, 1993, 1992 and 1991 have
been audited by Deloitte & Touche, independent auditors. The consolidated
balance sheet as of January 30, 1994, the consolidated statements of operations
and statements of cash flows for the six-month periods ended January 30, 1994,
and January 31, 1993, and the consolidated statement of shareholders' equity
for the six-month period ended January 30, 1994, are unaudited but reflect all
adjustments (including normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the interim periods. In the third quarter of fiscal 1993, the Company changed,
effective August 1, 1992, certain elements in the application of accounting
principles relating to long-term programs and contracts, as described in Note
2--Accounting Changes. The Summary of Significant Accounting Policies (Note 1)
reflects the changed accounting policies in effect on August 1, 1992.
Financial results for interim periods are not necessarily indicative of
results to be expected for the full year and, particularly in light of the
accounting policy changes referred to above and the substantial provisions
taken in the third quarters of fiscal 1992 and fiscal 1993, a comparison of the
interim periods may not be meaningful.
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated statements include the accounts of Rohr, Inc. and all
subsidiaries ("Company"). Total assets and sales of foreign subsidiaries are
not significant.
Certain reclassifications have been made to prior years to conform to current
year presentation.
b. Sales and Earnings
The Company follows the guidelines of Statement of Position 81-1, "Accounting
for Performance of Construction-Type and Certain Production-Type Contracts"
(the contract method of accounting) for certain commercial and all governmental
contracts, except that the Company's contract accounting policies differ from
the recommendations of SOP 81-1 with respect to the treatment of general and
administrative costs (prior to the accounting change described in Note 2) and
with respect to revisions of estimated profits on contracts which revisions are
included in earnings by the Company under the reallocation method rather than
the cumulative catch-up method recommended by SOP 81-1. Contract accounting
generally places limitations on the combining of contracts and prohibits the
anticipation of future contracts in determining the contract profit center.
Approximately one-half of the Company's sales during the fiscal year 1993 are
accounted for using the contract method of accounting. In the third quarter of
fiscal 1993, the Company made significant changes, effective August 1, 1992, to
certain elements of its application of accounting principles relating to its
long-term contracts as described in Note 2.
Several major commercial programs, under which spares and technical product
support are sold directly to airlines, are accounted for under the program
method of accounting, a method which existed in practice for many years prior
to the issuance of SOP 81-1. Guidelines for use of program accounting have been
developed in practice and are not codified by authoritative accounting
literature. This method
F-7
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of accounting is followed by relatively few public companies in a limited
number of industries. It applies in situations where the economics of producing
and marketing the program product extend beyond the initial production order.
The most significant differences from contract accounting are that (1) the
quantity of units included in the profit center under program accounting
includes existing and anticipated contracts, and (2) program units may be sold
to more than one customer. The Company uses program accounting in those
circumstances where it is able to make reasonably dependable estimates of (1)
the value of anticipated production units and spares sales in future contracts,
(2) the length of time to produce and sell those additional production units
and spares, and (3) the production costs and selling prices associated with
such units and spares. Typically, the Company applies program accounting on
programs for which the Company is responsible for total systems integration and
continuing product support. The Company initially adopted the program method of
accounting in 1988 in response to the changing characteristics of its
contracting environment.
Profit is estimated based on the difference between total estimated revenue
and total estimated cost of a contract or program and is recognized evenly as a
uniform percentage of sales value on all remaining units to be delivered.
Current revenue does not anticipate higher or lower future prices, but includes
units delivered at actual sales prices. A constant contract or program margin
is achieved by deferring or accelerating a portion of the average unit cost on
each unit delivered. Cost includes the estimated cost of the pre-production
effort (primarily tooling and design), plus the cost of manufacturing both a
specified number of production units and, under the program method of
accounting, those spares which are expected to be delivered concurrently with
such production units. The specified number of production units used to
establish the profit margin is predicated upon market forecasts and does not
exceed the lesser of those quantities assumed in original program pricing or
those quantities which the Company now expects to deliver in the periods
assumed in original program pricing. The number of units used to estimate
profit margin is increased when firm orders exceed the number of units used for
pricing purposes (a firm order authorizes the Company to commence production).
Spares, as a percentage of total deliveries, increase as a program matures and
historically have been sold at higher prices than production units. This higher
price reflects, in part, additional costs related to technical and customer
support activities.
Under both the contract and program methods of accounting, the Company's
sales are primarily under fixed-price contracts, many of which contain
escalation clauses and require delivery of products over several years. Sales
and profits on each contract or program are recognized primarily in accordance
with the percentage-of-completion method of accounting, using the units-of-
delivery method. Revisions of estimated profits on contracts or programs are
included in earnings by the reallocation method, which spreads the change in
estimate over current and future deliveries. Any anticipated losses on
contracts or programs are charged to earnings when identified.
Both the contract and program methods of accounting involve the use of
various estimating techniques to project estimated costs at completion. These
estimates involve various assumptions and projections relative to the outcome
of future events. Paramount are assumptions relative to labor performance and
anticipated future labor rates, and projections relative to material and
overhead costs. These assumptions involve various levels of expected
performance improvements. The Company reevaluates its estimates quarterly for
all significant contracts and programs. Changes in estimates are reflected in
the current and future periods.
Included in sales are amounts arising from contract terms that provide for
invoicing a portion of the contract price at a date after delivery. Also
included are: negotiated values for units delivered; and
F-8
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
anticipated price adjustments for contract changes, claims, escalation, and
estimated earnings in excess of billing provisions resulting from the
percentage-of-completion method of accounting. Certain contract costs are
estimated based on the learning curve concept discussed in Note 1c.
c. Inventories
Inventories of raw materials, purchased parts and supplies are stated at the
lower of average cost or estimated realizable value. Inventoried costs on long-
term contracts and programs include certain pre-production costs, consisting
primarily of tooling and design costs, and production costs, including
applicable overhead. As the production costs for early units are charged to
work-in-process inventory at an actual unit cost in excess of the estimated
average cost for all units projected to be delivered over the entire contract
or program, a segment of inventory described as the excess of production costs
over estimated average unit cost (and referred to as excess-over-average
inventory) is created. Generally, excess-over-average inventory, which may
include production (but not pre-production) cost over-runs, builds during the
early years of the contract or program when the efficiencies resulting from
learning are not yet fully realized and declines as the program matures. Under
the learning curve concept, an estimated decrease in unit labor hours is
assumed as tasks and production techniques become more efficient through
repetition of the same manufacturing operation and through management action
such as simplifying product design, improving tooling, purchasing new capital
equipment, improving manufacturing techniques, etc. For programs under the
program method of accounting, excess-over-average inventory also builds until
sales of spares, as a percentage of total sales, equal or exceed the percentage
used for the overall profit margin calculation.
Inventoried costs are reduced by the estimated average cost of deliveries
computed as a uniform percentage of sales value.
In the event that work-in-process inventory plus estimated costs to complete
a specific contract or program exceeds the anticipated remaining sales value of
such contract or program, such excess is charged to current earnings, thus
reducing inventory to estimated realizable value.
In accordance with industry practice, costs in inventory include amounts
relating to programs and contracts with long production cycles, much of which
is not expected to be realized within one year.
See Note 2, which describes certain changes in the application of accounting
principles and the effect of such changes on inventories.
d. Property, Plant and Equipment
Property, plant and equipment is recorded at cost or, in the case of assets
under capital leases, the lower of the present value of minimum lease payments
or fair market value. Depreciation and amortization is computed by the
straight-line method over the estimated useful lives of the various classes of
assets or, in the case of capitalized leased assets, over the lease term if
shorter. When assets are retired or disposed of, the assets and related
accumulated depreciation are eliminated and any resulting gain or loss is
reflected in income.
e. Pension and Health Plans
Pension costs include current costs plus the amortization of transition
assets over periods up to 14 years. The Company funds pension costs in
accordance with plan and legal requirements. The Company adopted, effective
August 1, 1992, the provisions of Statement of Financial Accounting Standards
(SFAS) No. 106, "Employers' Accounting for Post-Retirement Benefits other than
Pensions." This standard requires the Company to accrue the expected cost of
subsidizing an employee's post-retirement health care benefits during the
employee's service period. See Note 9b.
F-9
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
f. Research and Development
Research and development costs incurred for the development of proprietary
products are expensed as incurred. These costs have not been material to
operations during the periods presented. Design efforts performed under
contract generally consist of the adaptation of an existing capability to a
particular customer need and are accounted for as an element of contract costs.
These design efforts do not fall within the definition of Research and
Development as defined in SFAS No. 2, "Accounting for Research and Development
Costs."
g. Income Taxes
The Company adopted, effective August 1, 1992, the provisions of SFAS No.
109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are recognized based upon temporary differences between financial
statement and tax bases of assets and liabilities using presently enacted tax
rates. See Note 6.
h. Net Income Per Average Share of Common Stock
Net income per share was determined by dividing net income by the weighted
average number of common shares and common share equivalents outstanding during
the year. The assumed conversion of the Company's convertible debentures was
anti-dilutive. As a result, only primary earnings per share is presented in the
Company's Consolidated Statements of Operations.
i. Cash Flows
For purpose of the statement of cash flows, the Company considers all
investments and highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
j. Industry Segments
The Company considers itself to operate in one significant industry segment.
NOTE 2--ACCOUNTING CHANGES
a.Introduction
In the third quarter of fiscal year 1993, the Company changed, effective
August 1, 1992, certain elements in the application of accounting principles
relating to long-term programs and contracts. In addition, the Company adopted
the provisions of SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions," and SFAS No. 109, "Accounting for Income Taxes."
Each change requires that the Company calculate the effect of the change in
accounting principles on retained earnings as of the first day in the fiscal
year of change. These changes do not affect the Company's cash flow. Each of
these changes is discussed separately below.
Prior year financial statements have not been restated to apply the
provisions of adopting these standards.
b. Long-term Contracts
In fiscal 1993, the Company changed certain elements of its application of
accounting principles relating to long-term programs and contracts, effective
August 1, 1992. Certain costs previously carried in inventory for amortization
over future deliveries will now be expensed. These costs include certain
F-10
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
pre-certification costs, consisting primarily of tooling and design expenses in
excess of negotiated contractual values, that will now be expensed as
identified. In addition, prior to the accounting change, general and
administrative expenses were expensed as period charges, except for (1) such
expenses that were clearly related to production in accordance with Accounting
Research Bulletin No. 43 and had contractual revenue coverage and (2) other
amounts charged to commercial programs which did not have a material impact
upon the results of operations. The financial result of capitalizing these
latter amounts of general and administrative expense was not material due to
the offsetting impact upon operations resulting from their inclusion as an
element of total costs for purposes of determining contract and program gross
margins. Following a thorough review of its accounting policies, the Company
concluded there was a need, particularly in light of the current aerospace
environment, to have financial results more closely reflect near-term program
economics (cash flow and internal rate of return). As a result, these changes
will generally reduce the number of production units and spares used in the
calculation of overall profit margins. While the previous methods of applying
the Company's accounting principles were in accordance with generally accepted
accounting principles (GAAP), the changed policies are preferable. The
application of these policies produces program and contract estimates that are
based on shorter delivery periods, allowing a better matching of revenues and
expenses. The cumulative effect of these changes for the periods through July
31, 1992, was a charge of $219.7 million, net of income tax benefits of $136.3
million. The effect of these changes on the year ended July 31, 1993, was to
increase the net loss before the cumulative effect of the changes in accounting
principles by $24.6 million ($1.37 per average common share), net of income tax
benefits of $15.3 million.
In accordance with Accounting Principles Board Opinion No. 20, "Accounting
Changes," pro forma amounts are shown for net loss and net loss per average
share of common stock for all prior periods presented. The pro forma amounts
presented in the Consolidated Statements of Operations reflect the retroactive
application of these accounting changes, net of income tax benefits (which were
allocated ratably over the pro forma restated periods) for each period
presented. Primarily as a result of these changes, excess-over-average
inventory decreased from $323.7 million at July 31, 1992 to $75.4 million at
July 31, 1993. Pre-production inventory also decreased from $258.4 million at
July 31, 1992 to $181.0 million at July 31, 1993 primarily as a result of the
accounting changes. See Note 4.
c. Post-Retirement Benefits Other Than Pensions
The Company adopted, effective August 1, 1992, SFAS No. 106, "Employers'
Accounting for Post-Retirement Benefits Other than Pensions." The accumulated
post-retirement benefit obligation for active employees and retirees was
recorded using the immediate recognition transition option. See Note 9b. This
standard requires companies to accrue the expected cost of providing health
care benefits to retired employees and their dependents during the employees'
service periods. The Company previously charged the cost of providing these
benefits on a pay-as-you-go basis. The cumulative effect of this change for the
periods through July 31, 1992 was a charge of $4.3 million, net of income tax
benefits of $2.7 million. The effect of the change on the year ended July 31,
1993 was not material.
d. Income Taxes
The Company also adopted, effective August 1, 1992, SFAS No. 109, "Accounting
for Income Taxes." See Note 6. The cumulative effect of this change for periods
through July 31, 1992 was not material by itself. However, under this standard,
the Company recorded a substantial deferred tax asset as a result of the other
changes in accounting principles and certain other charges recorded in the year
ended July 31, 1993. See Note 6.
F-11
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
e. Effect of Changes
The cumulative effect of the changes described in this Note 2, as of August
1, 1992 and the effect of the changes on net loss before the cumulative effect
of the changes in accounting principles on the year ended July 31, 1993 were as
follows ($ in millions except per share data):
<TABLE>
<CAPTION>
CUMULATIVE EFFECT AT EFFECT ON THE YEAR
AUGUST 1, 1992 ENDED JULY 31, 1993
------------------------- ------------------------
(LOSS) PER (LOSS) PER
NET AVERAGE SHARE OF NET AVERAGE SHARE OF
(LOSS) COMMON STOCK (LOSS) COMMON STOCK
------- ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Change in application of
accounting principles
relating to long-term
programs and contracts--net
of taxes................... $(219.7) $(12.26) $(24.6) $(1.37)
Post-retirement benefits
other than pensions--net of
taxes...................... (4.3) (.24) -- --
------- ------- ------ ------
$(224.0) $(12.50) $(24.6) $(1.37)
======= ======= ====== ======
</TABLE>
The cumulative effect of adopting SFAS No. 109, "Accounting for Income
Taxes," for periods through July 31, 1992 and the effect on the year ended July
31, 1993 was not material by itself. However, under this standard, the Company
recorded a substantial deferred tax asset as a result of the other changes in
accounting principles and certain other charges recorded in the year ended July
31, 1993. See Note 6. Quarterly earnings for 1993 have been restated as if the
changes occurred at August 1, 1992.
NOTE 3--ACCOUNTS RECEIVABLE
Accounts receivable, which relate primarily to long-term programs and
contracts, consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
JAN. 30, ----------------
1994 1993 1992
----------- ------- --------
(UNAUDITED)
<S> <C> <C> <C>
Amount billed..................................... $49,962 $40,628 $ 62,405
Recoverable costs and accrued profit on units
delivered but not billed......................... 9,474 13,436 20,903
Recoverable costs and accrued profit on progress
completed but not billed......................... 499 810 3,273
Unrecovered costs and estimated profit subject to
future negotiations.............................. 34,191 39,266 46,572
------- ------- --------
$94,126 $94,140 $133,153
======= ======= ========
</TABLE>
"Recoverable costs and accrued profit on units delivered but not billed"
represent revenue recognized on contracts for amounts not billable to customers
at the balance sheet date. This amount principally represents delayed payment
terms along with escalation and repricing predicated upon deliveries and final
payment after acceptance. Some of these recoverable costs are expected to be
billed and collected in the normal course of business beyond one year.
F-12
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"Recoverable costs and accrued profit on progress completed but not billed"
represent revenue recognized on contracts based on the percentage-of-completion
method of accounting and is anticipated to be billed and collected in
accordance with contract terms, which may be longer than one year.
"Unrecovered costs and estimated profit subject to future negotiations"
consist of contract tasks completed for which a final price has not been
negotiated with the customer. Amounts in excess of agreed upon contract prices
are recognized when it is probable that the claim will result in additional
contract revenue and the amounts can be reliably estimated. Included in this
amount at January 30, 1994, July 31, 1993 and 1992 are estimated recoveries on
constructive change claims related to government imposed redefined acceptance
criteria on the Grumman F-14, Boeing E3/E6, and the Boeing KC-135 and Lockheed
C-5 production programs. Management believes that amounts reflected in the
financial statements, which in the aggregate are very substantial, are
reasonable estimates of the ultimate settlements. The resolution of these items
may take several years.
The Company entered into an arrangement on December 23, 1992 under which it
sells receivables through a subsidiary to a trust on an ongoing basis.
Investors' beneficial interests in the trust are reported as a reduction to
accounts receivable. Under the arrangement, the Company acts as an agent for
the trust by performing all record keeping and collection functions with
respect to the receivables that have been sold. At January 30, 1994 and July
31, 1993 the investors held a $60 million beneficial interest in the
receivables transferred to the trust. The Company's subsidiary holds the
remaining beneficial interest in the trust which fluctuates in value depending
upon the amount of receivables owned by the trust from time to time. At July
31, 1993 the Company's subsidiary had a 9 percent beneficial interest in the
trust and a zero percent interest at January 30, 1994. The Company has
deposited cash collateral as required to support the facility and has withdrawn
such cash when it is no longer required to be deposited. At January 30, 1994,
the Company had $7 million of cash collateral on deposit. At July 31, 1992 and
July 31, 1991 the investor in a now terminated predecessor facility held a $105
million and $120 million interest in Company receivables, respectively. The
cost associated with the sales of receivables under the current facility is
7.57 percent per year. The costs and those of the predecessor facility, all of
which have been reflected as a reduction in sales values, were $2.4 million,
$5.3 million, $7.0 million, and $9.2 million for the six months ended January
30, 1994 and in fiscal years 1993, 1992 and 1991, respectively.
Sales
The Company's direct sales to major customers including related program
spares, expressed as a percentage of total sales, during the following periods
are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JULY 31,
----------------- ----------------
JAN. 30, JAN. 31,
1994 1993 1993 1992 1991
-------- -------- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Pratt & Whitney................................ 17% 19% 17% 15% 16%
General Electric............................... 16 12 14 12 12
International Aero Engines..................... 15 8 9 7 4
CFM International.............................. 9 8 8 2 0
McDonnell Douglas.............................. 8 13 11 18 14
Boeing......................................... 8 11 11 15 14
Rolls Royce.................................... 8 6 8 7 8
Lockheed....................................... 4 2 3 3 3
Airbus Industrie............................... 2 8 6 8 12
U.S. Government................................ 1 1 1 2 4
Grumman........................................ 0 0 0 1 6
Other.......................................... 12 12 12 10 7
</TABLE>
F-13
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total sales to the U.S. Government (including direct sales and indirect sales
through prime contractors) accounted for 12%, 11%, 13%, 14% and 20% for the six
months ended January 30, 1994, and January 31, 1993, and for fiscal years 1993,
1992 and 1991, respectively.
Commercial products sold by the Company to jet engine manufacturers are
ultimately installed on aircraft produced by the major commercial airframe
manufacturers, Airbus, Boeing and McDonnell Douglas. Sales to foreign customers
accounted for 23%, 25%, 25%, 22% and 21% of total sales for the first six
months of fiscal 1994 and 1993 and for fiscal years 1993, 1992 and 1991,
respectively. Of the total sales 22%, 23%, 23%, 19% and 20% were to Europe for
the first six months of fiscal 1994 and 1993 and for fiscal years 1993, 1992
and 1991, respectively.
NOTE 4--INVENTORIES
Work-in-process inventories, which relate primarily to long-term contracts
and programs as of January 30, 1994, are summarized as follows (in thousands,
except quantities):
(Table and Notes are Unaudited)
<TABLE>
<CAPTION>
AIRCRAFT ORDER
COMPANY ORDER STATUS STATUS(3) WORK-IN-PROCESS INVENTORY
------------------------------- ------------------ --------------------------------------
AS OF 1/30/94 AS OF 12/31/93
FIRM --------------------- ------------------ EXCESS
PROGRAM UNFILLED FISCAL YEAR UNFILLED UNFILLED PRE- OVER
PROGRAM QUANTITY(1) ORDERS(2) DELIVERED COMPLETE(7) ORDERS OPTIONS PRODUCTION PRODUCTION AVERAGE TOTAL
- ------- ----------- --------- --------- ----------- -------- -------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A340
nacelle(4)(6)... 117 28 45 1997 95 74 $ 15,409 $ 63,794 $ 7,386 $ 86,589
PW4000 nacelle
for the
A300/A310 and
MD-11(4)........ 422 28 251 2000 51 72 27,397 6,920 19,898 54,215
MD-90(4)(6)...... 451 11 3 2006 77 102 8,478 69,518 3,885 81,881
V2500 nacelle for
the A320/
A321(4)(6)...... 270 62 163 1997 155 198 25,245 22,068 0 47,313
CF6-80C nacelle
for the 747/
767, MD-11 and
for the A300/
A310(5)(6)...... 694 117 577 1996 302 319 31,143 2,809 19,915 53,867
CFM56-5 nacelle
for the A320/
A321(5)(6)...... 435 122 313 1999 150 145 23,121 2,723 4,535 30,379
MD-11(4)(6)...... 200 39 121 1997 60 127 6,549 0 0 6,549
PW300(4)(6)...... 164 63 76 1997 40(8) 0(8) 3,910 8,489 0 12,399
Others........... 118,769 23,032 1,490 143,291
-------- -------- ------- --------
Balance at Janu-
ary 30, 1994.... $260,021 $199,353 $57,109 $516,483
======== ======== ======= ========
</TABLE>
- --------
(1) Represents the number of aircraft used to obtain average unit cost. Spares
(which are not included in this quantity) anticipated to be delivered
concurrently with the production units for the above aircraft are also used
in calculating average unit cost. Total spares sales value used in
calculating average unit cost at January 30, 1994 were $91,734 on the A340,
$324,803 on the PW4000, $381,503 on the MD-90, $110,764 on the V2500,
$154,007 on the CF6-80C, $255,179 on the CFM56-5 and $16,986 on the MD-11.
Total spares sales value sold as of January 30, 1994 were $18,667 on the
A340, $193,633 on the PW4000, $0 on the MD-90, $63,196 on the V2500,
$112,295 on the CF6-80C, $113,219 on the CFM56-5 and $13,814 on the MD-11.
(2) Represents the number of aircraft for which the Company has firm unfilled
nacelle orders.
F-14
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) Represents the aircraft order status as announced by the aircraft
manufacturers for the related aircraft and engine option. The Company's
orders frequently are less than the announced orders shown above.
(4) Program quantity represents initial program quantities and does not exceed
the lesser of those quantities assumed in original program pricing or those
quantities which the Company now expects to deliver in the periods assumed
in original program pricing. The Company does not have orders for all of
these units at this time.
(5) Program quantity represents initial plus follow-on program quantities. The
Company has firm orders for all of these units.
(6) Programs accounted for in accordance with the program method of accounting.
(7) The year presented for each program or contract represents the fiscal year
in which the final production and spares units included in the program
quantity are expected to be delivered.
(8) Aircraft order status as of July 31, 1993, subsequent order data not
available.
Work-in-process inventories, which relate primarily to long-term contracts
and programs as of July 31, 1993, are summarized as follows (in thousands,
except quantities):
<TABLE>
<CAPTION>
AIRCRAFT ORDER
COMPANY ORDER STATUS STATUS(3)
------------------------------- -----------------
AS OF 7/31/93 AS OF 6/30/93 WORK-IN-PROCESS INVENTORY
--------------------- ----------------- ---------------------------------------
FIRM EXCESS
PROGRAM UNFILLED FISCAL YEAR UNFILLED UNFILLED PRE- OVER
PROGRAM QUANTITY(1) ORDERS(2) DELIVERED COMPLETE(7) ORDERS OPTIONS PRODUCTION PRODUCTION AVERAGE TOTAL
- ------- ----------- --------- --------- ----------- -------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A340
nacelle(4)(6)... 124 38 35 1997 107 65 $ 24,611 $ 57,181 $ 4,443 $ 86,235
PW4000 nacelle
for the
A300/A310 and
MD-11(4)........ 422 47 234 2002 79 71 45,808 0 33,623 79,431
MD-90(4)(6)...... 454 8 3 2006 77 102 4,670 63,180 4,169 72,019
V2500 nacelle
for the A320/
A321(4)(6)...... 291 52 139 1998 187 202 45,385 18,235 0 63,620
CF6-80C nacelle
for the 747/
767, MD-11 and
A300/
A310(5)(6)...... 647 105 542 1995 368 358 26,204 8,701 25,162 60,067
CFM56-5 nacelle
for the A320/
A321(5)(6)...... 390 79 311 1997 183 175 18,741 4,593 3,535 26,869
MD-11(4)(6)...... 200 47 113 1998 74 143 12,612 0 1,642 14,254
PW300(4)(6)...... 193 63 64 1997 40 0 5,897 7,918 0 13,815
Others........... 119,858 21,180 2,791 143,829
-------- -------- -------- --------
Balance at July
31, 1993........ $303,786 $180,988 $ 75,365 $560,139
======== ======== ======== ========
Balance at July
31, 1992........ $389,904 $258,416 $323,683 $972,003
======== ======== ======== ========
</TABLE>
- --------
(1) Represents the number of aircraft used to obtain average unit cost. Spares
(which are not included in this quantity) anticipated to be delivered
concurrently with the production units for the above aircraft are also used
in calculating average unit cost. Total spares sales value used in
calculating average unit cost at July 31, 1993 were $91,734 on the A340,
$325,151 on the PW4000, $417,588 on the MD-90, $143,550 on the V2500,
$152,664 on the CF6-80C, $190,601 on the CFM56-5 and $16,474 on the MD-11.
Total spares sales value sold as of July 31, 1993 were $13,989 on the A340,
$181,083 on the PW4000, $0 on the MD-90, $51,998 on the V2500, $103,553 on
the CF6-80C, $108,856 on the CFM56-5 and $12,282 on the MD-11.
(2) Represents the number of aircraft for which the Company has firm unfilled
nacelle orders.
F-15
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) Represents the aircraft order status as announced by the aircraft
manufacturers for the related aircraft and engine option. The Company's
orders frequently are less than the announced orders shown above.
(4) Program quantity represents initial program quantities and does not exceed
the lesser of those quantities assumed in original program pricing or those
quantities which the Company now expects to deliver in the periods assumed
in original program pricing. The Company does not have orders for all of
these units at this time.
(5) Program quantity represents initial plus follow-on program quantities. The
Company has firm orders for all of these units.
(6) Programs accounted for in accordance with the program method of accounting.
(7) The year presented for each program or contract represents the fiscal year
in which the final production and spares units included in the program
quantity are expected to be delivered.
The Company's inventories at July 31, 1993 have been significantly reduced as
a result of the changes in the application of accounting principles for long-
term programs and contracts, effective August 1, 1992. See Note 2b.
On certain long-term programs, the Company has agreed to recover pre-
production costs (primarily tooling and design) over an expected number of
deliveries, including spare parts. The number of deliveries over which
production costs are to be amortized is predicated upon initial pricing
agreements and does not exceed the Company's overall assessment of the market
for that program.
Excess-over-average inventory represents the cost of in-process and delivered
units less, for each such unit, the current estimated average cost of the units
in the program. Recovery of these inventoried costs assumes (i) certain
production efficiencies, (ii) the sale of the program quantity used in
estimating the profit margin, (iii) a specified allocation of sales among
production units and spare units, and (iv) the attainment of an estimated
spares margin that is substantially higher than the margin of production units.
Spares prices are higher than production unit prices, in part, due to
additional costs related to technical and customer support activities. If these
program assumptions are not attained, then substantial amounts of unrecoverable
costs may be charged to expense in subsequent periods.
To the extent that a forward loss is encountered on a program, the amount of
such loss is offset against the inventory of such program (until such inventory
has been depleted). The loss is offset first against excess-over-average,
followed by pre-production, then production.
Contractual terms on certain programs provide varying levels of recovery
commitments for specified amounts of pre-production costs. Certain programs
also provide for the repricing of units in the event that less than a specified
quantity is sold, which allows for recovery of additional excess-over-average
inventory in such circumstances. The Company, in turn, has provided certain
subcontractors with similar recovery commitments and repricing provisions on
these programs.
The excess of deferred program costs over the total costs allocated to units
in process and delivered (less recoveries from customers due to repricing
provisions) that would not be recovered based on existing firm orders as of
July 31, 1993 was $6.6 million on the A340, $72.0 million on the MD-90, $9.6
million on the V2500 and $7.9 million on the PW300 and, as of January 30, 1994,
was $2.3 million on the A340, $81.9 million on the MD-90, $7.2 million on the
V2500 and $8.5 million on the PW300.
F-16
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company uses forward contracts to manage its exchange risk on a portion
of its purchase commitments from vendors of aircraft components denominated in
foreign currencies and to manage its exchange risk for sums paid to its French
subsidiary for services. The extent to which the Company utilizes forward
contracts varies and depends upon management's evaluation of current and
projected foreign currency exchange rates, but the Company does not acquire
forward contracts in excess of its current hedging requirements. At January 30,
1994 and July 31, 1993, $25 million and $34 million, respectively, of foreign
exchange contracts were outstanding to purchase foreign currencies. The foreign
exchange contracts generally have maturities which do not exceed 12 months.
Gains and losses on contracts which hedge specific foreign currency denominated
commitments are not recognized currently but are included in the determination
of profit or loss on the contract or program to which they relate. The Company
believes that the credit risk from these instruments is minimal as the
contracts are placed with highly reputable financial institutions.
As described in Note 2, effective August 1, 1992, the Company changed
accounting principles and began expensing certain general and administrative
expenses as incurred; these expenses were previously inventoried. Amounts
charged to inventories as incurred (prior to the accounting change, effective
August 1, 1992), for general and administrative expenses were $42.8 million and
$40.0 million for the years ending July 31, 1992 and 1991. Included in work-in-
process inventories at July 31, 1992 and 1991 were general and administrative
costs aggregating $36.1 and $30.9 million, respectively. These costs were
estimated assuming that they bear the same relationship to total general and
administrative costs incurred during the year as the ending inventory bears to
total costs charged to inventory during the year.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31,
JAN. 30, --------------------
1994 1993 1992
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................... $ 25,152 $ 24,833 $ 24,883
Buildings.................................... 208,329 188,643 143,809
Machinery and equipment...................... 253,153 251,298 295,627
Construction in progress..................... 12,754 31,678 66,920
--------- --------- ---------
499,388 496,452 531,239
Less accumulated depreciation and amortiza-
tion........................................ (268,539) (257,407) (260,956)
--------- --------- ---------
Property, plant & equipment--net............. $ 230,849 $ 239,045 $ 270,283
========= ========= =========
</TABLE>
Included in the above categories are assets recorded under capital leases
totaling $50.5 million, at January 30, 1994, and July 31, 1993 and 1992.
NOTE 6--TAXES ON INCOME
The Company changed, effective August 1, 1992, its method of accounting for
income taxes from the provisions of APB No. 11 "Accounting for Income Taxes" to
the provisions of SFAS No 109 "Accounting for Income Taxes." The cumulative
effect from the adoption of this standard for periods through July 31, 1992 was
not material by itself. However, under this standard, the Company recorded a
substantial deferred tax asset as a result of the adoption of the other changes
in accounting principles and certain other charges recorded in the year ended
July 31, 1993.
F-17
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes and
(b) operating loss and tax credit carryforwards.
The components of the Company's deferred tax asset reflect the tax effects of
the Company's temporary differences, tax credit carryforwards and net operating
loss carryforwards (NOLs) at July 31, 1993. The components of the Company's
deferred tax asset are listed below (in thousands):
<TABLE>
<S> <C>
Current:
Inventories................................................... $ 11,557
Employee benefits............................................. 6,885
State taxes................................................... (4,788)
--------
Net deferred tax asset--current............................... $ 13,654
========
Long-term:
Depreciation.................................................. $ 31,872
Deferred gain on sale/leaseback............................... 9,201
Minimum pension liability adjustment.......................... 8,259
Net operating loss carryforward............................... 73,053
Tax credit carryforward....................................... 7,949
Investment in leases.......................................... (41,237)
Other--net.................................................... 251
--------
Net deferred tax asset--long-term............................. $ 89,348
========
</TABLE>
The Company has federal NOLs totaling approximately $186 million at July 31,
1993, which expire in the years 2003 through 2008.
When tax effected at the rates in effect July 31, 1993, the net deductible
temporary differences, tax credit carryforwards, and NOLs result in a deferred
tax asset of $103.0 million, consisting of $85.3 million for federal tax
purposes and $17.7 million for state tax purposes. As of January 30, 1994 and
July 31, 1993, based upon rates in effect on such dates, approximately $286
million and $271 million of future taxable income, respectively, is required
prior to expiration of the Company's NOLs and credits for full realization of
the deferred tax asset as of those dates. The Company believes that its
expected future taxable income will be sufficient for full realization of the
deferred tax asset.
During fiscal 1993, a tax benefit of $8.2 million was provided for the charge
recorded as a reduction to shareholders' equity for the additional minimum
liability for the pension plan. See Note 9a.
The provision (benefit) for taxes on income is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
--------- -----------------
JULY 31,
JULY 31, -----------------
1993 1992 1991
--------- -------- -------
<S> <C> <C> <C>
Currently Payable:
Federal income taxes........................ $ 400 $ 3,500 $ 1,100
Foreign income taxes........................ 1,000 1,700 600
State income taxes.......................... -- 2,300 1,200
Deferred:
Federal income taxes........................ (16,420) (23,000) 10,760
State income taxes.......................... (3,970) (3,770) 2,700
-------- -------- -------
$(18,990) $(19,270) $16,360
======== ======== =======
</TABLE>
F-18
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred portion of the federal income tax provision (benefit) is
comprised of the following (in thousands):
<TABLE>
<CAPTION>
DEFERRED METHOD
-----------------
JULY 31,
-----------------
1992 1991
-------- -------
<S> <C> <C>
Contract profit and loss recognition........................ $ (400) $14,200
Employee benefits........................................... 5,900 (2,900)
Depreciation................................................ (8,400) (9,700)
California franchise tax.................................... 500 (1,400)
General and administrative expenses......................... 2,300 800
Provision for estimated losses and expenses................. (19,800) 1,000
Pre-production costs........................................ -- (400)
Rate differences............................................ (1,100) (280)
Utilization of reserves previously provided for tax
assessments................................................ (9,800)
Offset of loss and credit carryforwards against deferred
taxes...................................................... (3,100) (1,100)
Utilization of loss and credit carryforwards................ 18,600 18,100
Leveraged leasing........................................... (7,900) (8,600)
Other items--net............................................ 200 1,040
-------- -------
$(23,000) $10,760
======== =======
</TABLE>
The difference between the income tax provision (benefit) computed at the
federal statutory rate and the actual tax provision (benefit) is accounted for
as follows (in thousands):
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
--------- -----------------
JULY 31,
JULY 31, -----------------
1993 1992 1991
--------- -------- -------
<S> <C> <C> <C>
Taxes (benefit) computed at the federal statutory
tax rate......................................... $(16,854) $ (6,100) $15,900
Increase (reduction) resulting from:
State income taxes, net of federal tax benefit.. (2,617) (500) 2,600
Leveraged leasing............................... (1,300) (1,900)
Tax-exempt income from Foreign Sales
Corporation.................................... (700)
Rate differences................................ (1,100) (280)
Utilization of reserves previously provided for
tax assessments................................ (9,800)
Other........................................... 481 230 40
-------- -------- -------
$(18,990) $(19,270) $16,360
======== ======== =======
</TABLE>
As a result of applying SFAS No. 109, and after effecting the other changes
in accounting principles adopted by the Company, effective August 1, 1992, the
Company has recognized the future tax effects attributable to deductible
temporary differences, NOLs and tax credit carryforwards for financial
statement purposes. Thus, under the provisions of SFAS No. 109, the Company has
recorded a $19.0 million income tax benefit on the net loss for the year ended
July 31, 1993 and a $139.0 million income tax benefit on the cumulative effect
of accounting changes at a 38.3 percent effective tax rate.
The Company's effective tax rate on its net loss was 108 percent for the year
ended July 31, 1992 primarily as a result of the utilization of reserves
previously provided for tax assessments. Net deferred tax liabilities, reduced
by loss and credit carryforwards, approximating $34.5 million and $40.6 million
are included in Taxes on Income in the Consolidated Balance Sheets at July 31,
1992 and 1991, respectively.
F-19
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Internal Revenue Service (IRS) has completed its examination of fiscal
years 1984 and 1985 and proposed additional taxes of $36.6 million, excluding
interest. The most significant adjustments involve the Company's adoption in
fiscal 1984 of the completed contract method of accounting for tax purposes
(which was conceded by the IRS subsequent to the second quarter of fiscal 1994)
and the timing of deductions for employee benefit payments. The Company intends
to vigorously protest the proposed adjustments through the IRS appeals process.
Based upon all the information available to it, the Company believes that the
resolution of this matter will not have a material effect on the financial
position or results of operations of the Company.
The Company has provided $3.1 million for income taxes during the six months
ended January 30, 1994, offset by a tax benefit of $2.8 million due to the
change in federal tax rates under the Omnibus Budget Reconciliation Act of
1993. The Company's deferred tax asset of $102.6 million remains substantially
unchanged from the amount at July 31, 1993 but is expected to increase due to
increased pension liability by the end of fiscal 1994.
NOTE 7--INDEBTEDNESS
The maturity schedule of the Company's indebtedness, which includes debt and
capital lease obligations, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
SCHEDULED MATURITIES
TOTAL AT FISCAL YEAR ENDED JULY 31, TOTAL AT JULY 31,
JAN. 30, ------------------------------------------------------ ------------------
1994 1994 1995 1996 1997 1998 THEREAFTER 1993 1992
----------- ------- ------- ------- ------- ------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term Debt......... $ 20,000
Current portion of Long-
Term Debt.............. $ 16,211 $50,719 $ 50,719 27,517
Long-Term Debt:
Medium-Term Notes...... 0 35,000
Revolving Credit....... 50,000 $50,000 50,000 80,000
9.35% Senior Notes..... 62,500 $12,500 12,500 $12,500 $12,500 $ 25,000 75,000 87,500
9.33% Senior Notes..... 62,000 8,850 8,850 44,300 62,000
Other Debt............. 17,858 914 337 293 255 16,604 18,403 18,448
-------- ------- ------- ------- ------- -------- -------- --------
192,358 13,414 62,837 21,643 21,605 85,904 205,403 220,948
Capital Leases.......... 14,154 1,849 1,762 1,674 1,588 8,395 15,268 76,876
Less Imputed Interest.. (4,298) (837) (754) (672) (591) (1,928) (4,782) (37,829)
Direct Finance Leases.. 0 -- 82
-------- ------- ------- ------- ------- -------- -------- --------
9,856 1,012 1,008 1,002 997 6,467 10,486 39,129
Subordinated Debentures:
9 1/4%, maturing in
2017.................. 150,000 7,500 142,500 150,000 150,000
7%, maturing in 2012... 115,000 115,000 115,000 115,000
-------- ------- -------- -------- --------
265,000 7,500 257,500 265,000 265,000
-------- ------- -------- -------- --------
Total Long-Term Debt. 467,214 14,426 63,845 22,645 30,102 349,871 480,889 525,077
-------- ------- ------- ------- ------- ------- -------- -------- --------
Total Indebtedness... $483,425 $50,719 $14,426 $63,845 $22,645 $30,102 $349,871 $531,608 $572,594
======== ======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
The Company's total financing includes: indebtedness, shown in the table
above; the receivables sales program, in the amount of $60 million, which is
reported as a reduction to accounts receivable (see Note 3); and two sale-
leaseback transactions, accounted for as operating leases, through which the
Company raised $52.3 million in fiscal 1993. The sale leaseback transactions
resulted in a gain of $20.7 million which was deferred and is being amortized
over the terms of the lease. The Company's total financings were $587.0
million, $643.9 million and $677.6 million at January 30, 1994, July 31, 1993
and July 31, 1992, respectively. These amounts exclude undrawn commitments
under the revolving credit agreement.
F-20
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's unsecured revolving credit agreement with a group of banks
provides a total loan commitment of $150 million, reduced annually by $50
million in April of each of 1994 through 1996. This revolving credit agreement
consists of a bank line, of which a portion is immediately available for
borrowing (or to support the issuance of up to $8.5 million of letters of
credit), and the balance can be made available at the end of any month.
Borrowings under this credit agreement incur interest at an annual rate equal
to one of the following at the Company's option: (1) prime rate plus 0% to
2.25%; (2) London Interbank Offered Rate plus 0.75% to 3.25%; (3) or a Domestic
Money Market Bid Rate plus 0.875% to 3.375%; or (4) competitive bid. The
interest rate at January 30, 1994 and July 31, 1993 was approximately 5.3% and
4.9%, respectively. The agreement provides for a facility fee, payable on a
monthly basis at the rate of 0.35 to 0.75 of 1% on each lender's total
commitment. The specific interest rate and facility fee payable at any time is
based upon the Company's credit rating and the amount drawn under the credit
agreement.
The Company's 9.35% Senior Notes mature in 2000 and require principal
payments of $12.5 million in January of each year until repaid. The Company's
9.33% Senior Notes mature in 2002 and require principal payments of
approximately $8.9 million in December of each year, beginning in 1996, until
repaid. With respect to each of these two Senior Note transactions, the Company
can make principal prepayments at its option, which may include a premium for
yield adjustment. The note holders can require the Company to purchase the
remaining principal amount of the notes plus accrued interest and premium for
yield adjustment in the event of certain changes in control or ownership of the
Company.
The Company's 9 1/4 percent subordinated debentures mature in 2017. These
debentures are subject to mandatory annual sinking-fund payments of $7.5
million beginning March 1998. The Company may redeem an additional $15 million
on each sinking-fund date. The subordinated debentures are redeemable at the
Company's option, at 106.5 percent of the outstanding principal amount at July
31, 1993, 106.01% at March 1, 1994, declining annually to 100.5 percent in
2006, plus accrued interest. However, no such redemption may be effected prior
to March 1997, directly or indirectly, from borrowed money having an interest
cost of less than 9 1/4 percent per annum.
The Company's 7 percent convertible subordinated debentures mature in 2012.
These debentures are convertible prior to maturity, unless previously redeemed,
at a conversion price of $43 per share, subject to adjustment under certain
conditions. The debentures are redeemable at the option of the Company, in
whole or in part, at a redemption price of 102.8 percent declining annually to
100.7 percent in 1996, together with accrued interest to the date of
redemption. Annual sinking-fund payments of 5 percent of the aggregate
principal amount of the debentures originally issued are to be applied to the
redemption of debentures at 100 percent of principal amount plus accrued
interest, commencing October 1998. The Company has the option of delivering
repurchased debentures to the sinking-fund in lieu of cash. The mandatory
sinking-fund is calculated to retire 70 percent of the debentures prior to
maturity. The debentures are subordinated to all existing or future senior debt
of the Company and rank on equal terms with the Company's outstanding 9 1/4
percent subordinated debentures due 2017.
The Company's medium term note, which was privately placed with a bank, was
paid in October, 1993. In fiscal 1993, the Company's debt relating to the
Foley, Alabama, Industrial Revenue Bonds totaling $5.3 million was removed from
the balance sheet as a result of the Company's deposit of U.S. Government
securities in an irrevocable trust. The principal and interest of the
securities deposited with the trustee were sufficient to fund the scheduled
principal and interest payments of the debt. Subsequent to July 31, 1993, the
debt was extinguished in exchange for the securities deposited.
F-21
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Several of the Company's principal financing agreements contain financial
covenants that require it to maintain specified levels of Consolidated Tangible
Net Worth (as defined), specified ratios of Consolidated Net Income Available
for Fixed Charges (as defined) to Fixed Charges (as defined), and specified
ratios of Debt to Consolidated Tangible Net Worth (as defined). Effective upon
the sale of the Securities, these covenants require a Consolidated Tangible Net
Worth of $125 million plus 50% of positive consolidated net income; a ratio of
Consolidated Net Income Available for Fixed Charges (as defined) to Fixed
Charges (as defined) of 1.40 to 1 through July 31, 1994, 1.55 to 1 from August
1, 1994 through July 31, 1995, 1.90 to 1 from August 1, 1995 through July 31,
1996, and 2.00 to 1 thereafter; and a ratio of Debt to Consolidated Tangible
Net Worth (as defined) of 5.60 to 1 through July 31, 1994, 5.00 to 1 from
August 1, 1994 through July 31, 1995, 4.10 to 1 from August 1, 1995 through
July 31, 1996, and 3.20 to 1 thereafter. The Company's principal financing
agreements also contain other restrictions, including restrictions on
indebtedness, liens, lease obligations, mergers, sales of assets, investments
and capital expenditures. If the Company were to breach a covenant in any of
its principal financing agreements, the lenders under such agreement could, at
their option, accelerate the maturity of the debt evidenced by such agreement.
In addition, any such default (or, in some cases, an acceleration after the
occurrence of such a default) would cause defaults under cross-default
provisions (or cross-acceleration provisions) in other Company financing
agreements.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Minimum rental commitments under operating leases with non-cancelable terms
of more than one year as of January 30, 1994 and July 31, 1993 are as follows
(in thousands):
<TABLE>
<CAPTION>
JAN. 30, JULY 31,
1994 1993
----------- --------
(UNAUDITED)
<S> <C> <C>
1994--Six Months..................................... $ 5,700 $ --
1994--Year........................................... -- 11,500
1995................................................. 9,300 8,700
1996................................................. 7,200 6,700
1997................................................. 6,400 6,200
1998................................................. 5,700 6,000
Thereafter........................................... 23,200 23,400
------- -------
$57,500 $62,500
======= =======
</TABLE>
Generally, leases have provisions for rent escalation based on inflation.
Certain leases provide for options to renew with substantially similar terms
(except negotiable rent increases). The total expense under all operating
leases was approximately $6.7 million, $7.7 million, $15.9 million, $15.3
million and $14.9 million for the first six months of fiscal 1994 and 1993 and
for fiscal years 1993, 1992 and 1991, respectively.
During fiscal year 1992, the U.S. Air Force filed a termination notice for
alleged default under the C-5 spare pylon contract, and the Company then
commenced the appeal process to convert the termination to one for convenience
of the government. Contemporaneously, the Company filed a notice of breach of
contract with the government on the C-5 spare pylon contract. The Company also
filed a variety of actions before the Armed Services Board of Contract Appeals
("ASBCA") requesting payment of sums owed the Company due to the government's
imposition of redefined acceptance criteria under the C-5 pylon program and the
KC-135 re-engining program. The Company also recorded special provisions for
this matter in prior periods.
F-22
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Following the end of the Company's fiscal 1994 second quarter, the Company
and the U.S. Air Force settled all of their disputes as well as certain
constructive change claims of the Company against the U.S. Air Force for which
estimated revenues were included in the accounts receivable of the Company at
July 31, 1993. (See Note 3 Accounts Receivable). The most significant aspects
of this settlement were:
(1) The C-5 spare pylon contract will be converted to termination for
government convenience. The Company will retain approximately $27.3 million
of unliquidated progress payments previously made by the U.S. Air Force.
(2) The Company will retain most of the C-5 spare pylon work-in-process and raw
material inventories.
(3) The Company will provide a warranty on certain, specified C-5 pylon panels.
This will end seven years after the original delivery date of each
applicable panel to the Air Force. The original delivery dates for the
warranted panels range from 1989 to 1991. The Company has established a
reserve for this warranty obligation.
Contemporaneously with the settlement with the U.S. Air Force, the Company
and the United States Attorney for the Central District of California settled
the civil aspects of an investigation, which had been ongoing since 1990,
concerning the production of parts, the recording of information which is a
part of that production process, and the testing practices utilized by the
Company on many programs. The Company cooperated fully in the investigation and
does not believe there was any adverse effect on the safety or utilization of
its products. The Company recorded special provisions in prior periods
reflecting its assessment of the ultimate costs which it believed would be
incurred. Under this settlement the Company will pay $4 million to the U.S.
Attorney's office. In connection with these settlements, a recently unsealed
qui tam lawsuit filed by former employees against the Company on behalf of the
U.S. Government with respect to certain of the activities that had been under
investigation has been dismissed with prejudice. The criminal aspects of this
matter are pending a pre-sentencing report to a judge in the U.S. District
Court in Los Angeles. The Company's plea of making eight false statements under
which it has agreed to pay approximately $3.7 million, is conditioned upon
judicial approval of the settlement agreement. In connection with this matter,
the Company is also engaged in discussions with government officials who have
the discretion to temporarily suspend or to debar the Company from entering
into government contracts in the future. The discussions are designed to
demonstrate that the Company is a presently-responsible contractor and that it
should be entitled to continue to be eligible to receive additional
governmental contracts.
In June 1987, the U.S. District Court of Los Angeles, in U.S. et al, vs.
Stringfellow, granted partial summary judgment against the Company and 14 other
defendants on the issue of liability under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). This suit, along with
related lawsuits, alleges that the defendants are jointly and severally liable
for all damage in connection with the Stringfellow hazardous waste disposal
site in Riverside County, California. In June 1989, a federal jury and a
special master appointed by the federal court found the State of California
also liable for the cleanup costs. On November 30, 1993, the special master
released his "Findings of Fact, Conclusion of Law and Reporting Recommendations
of the Special Master Regarding the State Share Fact Finding Hearing". In it,
he allocates liability between the State of California and other parties. As
this hearing did not involve the valuation of future tasks and
responsibilities, the order did not specify dollar amounts of liability. The
order, phrased in percentages of liability, recommended allocating liability on
the CERCLA claims as follows: 65% to the State of California and 10% to the
Stringfellow entities, leaving 25% to the generator/counter claimants
(including the Company) and other users of the site (or a maximum of up to 28%
depending on the allocation of any Stringfellow entity orphan share). On the
state law claims, the special master recommended a 95% share for the State of
California, and 5%
F-23
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for the Stringfellow entities, leaving 0% for the generator/counterclaimants.
This special master's recommendation is subject to a final decision and appeal.
The Company is the second largest generator of wastes by volume disposed at the
site, although it and certain other generators have argued the final allocation
of cleanup costs among generators should not be determined solely by volume.
The largest volume generator of wastes disposed at the Stringfellow site has
indicated it is significantly dependent on insurance to fund its share of any
cleanup costs, and that it is in litigation with certain of its insurers. The
Company and the other generators of wastes disposed at the Stringfellow site,
which include numerous companies with assets and equity significantly greater
than the Company, are jointly and severally liable for the share of cleanup
costs for which the generators, as a group, ultimately are found to be
responsible.
The Company has claims against its comprehensive general liability insurers
for reimbursement of its cleanup costs at the site. These claims are the
subject of separate litigation, although the insurers nevertheless are paying
substantially all of the Company's costs of defense in the EPA and State action
against the generators of wastes disposed at the site. Certain of these
insurance policies have pollution exclusion clauses which are being argued as a
defense and the insurers are alleging various other defenses to coverage. The
Company has entered settlements with some of the insurance carriers and is
engaged in settlement discussions with certain others. The Company intends to
continue to vigorously defend this matter and believes, based upon currently
available information, that the ultimate resolution will not have a material
adverse effect on the financial position, liquidity, or results of operations
of the Company.
The Company is also involved in several other proceedings and investigations
related to environmental protection matters. It is difficult to estimate the
ultimate level of environmental expenditures due to a number of uncertainties,
including the complexity of the related laws and their interpretation,
alternative cleanup technologies and methods, insurance and other recoveries,
and in some cases, the extent and uncertainties of the Company's involvement.
However, the Company has heard of very preliminary estimates of cleanup costs
for the Rio Bravo, Chatham Brothers and Casmalia waste disposal sites as
approximately $7 million, $30 million and $70 million, respectively, and the
Company's share (based on estimated, respective volumes of discharges into such
sites by all generators, all of which cannot now be known with certainty) could
approximate $450,000 for the Rio Bravo site, $0 for the Chatham Brothers site
(based on the Company's belief that it never used that site), and $1,750,000),
for the Casmalia site. The Company does not yet know about the ability of other
waste generators using the Casmalia and Rio Bravo sites to fund their allocable
share, and the Company could be found jointly or severally liable with all
waste generators using such sites. The Company has made claims against its
insurance carriers for certain of these items, and has received claims
acknowledgment letters reserving the rights of such carriers. The insurers have
alleged or may allege various defenses to coverage, although no litigation has
been commenced. Based upon presently available information, the Company
believes that capital expenditures and costs of remedial actions in relation to
these other matters will not have a material adverse effect on the financial
position or results of operations of the Company.
In 1990, the Division of Enforcement of the Securities and Exchange
Commission (the "SEC") began conducting an informal inquiry regarding various
Company production programs, program and contract estimates at completion and
related accounting practices. Following the filing of a registration statement
with the SEC, the Company received on August 17, 1993, and shortly thereafter
responded to, a request for documents from the SEC Division of Enforcement
concerning its decision to change its accounting practices relating to long-
term programs and contracts, and its previous practice of capitalizing pre-
certification and certain general and administrative costs. There have been no
further comments from the SEC Division of Enforcement since that date.
F-24
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is involved as plaintiff or defendant in various other legal and
regulatory actions and inquiries incident to its business, none of which are
believed by management to have a material adverse effect on the financial
position or results of operations of the Company.
Included in trade accounts and other payables at January 30, 1994 and July
31, 1993 and 1992 are allowances aggregating $50.4 million, $49.8 million and
$19.3 million, respectively, for plant closure, other costs related to the
planned downsizing process and various items of litigation.
NOTE 9--EMPLOYEE BENEFIT PLANS
a. Pension Plans
The Company has non-contributory pension plans covering substantially all of
its employees. Benefits for the salaried employees' plan are based on salary
and years of service, while those for the hourly employees' plan are based on
negotiated benefits and years of service. The Company has historically made
contributions to an independent trust for the minimum funding requirements of
these plans under IRS regulations. In addition, the Company has unfunded
supplemental retirement plans.
Pension expense consists of the following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------
1993 1992 1991
-------- -------- -------
<S> <C> <C> <C>
Service cost....................................... $ 12,250 $ 8,123 $ 6,873
Interest cost on projected benefit obligation...... 34,601 32,260 29,376
Actual gain on plan assets......................... (29,379) (40,344) (30,716)
Net amortization and deferral...................... 1,605 13,356 1,912
-------- -------- -------
Pension expense.................................... $ 19,077 $ 13,395 $ 7,445
======== ======== =======
</TABLE>
An amendment to the hourly employees' pension plan, reflecting increased
benefits resulting from union negotiations, accounted for approximately $.6
million of additional pension expense in fiscal 1993 and approximately $2.3
million of additional pension expense in fiscal 1991. An amendment to the
salaried employees' retirement plan accounted for approximately $3.6 million of
additional pension expense in fiscal 1992. Pension expense for the first six
months of fiscal 1994 and 1993 was $7.1 million and $7.5 million, respectively.
F-25
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the funded status of these plans and the
amounts recognized in the Consolidated Balance Sheets (in thousands):
<TABLE>
<CAPTION>
JULY 31,
--------------------
1993 1992
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested........................................... $ 413,460 $ 372,714
Non-vested....................................... 18,483 16,982
--------- ---------
Accumulated benefit obligation..................... 431,943 389,696
Effect of projected future salary increases........ 10,145 13,036
--------- ---------
Projected benefit obligation for service rendered
to date........................................... 442,088 402,732
Plan assets at fair value, primarily stocks, bonds,
other fixed income obligations and real estate.... 376,474 346,883
--------- ---------
Plan assets less than projected benefit obligation. (65,614) (55,849)
Unrecognized net loss.............................. 46,140 29,594
Unrecognized net asset from initial application of
SFAS No. 87 being recognized over plans' average
remaining service life............................ (18,202) (21,130)
Unrecognized prior service cost.................... 38,353 36,740
Additional minimum liability....................... (58,550) (34,164)
--------- ---------
Pension liability recognized in the Consolidated
Balance Sheet..................................... $ (57,873) $ (44,809)
========= =========
</TABLE>
At July 31, 1993, the Company's additional minimum liability was in excess of
the unrecognized prior service costs and net transition obligation and recorded
as a reduction of $13.3 million to shareholders' equity, net of tax benefits of
$8.2 million, in accordance with SFAS No. 87, "Employers' Accounting for
Pensions". The remaining portion of the additional minimum liability of $37.0
million was recorded as intangible assets and additional minimum pension
liability and included in Other Assets and Pension and Post-Retirement
Obligations respectively, in the Consolidated Balance Sheets.
The weighted average discount rate used in determining the present value of
the projected benefit obligation was 8.5 percent at July 31, 1993 and 8.75
percent for fiscal 1992. For compensation based plans, the rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation and service cost was based upon an experience-
related table and approximated 5.5 percent on current salaries through January
1, 1994, in accordance with plan terms. The expected long-term rate of return
on plan assets was 9 percent for the periods presented.
The Company also has certain defined contribution plans covering most
employees. Expenses for these plans amounted to $0.9 million, $2.1 million,
$3.4 million, $6.7 million and $9.7 million in the first six months of fiscal
1994 and 1993 and fiscal years 1993, 1992 and 1991, respectively.
b. Post-retirement Benefit Obligations Other Than Pensions
The Company has a retirement health care program that pays a specified fixed
amount to supplement the medical insurance payments made by retirees who are
under age 65 and their spouses and covered dependents. Eligibility for and the
amount of the supplement provided by the Company is based on age and years of
service. The program requires deductibles and employee contributions.
F-26
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company, effective August 1, 1992, adopted the provisions of SFAS No.
106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions"
using the immediate recognition transition option. See Note 2. This standard
requires recognition, during an employee's service with the Company, of the
cost of his or her retiree health care benefits. The Company recognized the
accumulated post-retirement benefit obligation for past service cost as a one-
time charge to earnings (the transition obligation) as of August 1, 1992 of
$4.3 million, net of income tax benefit of $2.7 million ($.24 per average share
of common stock). In fiscal 1993, 1992 and 1991, the Company's cost of
providing post-retirement health care benefits was $2.0 million, $2.9 million
and $2.0 million, respectively, excluding the cumulative effect of adopting
SFAS No. 106. The costs of health care benefits is provided largely under a
self-insured plan, which is scheduled for termination on January 1, 1994. The
effect of adopting the new standard on net periodic post-retirement benefit
expense for the year ended July 31, 1993 was not material. The accumulated
post-retirement benefit obligation was determined using a weighted average
discount rate of 8.5 percent. The plan is unfunded. Each year the Company funds
the benefits paid.
SFAS No. 106 requires disclosure of the effect on the Company's accumulated
post-retirement benefit obligation, and net periodic post-retirement benefit
cost, using the assumption that the health care cost trend will increase by 1
percent each year. This disclosure is not applicable because the Company is not
affected by future health care cost trends since its obligation is to pay a
fixed amount as a health care supplement for retirees entitled to this benefit.
Net periodic post-retirement benefit cost for the year ended July 31, 1993,
included the following components (in thousands):
<TABLE>
<S> <C>
Service cost--benefits attributed to service during the period....... $196
Interest cost on accumulated post-retirement benefit obligation...... 549
----
Net periodic post-retirement benefit cost............................ $745
====
</TABLE>
The liability for post-retirement health care benefits at July 31, 1993,
included the following components (in thousands):
<TABLE>
<S> <C>
Accumulated post-retirement benefit obligation:
Retirees........................................................ $2,749
Fully eligible active plan participants......................... 376
Other active plan participants.................................. 2,929
------
Liability for post-retirement health care benefits................ $6,054
======
</TABLE>
Net periodic post-retirement health care benefit cost for the six months
ended January 30, 1994 and January 31, 1993 was $317 and $373, respectively.
Liability for post-retirement health care benefits was $5,602 and $6,290,
respectively.
c. Post-Employment Benefits
The Financial Accounting Standards Board has issued SFAS No. 112, Employers'
Accounting for Post-Employment Benefits. The new standard is effective for
fiscal years beginning after December 15, 1993 and requires employers to
recognize the obligation to provide post-employment benefits to former or
inactive employees, their beneficiaries, and covered dependents when certain
conditions are met. The Company does not expect there to be a material adverse
effect on the financial position or result of operations in the year of
adoption.
F-27
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--SHAREHOLDERS' EQUITY
Under the terms of the Company's debt covenants of its loan agreements (See
Note 7), no portion of retained earnings is available for payment of cash
dividends until after July 9, 1995. Thereafter, the Company may pay cash
dividends in an amount not to exceed 50 percent of net income for the period
beginning August 1, 1995. Effective upon the sale of the Securities, the
Company may pay cash dividends only when its ratio of consolidated debt to
consolidated tangible net worth is at least2.50-to-1.00.
The Company's 1989 Stock Incentive Plan provides that qualified employees are
eligible to receive stock options and various other stock-based awards. Subject
to certain adjustments, the plan provides that up to 2,500,000 shares of common
stock may be sold or issued under the plan. As a result of previous option
grants under this plan, 381,431, 371,281 and 377,147 stock options and other
stock-based awards remained available for grant at January 30, 1994, July 31,
1993 and 1992, respectively. The plan has no specific termination date except
that Incentive Stock Options may not be granted after July 31, 1999. The terms
and conditions of the stock-based awards are determined by a Committee of the
Board of Directors on each grant date and may include provisions for the
exercise price, expiration, vesting, restriction on sale and forfeiture, as
applicable. Restricted shares purchased under this plan are subject to
restrictions on sale or disposal, which lapse in varying installments from one
to 10 years. During fiscal 1992, 6,000 restricted shares were purchased at a
price of $1.00 per share. During fiscal 1993, 115,000 restricted shares were
purchased by grantees and 21,300 restricted shares were repurchased from
grantees, in each case at a price of $1.00 per share. During the six months
ended January 30, 1994, 20,000 stock bonus awards were granted at no cost to
the recipient.
The Company's 1982 Stock Option Plan, under which no future options will be
granted, provided for the issuance of non-qualified stock options at the market
price of the Company's common stock at the date of grant. The options become
exercisable in installments from one to two years after date of grant and
expire 10 years from date of grant.
The Company has a director stock plan under which non-employee directors are
automatically granted, on the first business day following the annual meeting
of shareholders, an option to purchase 1,000 shares of common stock. The option
exercise price is equal to the fair market value of the stock on the date the
option is granted. Options granted under the plan generally becomes exercisable
six months after the date of grant and expire 10 years from the date of grant.
Subject to certain adjustments, the plan provides that up to 100,000 shares of
common stock may be sold or issued under the plan. As a result of previous
option grants under the plan, 50,000, 59,000 and 69,000 stock options remained
available for grant at January 30, 1994, July 31, 1993 and 1992, respectively.
The Company also has a stock compensation plan for non-employee directors
pursuant to which the Company will issue or deliver to each such director, in
partial consideration for the services rendered by such director during the
Company's prior fiscal year, 250 shares of the Company's common stock, subject
to certain adjustments. The shares will be issued or delivered on the date of
the first meeting of the Board that occurs after the end of each fiscal year.
In May 1993, in connection with certain amendments to the financial covenants
of its principal financing agreements, the Company issued warrants to certain
lenders. The warrants are exercisable for 600,000 shares of common stock at
$9.00 per share and expire in seven years.
Under the various stock option plans, outstanding options for 1,771,342,
1,671,947 and 1,113,910 shares of common stock were exercisable as of January
30, 1994, July 31, 1993 and 1992, respectively. Activity in these stock option
plans for the three years and six months ended January 30, 1994 is summarized
as follows:
F-28
<PAGE>
ROHR, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
--------- -------------------
<S> <C> <C> <C> <C>
Balance Outstanding at August 1, 1991........... 1,331,420 $12.500 - $31.625
Granted....................................... 1,548,803 10.625 - 22.125
Relinquished.................................. (16,760) 16.500 - 31.625
Forfeited..................................... (33,600) 12.000 - 22.125
Exercised..................................... (34,000) 12.000 - 19.375
--------- -------------------
Balance Outstanding at July 31, 1992............ 2,795,863 $10.625 - $31.625
Granted....................................... 155,000 8.875 - 11.375
Relinquished.................................. (30,880) 16.500 - 31.625
Forfeited..................................... (254,134) 10.625 - 22.125
--------- -------------------
Balance Outstanding at July 31, 1993............ 2,665,849 $ 8.875 - $31.625
Granted....................................... 29,000 0 - 8.875
Bonus Stock Award............................. (20,000) 0
Relinquished.................................. (17,955) 16.500 - 31.625
Forfeited..................................... (30,150) 10.625 - 22.125
--------- -------------------
Balance Outstanding at January 30, 1994 (Unau-
dited)......................................... 2,626,744 $ 8.875 - $31.625
========= ===================
</TABLE>
The Company's stockholder rights plan generally entitles the holder of each
right to purchase one one-hundredths of a share of Series C preferred stock, $1
par value, from the Company for $100, subject to adjustment. A right is
included with, and attaches to, each share of common stock issued and expires
on August 25, 1996 and is redeemable by the Company. The rights become
exercisable and separate from the common stock under certain circumstances
generally when a person or group of affiliated or associated persons has
acquired or obtained the right to acquire 15 percent or more of the Company's
outstanding voting stock or has made a tender offer to acquire 15 percent or
more of such voting stock. Under certain circumstances, each right would
entitle the holder to purchase a certain number of the Company's common stock
at one-half of fair market value.
Authorized, unissued shares of common stock were reserved for the following:
<TABLE>
<CAPTION>
JULY 31,
JAN. 30, -------------------
1994 1993 1992
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Various stock plans............................. 3,058,175 3,096,130 3,242,010
Conversion of subordinated debentures........... 2,674,418 2,674,418 2,674,418
Warrants........................................ 600,000 600,000 --
--------- --------- ---------
6,332,593 6,370,548 5,916,428
========= ========= =========
</TABLE>
F-29
<PAGE>
(PICTURES)
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference........................... 3
Available Information..................................................... 3
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 12
Financing Plan............................................................ 17
Use of Proceeds........................................................... 18
Price Range of Common Stock and Dividends................................. 18
Capitalization............................................................ 19
Selected Consolidated Financial and Operating Data........................ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 35
Directors and Executive Officers of the Company........................... 52
Legal and Environmental Proceedings....................................... 55
Description of Certain Financings......................................... 60
Description of Capital Stock.............................................. 63
Description of Notes...................................................... 65
Certain Federal Income Tax Consequences................................... 82
Description of Concurrent Financing....................................... 85
Underwriting.............................................................. 85
Legal Matters............................................................. 86
Experts................................................................... 86
Index to Financial Statements............................................. F-1
</TABLE>
$50,000,000
ROHR, INC.
% CONVERTIBLE
SUBORDINATED
NOTES DUE 2004
[LOGO OF ROHR]
- -------------------------------------
SALOMON BROTHERS INC
-----------------------------------------
PROSPECTUS
DATED , 1994
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee................ $ 54,311
NASD Fee........................ 20,000
Exchange Listing Fees........... 9,000
Blue Sky Fees and Expenses...... 13,000
Printing and Engraving Expenses. 300,000
Legal Fees and Expenses......... 175,000
Accounting Fees and Expense..... 140,000
Trustee's Fees and Expenses..... 30,000
Rating Agency Fees.............. 90,000
Miscellaneous................... 18,689
--------
Total Expenses.............. $850,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and employees of domestic or foreign corporations under
certain circumstances and subject to certain limitations. Article VII of
Registrant's By-Laws contains a provision for indemnification involving them
because of their positions with the Company, including judgments or amounts
paid in settlement of claims brought by or in the right of the Company. In
addition to maintaining directors' and officers' liability insurance, the
Company has entered into indemnity agreements with certain of its directors and
officers comparable to the directors' and officers' liability insurance
previously maintained by the Company. The form of these agreements has been
approved by the Company's board of directors and stockholders.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration Statement.
<TABLE>
<C> <S>
1.1 Proposed Form of Underwriting Agreement.
4.1 Senior Notes Indenture, including proposed form of Senior Note.
4.2 Convertible Subordinated Notes Indenture, including proposed form of
Convertible Subordinated Note.
5. Opinion of Gibson, Dunn & Crutcher as to legality of securities being
registered.
23.1 Consent of Gibson, Dunn & Crutcher (included in their opinion filed
as Exhibit 5).
23.2 Consent of Deloitte & Touche.
24. Power of Attorney.**
Statement of eligibility on Form T-1 of Trustee (IBJ Schroder Bank &
25.1 Trust Company).
Statement of eligibility on Form T-1 of Trustee (The Bank of New
25.2 York).
</TABLE>
- --------
**Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to Section 145 of the Delaware General
Corporation Law or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF CHULA VISTA, STATE OF CALIFORNIA, ON THE 11TH
DAY OF MAY, 1994.
ROHR, INC.
R. W. MADSEN
By: ---------------------------------
R. W. Madsen
Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
- ------------------------------------ Director, Chief Executive May , 1994
R. H. Rau Officer, President and
Chief Financial Officer
- ------------------------------------ Director and Chairman of the May , 1994
J. J. Kerley Board
- ------------------------------------ Senior Vice President and May , 1994
Laurence A. Chapman Chief Financial Officer
- ------------------------------------ Vice President and May , 1994
A. L. Majors Controller
- ------------------------------------ Director May , 1994
Wallace Barnes
- ------------------------------------ Director May , 1994
Wallace W. Booth
- ------------------------------------ Director May , 1994
Eugene E. Covert
- ------------------------------------ Director May , 1994
Wayne M. Hoffman
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
D. Larry Moore*
- ------------------------------------ Director May 11, 1994
D. Larry Moore
Robert M. Price*
- ------------------------------------ Director May 11, 1994
Robert M. Price
William P. Sommers*
- ------------------------------------ Director May 11, 1994
William P. Sommers
- ------------------------------------ Director May , 1994
Jack D. Steele
*By R.W. Madsen
________________________________ May 11, 1994
R.W. Madsen
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
GRAPHIC MATERIAL CROSS-REFERENCE PAGE
THE INSIDE FRONT COVER SHOWS THE FOLLOWING:
Nacelle with cowl doors open.
Commercial aircraft on take-off.
Nacelle on wing in flight.
Worker preparing nose cowl inlet for installation.
United Airlines 737 aircraft.
THE INSIDE BACK COVER SHOWS THE FOLLOWING:
Mechanics providing on-site field service on commercial aircraft engine.
Mechanics installing systems on commercial aircraft engines.
Rear view of commercial aircraft engine nacelle system.
Commercial aircraft in flight.
Time lapse picture of mechanic actuating thrust reverser.
Aircraft in line for take-off.
PAGE 39:
THIS ILLUSTRATION SHOWS THE PROPULSION SYSTEM COMPONENTS
<PAGE>
ROHR, INC.
$100,000,000 % Senior Notes due 2003
$50,000,000 % Convertible Subordinated Notes due 2004*
UNDERWRITING AGREEMENT
New York, New York
May , 1994
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Rohr, Inc., a Delaware corporation (the "Company"), proposes to sell to
Salomon Brothers Inc (the "Underwriter") $100,000,000 aggregate principal
amount of its % Senior Notes due 2003 (the "Senior Notes"), to be issued
under an indenture (the "Senior Note Indenture") to be dated as of , 1994
between the Company and IBJ Schroder Bank and Trust Company, as trustee (the
"Senior Note Trustee"). Concurrently therewith, the Company proposes to sell to
the Underwriter $50,000,000 aggregate principal amount of its % Convertible
Subordinated Notes due 2004 (the "Convertible Subordinated Notes"), to be
issued under an indenture (the "Convertible Subordinated Note Indenture" and,
together with the Senior Note Indenture, the "Indentures") to be dated as of
, 1994 between the Company and The Bank of New York, as
Trustee (the "Convertible Subordinated Note Trustee," and, together with the
Senior Note Trustee, the "Trustees"). The Convertible Subordinated Notes are
convertible into shares of common stock of the Company (the "Common Stock").
The Company also proposes to grant to the Underwriter an option to purchase up
to an additional $7,500,000 aggregate principal amount of Convertible
Subordinated Notes (the "Option Notes," with the Option Notes together with the
Senior Notes and Convertible Subordinated Notes hereinafter being called the
"Securities"). Terms not otherwise defined herein have the same meanings as set
forth in the Indentures.
1. Representations and Warranties. The Company represents and warrants to,
and agrees with, the Underwriter as set forth below in this Section 1. Certain
terms used in this Section 1 are defined in paragraph (c) hereof.
(a) The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (No. 33-53113) on Form S-3, including
related Preliminary Prospectuses, for the registration under the Securities Act
of 1933, as amended (the "Securities Act"), of the offering and sale of the
Securities. The Company may have filed one or more amendments thereto,
including the related Preliminary Prospectuses, each of which has previously
been furnished to you. The Company will next file with the Commission either
(i) prior to effectiveness of such registration statement, a further amendment
to such registration statement (including the forms of final Prospectuses) or
(ii) after effectiveness of such registration statement, final Prospectuses in
accordance with Rules 430A and 424(b)(1) or (4). In the case of clause (ii),
the Company has included in such registration statement, as amended at the
Effective Date, all material information (other than Rule 430A Information)
required by the Securities Act and the rules thereunder to be included in the
Prospectuses with respect to the Securities and the offerings thereof. As
filed, such amendment and forms of final Prospectuses, or such final
Prospectuses, shall contain all Rule 430A Information, together with all other
such required information, with respect to the Securities and the offerings
thereof and, except to the extent the Underwriter shall agree in writing to a
modification, shall be in all
- --------
* Plus an option to purchase from Rohr, Inc. up to $7,500,000 aggregate
principal amount of additional notes to cover over-allotments, if any.
<PAGE>
substantive respects in the form furnished to you prior to the Execution Time
or, to the extent not completed at the Execution Time, shall contain only such
specific additional information and other changes (beyond that contained in the
latest Preliminary Prospectuses) as the Company has advised you, prior to the
Execution Time, will be included or made therein. The Company has also filed
the Indentures with the Commission pursuant to the TIA and the rules and
regulations thereunder.
(b) On the Effective Date, the Registration Statement did or will, and when
the Prospectuses are first filed (if required) in accordance with Rule 424(b)
and on the Closing Date, the Prospectuses (and any supplements thereto) will
comply in all material respects with the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the TIA and the respective rules thereunder; on the Effective Date,
the Registration Statement did not or will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading; on
the Effective Date and on the Closing Date, the Indentures did or will comply
in all material respects with the applicable requirements of the TIA and the
rules thereunder; and, on the Effective Date, the Prospectuses, if not filed
pursuant to Rule 424(b), did not or will not, and, on the date of any filing
pursuant to Rule 424(b) and on the Closing Date, the Prospectuses (together
with any supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that the Company makes no
representations or warranties as to (i) that part of the Registration Statement
which shall constitute the Statement of Eligibility and Qualification (Form T-
1) under the TIA of the applicable Trustee or (ii) the information contained in
or omitted from the Registration Statement or the Prospectuses (or any
supplement thereto) in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of the Underwriter
specifically for inclusion in the Registration Statement or the Prospectuses
(or any supplement thereto).
(c) The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "the Effective Date" shall mean each date that the
Registration Statement and any post-effective amendment or amendments thereto
became or become effective. "Execution Time" shall mean the date and time that
this Agreement is executed and delivered by the parties hereto. "Preliminary
Prospectuses" shall mean any preliminary prospectus referred to in paragraph
(a) above and any preliminary prospectus included in the Registration Statement
at the Effective Date that omits Rule 430A Information. "Prospectus" shall mean
each prospectus relating to the respective Securities that is last filed
pursuant to Rule 424(b) after the Execution Time or, if no filing pursuant to
Rule 424(b) is required, shall mean the form of final prospectus relating to
the Securities included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement referred to in
paragraph (a) above, including incorporated documents, exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto becomes effective prior to the
Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended. Such term shall include any Rule 430A Information
deemed to be included therein at the Effective Date as provided by Rule 430A.
"Rule 424" and "Rule 430A" refer to such rules under the Securities Act. "Rule
430A Information" means information with respect to the Securities and the
offering thereof permitted to be omitted from the Registration Statement when
it becomes effective pursuant to Rule 430A. Any reference herein to the
Registration Statement, the Preliminary Prospectuses or the Prospectuses shall
be deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 which were filed under the Exchange Act
on or before the Effective Date of the Registration Statement or the issue date
of such Preliminary Prospectuses or the Prospectuses, as the case may be; and
any reference herein to the terms "amend," "amendment" or "supplement" with
respect to the Registration Statement, any Preliminary Prospectuses or the
Prospectuses shall be deemed to refer to and include the filing of any document
under the Exchange Act after the Effective Date of the Registration Statement
or the issue date of any Preliminary Prospectuses or the Prospectuses, as the
case may be, deemed to be incorporated therein by reference.
2
<PAGE>
(d) Deloitte & Touche, who certified the financial statements and supporting
schedules included in the Registration Statement and the Prospectuses, are
independent public accountants as required by the Securities Act and the
regulations promulgated thereunder.
(e) The consolidated financial statements included in the Registration
Statement and the Prospectuses present fairly the financial position of the
Company and each corporation of which the Company owns or will own as of the
Closing Date 50% or more of the outstanding equity securities (individually a
"Subsidiary" and collectively the "Subsidiaries") as of the dates indicated and
the results of their operations for the periods specified; except as otherwise
stated therein, said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis; and the
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein.
(f) Since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, except as otherwise stated
therein, (i) there has been no material adverse change in the condition
(financial or otherwise) or in the results of operations, business affairs or
business prospects of the Company and its Subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business and (ii)
other than those in the ordinary course of business, no transactions have been
entered into and no liabilities or obligations, direct or contingent, have been
incurred by the Company or any of its Subsidiaries, which are material with
respect to the Company and its Subsidiaries considered as one enterprise.
(g) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and each
Prospectus; and the Company is duly registered, qualified or licensed to
conduct business in each jurisdiction in which its ownership or leasing of
property or conduct of business legally requires such registration,
qualification or licensure, except for such jurisdictions where the failure to
be so registered, qualified or licensed does not have a material adverse effect
on the condition (financial or otherwise) or the results of operations,
business affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise.
(h) As of the Closing Date, the Company had no significant Subsidiaries (as
defined in Regulation S-X promulgated by the Commission). [Rohr Europe], a
corporation and wholly owned subsidiary of the Company ("Rohr
Europe") has been duly incorporated or formed and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and each Prospectus; and Rohr Europe is duly registered, qualified or
licensed to conduct business in each jurisdiction or place in which its
ownership or leasing of property or conduct of business legally requires such
registration, qualification or licensure except for such jurisdictions where
the failure to be so registered, qualified or licensed does not have a material
adverse effect on its condition (financial or otherwise), results of
operations, business affairs or business prospects.
(i) The authorized, issued, reserved and outstanding capital stock of the
Company as of the Closing Date is as set forth in each Prospectus under
"Capitalization," including the footnotes thereto, except for stock issued
pursuant to options and warrants described in the Registration Statement or
pursuant to any employee benefit plan described in the Registration Statement,
in each case occurring subsequent to January 30, 1994 and which are not
material in the aggregate; and the issued and outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable; there are no outstanding rights, warrants or
options to acquire, or instruments convertible into or exchangeable for, any
shares of capital stock or other equity interests of the Company, except for
the Convertible Subordinated Notes and as may be set forth in the Prospectuses.
As of the Closing Date, all of the outstanding capital stock or other
securities evidencing equity ownership of the Subsidiaries will have been duly
and validly authorized and issued and will be fully paid and nonassessable, and
will be owned, directly or indirectly, by the Company, free and clear of any
security interest, claim, lien or encumbrance; there are no outstanding rights,
warrants or options to acquire, or instruments convertible into or exchangeable
for, any shares of capital stock or other equity interest in any Subsidiary.
3
<PAGE>
(j) To the best of their knowledge, neither the Company nor Rohr Europe is
engaged in any unfair labor practice which would have a material adverse effect
on the Company and its Subsidiaries considered as one enterprise. Except for
matters which are not material in the aggregate to the Company and its
Subsidiaries, (i) there is (A) no unfair labor practice complaint pending or,
to the best of their knowledge, threatened against the Company or Rohr Europe
before the National Labor Relations Board, and no grievance or arbitration
proceeding arising out of or under collective bargaining agreements is pending
or, to the best of their knowledge, threatened, and (B) no strike, slowdown or
stoppage pending or, to the best knowledge of the Company or Rohr Europe after
due inquiry, threatened against the Company or Rohr Europe and (ii) there has
been no violation of any provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA") or the rules and regulations promulgated thereunder.
(k) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, which has been served upon
the Company or Rohr Europe and is now pending, or, to the best knowledge of the
Company or Rohr Europe, threatened, against the Company or Rohr Europe, or to
which the Company or Rohr Europe or any of their properties is subject which is
required to be disclosed in the Registration Statement and the Prospectuses
(other than as disclosed therein), or which could prohibit or limit in any way
the consummation of any of the transactions contemplated by this Agreement, the
Indentures or the Securities; all pending legal or governmental proceedings to
which the Company or Rohr Europe is a party or of which any of their property
is the subject which are not described in the Registration Statement and the
Prospectuses, including ordinary routine litigation incidental to the business,
are, considered in the aggregate, not material; and there are no contracts or
other documents of the Company or Rohr Europe which are required to be filed as
exhibits to the Registration Statement by the Securities Act or by the
regulations promulgated thereunder which have not been so filed.
(l) The Common Stock issuable upon conversion of the Convertible Subordinated
Notes has been duly authorized and reserved by the Company and, when issued
upon conversion of the Convertible Subordinated Notes, will be validly issued,
fully paid and nonassessable and will conform to the description thereof in the
applicable Prospectus. The Common Stock issuable upon conversion of the
Convertible Subordinated Notes (upon issuance) will be free of preemptive and
similar rights.
(m) No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory authority or agency or body having jurisdiction over
the Company or Rohr Europe or any of their respective properties or assets is
required for the execution, delivery and performance of this Agreement, the
Indentures, the Securities and the consummation of the transactions
contemplated hereby and thereby, including the issuance, sale and delivery of
the Securities, except (i) the registration under the Securities Act or the
regulations promulgated thereunder of the Securities, (ii) the qualification of
the Indentures under the TIA, (iii) such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses and permits as may be
required under state securities, Blue Sky or real estate syndication laws or
gaming laws which have been obtained or made to the extent required as of the
date hereof, and (iv) such consents, approvals, authorizations, orders,
registrations, filings, qualifications, licenses or permits as have already
been obtained or made.
(n) The Company and Rohr Europe have good and valid title to or valid and
enforceable leasehold interests in all real property, and all material personal
property owned or leased by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Registration
Statement and the Prospectuses or such as do not materially affect the
aggregate value of such property taken as a whole and do not interfere with the
use made and proposed to be made of such property and interests by the Company
or Rohr Europe, and no consent need be obtained under such leases, except as
disclosed in the Prospectuses. The Company and its Subsidiaries are in
compliance in all material respects with the terms and conditions of such
leases, and such leases are in full force and effect. Except for such assets
and facilities as are immaterial in the aggregate to the business of the
Company and its Subsidiaries, all tangible assets and facilities of the Company
and its Subsidiaries are adequate, in the reasonable opinion of the Company,
for the uses to which they are being put or are expected to be put in the
ordinary course of business.
4
<PAGE>
(o) The Company and Rohr Europe have all governmental licenses, certificates,
permits, authorizations, approvals, franchises or other rights necessary to
carry on their business as such business is presently conducted by them except
as otherwise set forth in the Prospectuses and except as would, in the
aggregate, not have a material adverse effect upon the condition (financial or
otherwise) or the results of operations, business affairs, or business
prospects of the Company and its Subsidiaries considered as a single
enterprise. Neither the Company nor Rohr Europe has any reason to believe that
any governmental body or agency is considering limiting, suspending or revoking
any such license, certificate, permit, authorization, approval, franchise or
right in any material respect. Neither the Company nor Rohr Europe has any
reason to believe that any such license, permit or approval necessary in the
future to conduct the business of the Company and its Subsidiaries as described
in the Prospectuses will not be granted upon application, or that any other
governmental agencies are investigating the Company or Rohr Europe other than
in ordinary course administrative reviews, an ordinary course review of the
transactions contemplated hereby or as otherwise set forth in the Prospectuses.
(p) The Company and Rohr Europe are in compliance with, and conduct their
business in conformity with, all applicable state, federal, local and foreign
laws and regulations, except to the extent that any failure so to comply or
conform would not have a material adverse effect upon the condition (financial
or otherwise) or the results of operations, business affairs or business
prospects of the Company and its Subsidiaries, considered as one enterprise.
(q) To the best knowledge of the Company, the Company has obtained all
permits, licenses and other authorizations that are required under all laws of
the United States and of any state in which the Company is incorporated, owns
or leases real property or conducts business, or under any regulation, plan,
order, decree, judgment, injunction, notice or demand letter thereunder,
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants or hazardous substances or wastes into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, or hazardous substances or wastes (collectively, the
"Environmental Laws"), except as otherwise set forth in the Prospectuses or to
the extent failure to have any such permit, license or authorization,
individually or in the aggregate, does not have a material adverse effect on
the condition (financial or otherwise) or the earnings, business affairs or
business prospects of the Company and its Subsidiaries, considered as one
enterprise. Except as described in the Prospectuses, each of the Company and
its Subsidiaries is in compliance with all terms and conditions of any required
permits, licenses and authorizations, and with the provisions of the
Environmental Laws, except to the extent failure to comply would not have a
material adverse effect on the condition (financial or otherwise) or the
earnings, business affairs or business prospects of the Company and its
Subsidiaries, considered as one enterprise.
(r) To the best knowledge of the Company, except as disclosed in the
Registration Statement, there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions, or plans relating to
the business as presently being conducted by the Company or its Subsidiaries
that prevent compliance or continued compliance with the Environmental Laws, or
would be reasonably likely to form the basis of any claim, suit, proceeding,
liability, notice of violation, remediation or cleanup based on or related to
the generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release into the
work-place, the community or the environment of any pollutant, contaminant or
hazardous substance or waste, except as will not individually or in the
aggregate have a material adverse effect on the Company and its Subsidiaries,
considered as one enterprise.
(s) Neither the Company nor Rohr Europe is in violation of its Certificate or
Articles of Incorporation or by-laws or in default in any material respect in
the performance or observance of any material obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument or agreement to which any of them is a party or
by which any of them or their property may be bound, or to which any of their
property or assets is subject, which violations or defaults in the aggregate
would have a material adverse effect on the condition (financial or otherwise)
or on the results of operations, business affairs or business prospects of the
Company and its Subsidiaries, considered as one
5
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enterprise; and the execution, delivery and performance of this Agreement and
the Indentures and the issuance and sale of the Securities, and the
consummation of the transactions contemplated hereby and thereby, have been
duly authorized by all necessary corporate action of the Company and will not
conflict with or constitute a breach of, or default under, cause the
acceleration of the maturity of, require the consent of any person pursuant to
or result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of any of the Company or Rohr Europe pursuant to, any
contract, indenture, mortgage, loan agreement, note, lease or other instrument
or agreement to which any of the Company or Rohr Europe is a party or by which
either of them may be bound, or to which any of the property or assets of any
of the Company or Rohr Europe is subject, nor will such action result in any
violation of the provisions of the Certificate or Articles of Incorporation or
by-laws of either the Company or Rohr Europe or any applicable law or
administrative regulation, or any administrative or court decree, order or
judgment specifically binding upon the Company or Rohr Europe.
(t) This Agreement has been duly executed and delivered by the Company and,
assuming the due execution and delivery by the other parties hereto, is the
legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the enforcement of
creditors' rights generally and that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
(u) The Company has full corporate power and authority to enter into, deliver
and perform its obligations under this Agreement, the Indentures, the
Securities and all other documents or certificates required or contemplated
thereby. The Securities have been duly authorized by the Company for issuance
and sale pursuant to this Agreement, and, when issued, authenticated and
delivered pursuant to this Agreement and the Indentures against payment of the
consideration set forth herein, will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, except
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting enforcement of creditors' rights generally and that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought; and would be entitled to
the benefits provided by the applicable Indenture; the Indentures have been
duly authorized and, at the Closing Time, will be duly qualified under the TIA
and, assuming due execution and delivery by the applicable Trustee, when
executed and delivered by the Company will constitute valid and legally binding
agreements of the Company, enforceable in accordance with their respective
terms, except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting enforcement of creditors' rights generally and that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought; and the Securities and the
Indentures conform to the descriptions thereof in the Prospectuses.
(v) Neither the Company nor Rohr Europe is, or, following the issuance of the
Securities, will become, an "investment company," or a company "controlled" by
an "investment company," within the meaning of the Investment Company Act of
1940, as amended.
(w) All tax returns required to be filed by the Company or Rohr Europe in any
jurisdiction have been filed, other than those filings being contested in good
faith, and all material taxes, including withholding taxes, penalties and
interest, assessments, fees and other charges due or claimed to be due from
such entities have been paid, other than those being contested in good faith
and for which adequate reserves have been provided or those currently payable
without penalty or interest.
(x) The Company and Rohr Europe maintain insurance covering their properties,
operations, personnel and businesses. Such insurance insures against such
losses and risks to an extent which is adequate in accordance with customary
industry practice to protect the Company and Rohr Europe and their businesses.
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2. Purchase and Sale. (a) Subject to the terms and conditions and in reliance
upon the representations and warranties herein set forth, the Company agrees to
sell to the Underwriter, and the Underwriter agrees to purchase from the
Company, at a purchase price of % of the principal amount thereof, 100%
of the aggregate principal amount of the Senior Notes and the Convertible
Subordinated Notes.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the Underwriter to purchase up to $7,500,000 aggregate principal
amount of Option Notes at the same purchase price per share as the Underwriter
shall pay for the Convertible Subordinated Notes. Said option may be exercised
only to cover over-allotments in the sale of the Convertible Subordinated Notes
by the Underwriter. Said option may be exercised in whole or in part at any
time (but not more than once) on or before the 30th day after the date of the
Prospectuses upon written or telegraphic notice by the Underwriter to the
Company setting forth the aggregate principal amount of the Option Notes as to
which the Underwriter is exercising the option on the settlement date. Delivery
of certificates representing such Option Notes, and payment therefor, shall be
made as provided in Section 3 hereof.
3. Delivery and Payment. Delivery of and payment for the Senior Notes and the
Convertible Subordinated Notes shall be made at 10:00 a.m., New York City time,
on , 1994, which date and time may be varied by agreement among the
Underwriter and the Company (such date and time of delivery and payment being
herein called the "Closing Date"). The Underwriter will make payment for the
Senior Notes and Convertible Subordinated Notes to be sold hereunder by a
certified or official bank check or checks, drawn on or by a New York or Los
Angeles Clearing House Bank and payable in next day funds, to the order of the
Company against delivery of the Senior Notes and the Convertible Subordinated
Notes for the account of the Underwriter provided, however, that upon written
request of the Company delivered to the Underwriter not less than two business
days prior to the Closing Date, such payment shall be made in immediately
available funds, and the Company shall reimburse the Underwriter for its cost
in obtaining such immediately available funds. Delivery of the Senior Notes and
the Convertible Subordinated Notes shall be made at such location as the
Underwriter shall reasonably designate at least one business day in advance of
the Closing Date, and payment for the Senior Notes and the Convertible
Subordinated Notes shall be made at the offices of Latham & Watkins, New York,
New York, on the Closing Date. Certificates for the Senior Notes and the
Convertible Subordinated Notes shall be registered in such names and in such
denominations as the Underwriter may request not less than two full business
days in advance of the Closing Date.
Delivery to the Underwriter of and payment for any Option Notes to be
purchased by the Underwriter shall be made at the aforementioned office of
Latham & Watkins at such time a date (the "Option Closing Date") which may be
the same as the Closing Date but shall in no event be earlier than the Closing
Date nor later than ten business days after the giving of the notice described
above, as shall be specified in such notice. The place of closing for any
Option Notes and the Option Closing Date for such Option Notes may be varied by
agreement between the Underwriter and the Company.
The Company agrees to have the Senior Notes and the Convertible Subordinated
Notes (and the Option Notes, if applicable) available for inspection, checking
and packaging by the Underwriter in New York, New York not later than 1:00 p.m.
on the business day prior to the Closing Date (or the Option Closing Date, as
applicable).
The Company will deliver to the Underwriter on the Option Closing Date, and
the obligation of the Underwriter to purchase the Option Notes shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming, as of such Option Closing Date and with respect to the Option
Notes, the opinions, certificates and letters delivered on the Closing Date
pursuant to Section 6 hereof.
4. Offering by Underwriter. It is understood that the Underwriter proposes to
offer the Senior Notes and the Convertible Subordinated Notes for sale to the
public as set forth in the Prospectuses.
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<PAGE>
5. Agreements. The Company agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment thereof,
to become effective. Prior to the termination of the offering of the
Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectuses without the prior consent of the
Underwriter, provided, however, that if the Company shall be advised by counsel
that the filing of such amendment or supplement is required under the
Securities Act or other applicable law, the Company may file such amendment or
supplement after giving notice to the Underwriter and allowing the Underwriter
a reasonable opportunity to comment thereon. Subject to the foregoing sentence,
if the Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectuses is otherwise required under Rule 424(b),
the Company will cause the Prospectuses, properly completed, and any supplement
thereto to be filed with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the Underwriter of such timely filing. The Company will
promptly advise the Underwriter (i) when the Registration Statement, if not
effective at the Execution Time, and any amendment thereto, shall have become
effective, (ii) when the Prospectuses, and any supplement thereto, shall have
been filed (if required) with the Commission pursuant to Rule 424(b), (iii)
when, prior to termination of the offering of the Securities, any amendment of
the Registration Statement shall have been filed or become effective, (iv) of
any request by the Commission for any amendment of the Registration Statement
or supplement to the Prospectuses or for any additional information, (v) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the institution or threatening of any proceeding
for that purpose, and (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company will make every reasonable effort to prevent the issuance
of any such stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is required
to be delivered under the Securities Act, any event known to the Company occurs
as a result of which the Prospectuses as then supplemented would include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it shall be necessary to
amend the Registration Statement or supplement the Prospectuses to comply with
the Securities Act or the rules or regulations thereunder, the Company promptly
will prepare and file with the Commission, subject to the second sentence of
paragraph (a) of this Section 5, an amendment or supplement which will correct
such statement or omission or which will effect such compliance.
(c) The Company will make generally available to its security holders and to
the Underwriter a consolidated earnings statement or statements of the Company
and its Subsidiaries, covering a twelve-month period commencing after the
effective date of the Registration Statement and ending not later than 15
months thereafter, as soon as practicable after the end of such period, which
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule
158 under the Securities Act.
(d) The Company will furnish to the Underwriter and counsel for the
Underwriter, without charge, as many signed copies of the Registration
Statement as originally filed and of each amendment thereof (including exhibits
filed therewith) as the Underwriter may reasonably request and to the
Underwriter a conformed copy of the Registration Statement as originally filed
and of each amendment thereof (without exhibits thereto) and, so long as
delivery of a prospectus by the Underwriter or dealer may be required by the
Securities Act, as many copies of each Preliminary Prospectus and the
Prospectuses and any supplement thereto as the Underwriter may reasonably
request. The Company will pay the expenses of printing or other production of
all documents relating to the offering.
(e) The Company will arrange for the qualification of the Securities for sale
under the laws of such jurisdictions as the Underwriter may designate and will
maintain such qualifications in effect so long as required for the distribution
of the Securities provided, however, that the Company shall not be required to
8
<PAGE>
qualify as a foreign corporation or consent to service of process in any
jurisdiction in which such qualification or consent is not otherwise required,
and will arrange for the determination of the legality of the Securities for
purchase by institutional investors and will pay the fee of the National
Association of Securities Dealers, Inc. in connection with its review of the
offering.
(f) The Company will fully comply with the applicable provisions of Rules 424
and 430A under the Securities Act in a timely manner.
(g) The Company will cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc. and in the
performance of any due diligence investigation by any broker-dealer
participating in the sale of the Securities.
(h) The Company waives, to the extent permitted by law, the use of any usury
laws against any holder of Securities.
(i) The Company, during the period when the Prospectuses are required to be
delivered under the Act, will file promptly all documents required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act,
subsequent to the time the Registration Statement becomes effective.
(j) The Company will apply the proceeds from the issuance and sale of the
Securities as set forth in the Prospectuses under the heading "Use of
Proceeds."
(k) The Company confirms as of the date hereof that it is in compliance with
all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating
to Disclosure of Doing Business with Cuba, and the Company further agrees that
if it commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba after the date the Registration Statement
becomes or has become effective with the Securities and Exchange Commission or
with the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported in the Prospectuses, if
any, concerning the Company's business with Cuba or with any person or
affiliate located in Cuba changes in any material way, the Company will provide
the Department notice of such business or change, as may be required, in a form
acceptable to the Department.
(l) The Company will reserve, from time to time, a sufficient number of
shares of Common Stock to permit the issuance of shares of Common Stock upon
the conversion of all of the outstanding Convertible Subordinated Notes by the
holders thereof.
(m) The Company will use all reasonable efforts to cause the Common Stock
issuable upon conversion of the Convertible Subordinated Notes to be listed on
the New York Stock Exchange.
(n) The Company will use all reasonable efforts to do and perform all things
required to be done and performed under this Agreement by it prior to or after
the Closing Date and to satisfy all conditions precedent on its part to the
delivery of the Securities.
6. Conditions to the Obligations of the Underwriter. The obligations of the
Underwriter to purchase the Securities shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as
of the Execution Time and the Closing Date, or the Option Closing Date, as
applicable, to the accuracy of the statements of the Company made in any
certificates delivered pursuant to the provisions hereof, to the performance by
the Company of its obligations hereunder and to the following additional
conditions:
(a) If the Registration Statement has not become effective prior to the
Execution Time, unless the Underwriter agrees in writing to a later time, the
Registration Statement will become effective not later than (i) 6:00 p.m. New
York City time on the date of determination of the public offering price, if
such determination occurred at or prior to 3:00 p.m. New York City time on such
date or (ii) 12:00 noon New
9
<PAGE>
York City time on the business day following the day on which the public
offering price was determined, if such determination occurred after 3:00 p.m.
New York City time on such date; if filing of the Prospectuses, or any
supplement thereto, is required pursuant to Rule 424(b), the Prospectuses, and
any such supplement, will be filed in the manner and within the time period
required by Rule 424(b); and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened.
(b) The Company shall have furnished to the Underwriter the opinion of
Gibson, Dunn & Crutcher as counsel for the Company, and the Opinion of Richard
W. Madsen, general counsel to the Company in each case, dated the Closing Date,
in form and substance satisfactory to the Underwriter, and substantially in the
form of Exhibits B and C, respectively, hereto.
In rendering such opinions, such counsel may rely (A) as to matters involving
the application of another state's law, to the extent they deem proper and
specified in such opinion, upon the opinion of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriter and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. In
addition, Gibson, Dunn & Crutcher may rely as to certain matters upon the
opinion of Richard W. Madsen, general counsel to the Company.
(c) The Underwriter shall have received from Latham & Watkins, counsel for
the Underwriter, such opinion or opinions, dated the Closing Date, with respect
to the issuance and sale of the Securities, the Indentures, the Registration
Statement, the Prospectuses (together with any supplement thereto) and other
related matters as the Underwriter may reasonably require, and the Company
shall have furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(d) The Company shall have furnished to the Underwriter a certificate of the
Company, signed by the Chairman of the Board, the President or a Vice President
and the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have carefully
examined the Registration Statement, the Prospectuses, any supplement to the
Prospectuses and this Agreement and that to the best of their knowledge:
(i) the representations and warranties of the Company in this Agreement
are true and correct in all material respects on and as of the Closing Date
with the same effect as if made on the Closing Date, and the Company has
complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened; and
(iii) since the date of the most recent financial statements included in
the Prospectuses (exclusive of any supplement thereto), (A) there has been
no material change in the capital stock or long-term debt of the Company
except as set forth in or contemplated in the Prospectuses and (B) there
has been no material adverse change in the condition (financial or
otherwise), results of operations, business or properties of the Company
and its Subsidiaries, considered as one enterprise, whether or not arising
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectuses (exclusive of any supplement
thereto).
(e) At the Execution Time and at the Closing Date, Deloitte & Touche shall
have furnished to the Underwriter a letter or letters, dated respectively as of
the Execution Time and as of the Closing Date, in form and substance
satisfactory to the Underwriter, confirming that they are independent
accountants within the meaning of the Securities Act and the applicable
published rules and regulations thereunder and stating in effect that:
(i) in their opinion the audited financial statements and financial
statement schedules included in the Registration Statement and the
Prospectuses and reported on by them comply in form in all material
10
<PAGE>
respects with the applicable accounting requirements of the Securities Act
and the related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its Subsidiaries; their
limited review in accordance with standards established by the American
Institute of Certified Public Accountants of the unaudited interim
financial information for the six-month period ended January 30, 1994, and
as at January 30, 1994; carrying out certain specified procedures (but not
an examination in accordance with generally accepted auditing standards)
which would not necessarily reveal matters of significance with respect to
the comments set forth in such letter; a reading of the minutes of the
meetings of the stockholders and directors of each of the Company and its
Subsidiaries; and inquiries of certain officials of the Company and its
Subsidiaries who have responsibility for financial and accounting matters
of the Company or its Subsidiaries as to transactions and events subsequent
to January 30, 1994, nothing came to their attention which caused them to
believe that:
(1) any unaudited financial statements included in the Registration
Statement and the Prospectuses do not comply in form in all material
respects with applicable accounting requirements of the Securities Act
and with the published rules and regulations of the Commission with
respect to registration statements on Form S-3; and said unaudited
financial statements are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent with
that of the audited financial statements included in the Registration
Statement and the Prospectuses; or
(2) with respect to the period subsequent to January 30, 1994, there
were any changes, at a specified date not more than five business days
prior to the date of the letter, in the long-term debt of the Company
or its Subsidiaries or capital stock of each of the Company or its
Subsidiaries or decreases in the stockholders' equity of any of the
Company or its Subsidiaries, in each case as compared with the amounts
shown on the January 30, 1994 consolidated balance sheet included in
the Registration Statement and the Prospectuses, or for the period from
January 31, 1994 to such specified date there were any decreases, as
compared with the corresponding period in the preceding year, in net
operating revenues, operating income or net income before income taxes
or in total or per share amounts of net income of each of the Company
or its Subsidiaries, except in all instances for changes or decreases
set forth in such letter or changes or decreases that the Registration
Statement discloses have occurred or may occur, in which case the
letter shall be accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed necessary by
the Underwriter; and
(iii) they have performed certain other specified procedures as a result
of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial
or statistical information derived from the general accounting records of
the Company and its Subsidiaries) set forth in the Registration Statement
and the Prospectuses (or in any documents incorporated by reference
therein), including the information set forth under the captions
"Consolidated Capitalization," "Summary Consolidated Financial Data" and
"Selected Consolidated Financial Data" in the Prospectuses, agrees with the
accounting records of the Company and its Subsidiaries, excluding any
questions of legal interpretation.
References to the Prospectuses in this paragraph (e) include any supplement
thereto at the date of the letter.
(f) Subsequent to the Execution Time or, if earlier, the dates as of which
information is given in the Registration Statement (exclusive of any amendment
thereof) and the Prospectuses (exclusive of any supplement thereto), there
shall not have been (i) any change or decrease specified in the letter or
letters referred to in paragraph (f) of this Section 6 or (ii) any change, or
any development involving a prospective change, in or affecting the business or
properties of the Company and its Subsidiaries taken as a single
11
<PAGE>
enterprise the effect of which, in any case referred to in clause (i) or (ii)
above, is, in the judgment of the Underwriter, so material and adverse as to
make it impractical or inadvisable to proceed with the public offering or the
delivery of the Securities as contemplated by the Registration Statement
(exclusive of any amendment thereof) and the Prospectuses (exclusive of any
supplement thereto).
(g) The Company shall have obtained and provided to the Underwriter, in form
and substance satisfactory to the Underwriter and its counsel, certain
amendments, supplements or modifications to certain of the Company's credit
facilities and other borrowing agreements currently in place that shall, among
other things, sufficiently broaden certain restrictive financial covenants
contained therein.
(h) Prior to the Closing Date, the Company shall have furnished to the
Underwriter such further information, certificates and documents as the
Underwriter may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or
if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriter and its counsel, this Agreement and all
obligations of the Underwriter hereunder may be canceled at, or at any time
prior to, the Closing Date by the Underwriter. Notice of such cancellation
shall be given to the Company in writing or by telephone or telegraph confirmed
in writing.
7. Reimbursement of Underwriter's Expenses.
(a) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
if paid by or on behalf of the Underwriter, all costs and expenses incident to
the performance of the obligations of the Company hereunder, including those in
connection with: (i) preparing, printing, duplicating, filing and distributing
the Registration Statement as originally filed and all amendments thereto
(including all exhibits thereto), any Preliminary Prospectuses, the
Prospectuses and any amendments thereof or supplements thereto, the Indentures,
any dealer agreements and the underwriting documents (including this Agreement
and all other documents related to the public offering of the Securities,
including those supplied to the Underwriter in quantities as hereinabove
stated); (ii) the issuance, transfer and delivery of the Securities to the
Underwriter, including any transfer or other taxes payable thereon; (iii) the
qualification of the Securities under state and foreign securities or Blue Sky
laws and the eligibility of the Securities for investment under state and
foreign law, including the costs of printing and mailing a preliminary and
final "Blue Sky Survey" and a "Legal Investment Memorandum" and the reasonable
fees and disbursements of Underwriter's counsel in connection therewith; (iv)
the review of the terms of the public offering of the Securities by the
National Association of Securities Dealers, Inc.; and (v) the fees and expenses
of the Trustees and any agent of the Trustees and the fees and disbursements of
counsel for the Trustee in connection with the Indentures and the Securities.
(b) If the sale of the Senior Notes and the Convertible Subordinated Notes
provided for herein is not consummated because any condition to the obligations
of the Underwriter set forth in Section 6 hereof is not satisfied, because of
any termination pursuant to Section 9 hereof or because of any refusal,
inability or failure on the part of the Company to perform any agreement herein
or comply with any provision hereof other than by reason of a default by the
Underwriter, the Company will reimburse the Underwriter upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by the Underwriter in connection with the
proposed purchase and sale of the Securities.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify, defend and hold harmless the
Underwriter, the directors, officers, employees and agents of the Underwriter,
and each person who controls the Underwriter within the meaning of either the
Securities Act or the Exchange Act against any and all losses, claims, damages
or liabilities, joint or several, to which they or any of them may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses,
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<PAGE>
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement for the registration of the
Securities as originally filed or in any amendment thereto, or in any
Preliminary Prospectus or any Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Underwriter specifically for
inclusion therein, and provided further that the indemnity agreement contained
in this subsection (a) with respect to any Preliminary Prospectus or amended
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such loss, expense, liability or claim purchased
the Security which is the subject thereof (or to the benefit of any person
controlling such Underwriter), if the Prospectus corrected any such alleged
untrue statement or omission and if such person was not given a copy of the
Prospectus or prior to the written confirmation of the sale of such Security to
such person and the Company has previously made available copies of the
Prospectus to such Underwriter. This indemnity agreement will be in addition to
any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify, defend and hold harmless the
Company, each of its directors, each of its officers who signs the Registration
Statement, each person who controls the Company within the meaning of either
the Securities Act or the Exchange Act, and their agents, to the same extent as
the foregoing indemnity from the Company to the Underwriter, but only with
reference to written information relating to the Underwriter furnished to the
Company by or on behalf of the Underwriter specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement will
be in addition to any liability which the Underwriter may otherwise have. The
Company and the Underwriter acknowledge that the statements set forth (i) in
the last paragraph of the cover page and (ii) the information under the heading
"Underwriting," relating to the amount of Securities sold to the Underwriter,
the Underwriter's concession and the dealers' reallowance, in any Preliminary
Prospectus and any Prospectus constitute the only information furnished in
writing by or on behalf of the Underwriter for inclusion in any Preliminary
Prospectus or any Prospectus, and the Underwriter confirms that such statements
are correct.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof; but the failure so to notify the indemnifying party (i) will not
relieve it from liability under paragraph (a) or (b) above unless and to the
extent it did not otherwise learn of such action and such failure results in
the forfeiture by the indemnifying party of substantial rights and defenses and
(ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be
entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
PROVIDED, HOWEVER, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified parties
collectively shall have the right to employ one separate counsel (in addition
to local counsel), and the indemnifying party shall bear the reasonable fees,
costs and expenses of such separate counsel, if (i) the use of counsel chosen
by the indemnifying party to represent the indemnified party would present such
counsel with an actual conflict of interest, (ii) the actual defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there are legal defenses available to it and/or other indemnified parties
which
13
<PAGE>
are different from or additional to those available to the indemnifying party,
(iii) the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party in writing to employ separate
counsel at the expense of the indemnifying party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of this
Section 8 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and the Underwriter agrees to contribute to
the aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending
same) (collectively, "Losses") to which the Company and the Underwriter may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Company and by the Underwriter from the offering of the
Securities; provided, however, that in no case shall the Underwriter (except as
may be provided in any agreement among underwriters relating to the offering of
the Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by the
Underwriter hereunder. If the allocation provided by the immediately preceding
sentence is unavailable, the Company and the Underwriter shall contribute in
such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and of the Underwriter in connection
with the statements or omissions which resulted in such Losses as well as any
other relevant equitable considerations. Benefits received by the Company shall
be deemed to be equal to the total net proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses), and
benefits received by the Underwriter shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Prospectuses. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information
provided by the Company or the Underwriter. The Company and the Underwriter
agree that it would not be just and equitable if contribution were determined
by pro rata allocation or any other method of allocation which does not take
account of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls the Underwriter within the meaning of either the Securities Act or the
Exchange Act and each director, officer, employee and agent of the Underwriter
shall have the same rights to contribution as the Underwriter, and each person
who controls the Company within the meaning of either the Securities Act or the
Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and conditions of this paragraph (d).
9. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Underwriter, by written notice given to the Company
prior to delivery of and payment for the Securities, if prior to such time (a)
trading in securities generally on the New York Stock Exchange or the National
Association of Securities Dealers Automated Quotation National Market System
shall have been suspended or limited or minimum prices shall have been
established on either of such Exchange or Market System, (b) a banking
moratorium shall have been declared either by federal or New York State
authorities, (c) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the judgment of the Underwriter, impracticable or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Prospectuses (exclusive of any supplement thereto) or (d) any securities of the
Company shall have been downgraded or placed on any "watch list" for possible
downgrading by any
14
<PAGE>
nationally recognized statistical rating organization, PROVIDED, that in the
case of such "watch list" placement, termination shall be permitted only if
such placement would, in the judgment of the Underwriter, make it impracticable
or inadvisable to market the Securities or to enforce contracts for the sale of
the Securities or materially impair the investment quality of the Securities.
10. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities, certificates and other statements of
the Company or its officers and of the Underwriter set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of the Underwriter or the Company or any
of the officers, directors or controlling persons referred to in Section 8
hereof, and will survive delivery of and payment for the Securities. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.
11. Notices. All communications hereunder are required to be in writing and
effective only on receipt and, if sent to the Underwriter, will be mailed,
delivered, telegraphed or telecopied and confirmed to Salomon Brothers Inc at
Seven World Trade Center, New York, New York, 10048, Attention: Legal
Department; or, if sent to the Company, will be mailed, delivered, telegraphed
or telecopied and confirmed to it at 850 Lagoon Drive, Chula Vista, California
91910, Attention: General Counsel.
12. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 8 hereof, and no other
person will have any right or obligation hereunder.
13. Applicable Law. This Agreement will be governed by and construed in
accordance with the internal laws of the State of New York.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Company and the Underwriter.
Very truly yours,
ROHR, INC.
By:
------------------------------
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON BROTHERS INC
By:
------------------------------
15
<PAGE>
EXHIBIT A
OPINION OF
GIBSON, DUNN & CRUTCHER
COUNSEL FOR THE COMPANY
The opinion of Gibson, Dunn & Crutcher, which is called for by Section 6(c) of
the Underwriting Agreement (the "Opinion"), shall be dated the Closing Date and
addressed to the Underwriter. All terms used herein without definition shall
have the meanings assigned to such terms in the Underwriting Agreement. The
Opinion shall be substantially to the effect that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
full corporate power and authority to own its properties and to conduct its
business as described in the Registration Statement and the Prospectuses.
2. The Company is duly qualified or licensed to conduct business and is
in good standing in each jurisdiction in which it owns or leases material
property or in which the character of its business makes such qualification
or license necessary, except where the failure so to qualify or be licensed
would not have a material adverse effect on the business or financial
condition of the Company and its Subsidiaries, taken as a whole.
3. The Company has corporate power and authority to execute, deliver and
perform its obligations under this Agreement, the Indentures, the Senior
Notes and the Convertible Subordinated Notes. This Agreement, the
Indentures, the Senior Notes and the Convertible Subordinated Notes have
been duly authorized, executed and delivered by the Company.
4. The Indentures constitute legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except to the extent that (A) such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
and court decisions of general application now or hereafter in effect
relating to or affecting the rights of creditors generally, including
without limitation, statutory or other laws regarding fraudulent or
preferential transfer, (B) such enforceability may be limited by equitable
principles (whether considered in an action at law or in equity) which
provide, among other things, that the remedies of specific performance and
injunctive and other forms of equitable relief are subject to equitable
defenses and to the discretion of the court before which any proceedings
therefor may be brought and (C) rights to indemnity and contribution
thereunder may be limited by federal or state securities laws or the
policies underlying such laws, and except as to any provisions thereof
which involve a purported waiver of rights or defenses, as to which such
counsel may express no opinion.
5. The Company has authorized capitalization as set forth in the
Registration Statement. To the best of such counsel's knowledge, except as
set forth in the Registration Statement, (i) there are no outstanding
subscriptions, warrants, options, calls or commitments of any character
relating to or entitling any person to purchase or otherwise acquire any
shares of the capital stock of the Company, and (ii) there are no
obligations or securities convertible into or exchangeable for shares of
any capital stock of the Company or any commitments of any character
relating to or entitling any person to purchase or otherwise acquire any
such obligations or securities.
6. The holders of outstanding capital stock of the Company are not
entitled to preemptive rights or, to the best of such counsel's knowledge,
similar rights to subscribe for or to purchase any capital stock of the
Company.
7. To the best of such counsel's knowledge, all of the outstanding
capital stock or other securities evidencing equity ownership of the
Subsidiaries have been duly and validly authorized and are fully paid and
nonassessable, are owned of record and beneficially by the Company, either
directly or indirectly through wholly owned subsidiaries of the Company,
free and clear of any security interest, claim, lien or encumbrance; and
there are no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital
stock or other equity interest in any Subsidiary.
8. The Senior Notes, the Convertible Subordinated Notes and the
Indentures conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectuses.
<PAGE>
9. The Registration Statement has become effective under the Securities
Act; any filing of the Prospectuses, and any supplements thereto, required
pursuant to Rule 424(b)(1) has been made in the manner and within the time
period required by Rule 424(b); and, to the best knowledge of such counsel,
no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been instituted or
threatened.
10. The Registration Statement and each Prospectus (except as to the
financial statements and schedules and other financial and statistical data
contained or incorporated by reference therein and the Trustee's statements
of eligibility and qualification of Form T-1, as to which such counsel need
not express an opinion) comply as to form in all material respects with the
Securities Act and the Trust Indenture Act and the rules thereunder.
11. The Indentures have been duly qualified under the Trust Indenture
Act.
12. No consent, approval, authorization or order of, or registration or
filing with, any court or governmental agency or body is required in
connection with the execution, delivery and performance by the Company of
this Agreement, the Indentures, the Senior Notes and the Convertible
Subordinated Notes, or in connection with the offer, sale, delivery and
compliance with the terms of the Senior Notes and the Convertible
Subordinated Notes, except (A) the registration under the Securities Act of
the Senior Notes and the Convertible Subordinated Notes, (B) the
qualification of the Indentures under the Trust Indenture Act, (C) such
consents, approvals, authorizations, orders, registrations or filings as
may be required under state securities, Blue Sky or real estate syndication
laws, and (D) such other consents, approvals, authorizations, orders,
registrations or filings as have been obtained or made.
13. The Company is not in violation of its Certificate of Incorporation
or Bylaws and to the best of such counsel's knowledge is not in default in
the performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any
indenture or other financing agreement of the Company, where such default
could have a material adverse effect on the Company and its Subsidiaries,
taken as a whole.
14. The execution, delivery and performance of this Agreement, the
Indentures, the Senior Notes and the Convertible Subordinated Notes, the
fulfillment of the terms therein set forth and the consummation of the
transactions therein contemplated, including the issuance, sale and
delivery of the Senior Notes and the Convertible Subordinated Notes, will
not violate or conflict with, result in a breach of or constitute a default
under the Certificate of Incorporation or Bylaws of the Company or the
terms of any indenture or other material agreement or instrument known to
such counsel, including without limitation this Agreement, the Indentures,
the Senior Notes and the Convertible Subordinated Notes, to which the
Company is a party or by which it is bound.
15. To the best knowledge of such counsel, (i) there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator against or involving the
Company of a character required to be disclosed in the Registration
Statement or the Prospectuses which is not disclosed therein, and (ii)
there is no contract, license, agreement or other document of the Company
of a character required to be described in the Registration Statement or
the Prospectuses, or to be filed as an exhibit to the Registration
Statement, which is not so described or filed.
16. The Company is not, nor will be upon the issuance and sale of the
Senior Notes and the Convertible Subordinated Notes and the fulfillment of
the terms of this Agreement, subject to regulation under the Investment
Company Act of 1940, as amended.
17. To the best of such counsel's knowledge, no holder of securities of
the Company has unwaived rights to the registration of such securities
pursuant to the Registration Statement.
18. The Senior Notes and the Convertible Subordinated Notes, when
executed and authenticated in accordance with the respective Indenture and
delivered to and paid for by the Underwriter in accordance
2
<PAGE>
with this Agreement, will be the legal, valid and binding obligations of
the Company, entitled to the benefits provided by the Indentures and
enforceable in accordance with their terms, except to the extent that (A)
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws or court decisions of
general application now or hereafter in effect relating to or affecting the
rights of creditors generally, including without limitation, statutory or
other laws regarding fraudulent or preferential transfers, (B) such
enforceability may be limited by equitable principles (whether considered
in an action at law or in equity) which provide, among other things, that
the remedies of specific performance and injunctive and other forms of
equitable relief are subject to equitable defenses and to the discretion of
the court before which any proceedings therefor may be brought and (C)
rights to indemnity and contribution thereunder may be limited by federal
or state securities laws or the policies underlying such laws, and except
as to any provisions thereof which involve a purported waiver of rights or
defenses, as to which such counsel may express no opinion.
19. The statements set forth in the Prospectus relating to the
Convertible Subordinated Notes under the headings "Description of Capital
Stock" and "Certain Federal Income Tax Consequences," insofar as such
statements constitute a summary of the documents, laws or proceedings
referred to therein, fairly present the information called for with respect
to such documents, laws and proceedings.
20. The indebtedness represented by the Senior Notes and the Convertible
Subordinated Notes is not usurious under the laws of (or is exempt from the
usury laws of) the United States and the states of California and New York.
We are not passing upon, do not assume any responsibility for and have not
independently verified the accuracy, completeness or fairness of the financial
statements, notes thereto, supporting schedules and other financial and
statistical data included in the Registration Statement or the Prospectuses or
with respect to the Form T-1, and we have not examined the accounting,
financial or statistical records from which such financial statements, notes,
schedules and data are derived. We note that, while certain portions of the
Registration Statement and the Form T-1 (including financial statements, notes
thereto, supporting schedules and other financial and statistical data) have
been included therein on the authority of "experts" within the meaning of the
Act, we are not such experts with respect to any portion of the Registration
Statement or the Form T-1, including without limitation such financial
statements, notes, schedules or other financial or statistical data included
therein. Subject to the foregoing, we note that we have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants of the Company and your
representatives, at which conferences the contents of the Registration
Statement and the Prospectuses and related matters were discussed and, although
we are not passing upon, and do not assume any responsibility for, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and each Prospectus and have not made any independent
check or verification thereof, during the course of such participation (relying
as to the factual matters underlying the determination of materiality to a
large extent upon the statements of officers and other representatives of the
Company), no facts came to our attention that caused us to believe that the
Registration Statement, at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
(other than information omitted therefrom in reliance on Rule 430A under the
Act), or that the Prospectuses, as of their date or the date hereof, contained
an untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the States of
California, Delaware and New York or the United States, to the extent they deem
proper and specified in such opinion, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriter, (B) as to matters of fact, to the extent they deem proper,
on certificates of responsible officers of the Company and public officials and
(C) as to the opinions given in paragraphs 2, 7, 13, 15 and 17 on the opinion
of Richard W. Madsen, general counsel to the Company. References to the
Prospectuses in this paragraph (b) include any supplements thereto at the
Closing Date.
3
<PAGE>
EXHIBIT B
OPINION OF
RICHARD W. MADSEN
GENERAL COUNSEL FOR THE COMPANY
The opinion of Richard W. Madsen, general counsel for the Company, which is
called for by Section 6(c) of the Underwriting Agreement (the "Opinion"), shall
be dated the Closing Date and addressed to the Underwriter. All terms used
herein without definition shall have the meanings assigned to such terms in the
Underwriting Agreement. The Opinion shall be substantially to the effect that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
full corporate power and authority to own its properties and to conduct its
business as described in the Registration Statement and the Prospectuses.
2. The Company is duly qualified or licensed to conduct business and is
in good standing in each jurisdiction in which it owns or leases material
property or in which the character of its business makes such qualification
or license necessary, except where the failure so to qualify or be licensed
would not have a material adverse effect on the business or financial
condition of the Company and its Subsidiaries, taken as a whole.
3. To the best of such counsel's knowledge, all of the outstanding
capital stock of the Company has been duly and validly authorized and
issued and is fully paid and nonassessable. All of the outstanding capital
stock or other securities evidencing equity ownership of the Subsidiaries
have been duly and validly authorized and are fully paid and nonassessable,
are owned of record and beneficially by the Company, either directly or
indirectly through wholly owned subsidiaries of the Company, and, to the
best of such counsel's knowledge, is free and clear of any security
interest, claim, lien or encumbrance; to the best of such counsel's
knowledge, except as disclosed in the Registration Statement, there are no
outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, any shares of capital stock or other
equity interest in any Subsidiary.
4. The Company is not in violation of its Certificate of Incorporation or
Bylaws and to the best of such counsel's knowledge is not in default in the
performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any
indenture or other financing agreement of the Company, where such default
could have a material adverse effect on the Company and its Subsidiaries,
taken as a whole.
5. To the best knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator against or involving the
Company of a character required to be disclosed in the Registration
Statement or the Prospectuses which is not disclosed therein, or which are,
singly and in the aggregate with all other such actions, material to the
Company and its Subsidiaries considered as one enterprise.
6. The Company is not, nor will be upon the issuance and sale of the
Senior Notes and the Convertible Subordinated Notes and the fulfillment of
the terms of this Agreement, subject to regulation under the Investment
Company Act of 1940, as amended.
7. To the best of such counsel's knowledge, no holder of securities of
the Company has unwaived rights to the registration of such securities
pursuant to the Registration Statement.
8. The statements set forth in the Prospectuses under the headings
"Business --Contracts" and "Legal and Environmental Proceedings," insofar
as such statements constitute a summary of the documents, laws or
proceedings referred to therein, fairly present the information called for
with respect to such documents, laws and proceedings.
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the States of California
and Delaware and the United States, to the extent he deems proper and specified
in such opinion, upon the opinion of other counsel of good standing whom he
believes to be reliable and who are satisfactory to counsel for the Underwriter
and (B) as to matters of fact, to the extent he deems proper, on certificates
of responsible officers of the Company and public officials. References to the
Prospectuses in this paragraph (b) include any supplements thereto at the
Closing Date.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ROHR, INC.
AND
IBJ SCHRODER BANK & TRUST COMPANY,
AS TRUSTEE
-------------------
$100,000,000
% SENIOR NOTES DUE 2003
-------------------
INDENTURE
DATED AS OF MAY 15, 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 DEFINITIONS................................................... 1
SECTION 1.01 Definitions............................................ 1
SECTION 1.02 Other Definitions...................................... 27
SECTION 1.03 Incorporation by Reference of Trust Indenture Act...... 27
SECTION 1.04 Rules of Construction.................................. 28
ARTICLE 2 THE SENIOR NOTES.............................................. 28
SECTION 2.01 Form and Dating........................................ 28
SECTION 2.02 Execution and Authentication........................... 28
SECTION 2.03 Registrar and Paying Agent............................. 29
SECTION 2.04 Paying Agent To Hold Money in Trust.................... 30
SECTION 2.05 Holder Lists........................................... 30
SECTION 2.06 Transfer and Exchange.................................. 30
SECTION 2.07 Replacement Senior Notes............................... 31
SECTION 2.08 Outstanding Senior Notes............................... 31
SECTION 2.09 When Treasury Senior Notes Disregarded................. 32
SECTION 2.10 Temporary Senior Notes................................. 32
SECTION 2.11 Cancellation........................................... 32
SECTION 2.12 Defaulted Interest..................................... 33
SECTION 2.13 CUSIP Number........................................... 33
ARTICLE 3 REDEMPTION..................................................... 33
SECTION 3.01 Notices to Trustee..................................... 33
SECTION 3.02 Selection of Senior Notes To Be Redeemed............... 34
SECTION 3.03 Notice of Redemption................................... 34
SECTION 3.04 Effect of Notice of Redemption......................... 35
SECTION 3.05 Deposit of Redemption Price............................ 35
SECTION 3.06 Senior Notes Redeemed in Part.......................... 35
ARTICLE 4 COVENANTS..................................................... 36
SECTION 4.01 Payment of Senior Notes................................ 36
SECTION 4.02 Commission Reports..................................... 36
SECTION 4.03 Compliance Certificate................................. 36
SECTION 4.04 Maintenance of Office or Agency........................ 38
SECTION 4.05 Limitation on Indebtedness............................. 38
SECTION 4.06 Limitation on Restricted Payments...................... 38
SECTION 4.07 Limitations on Payment Restrictions Affecting
Subsidiaries......................................... 40
SECTION 4.08 Limitations on Transactions with Affiliates............ 41
SECTION 4.09 Limitation on Subsidiary Indebtedness and Preferred
Stock................................................ 42
SECTION 4.10 Limitation on Sales of Assets.......................... 44
SECTION 4.11 Limitation on Liens.................................... 47
SECTION 4.12 Continued Existence.................................... 48
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 4.13 Taxes................................................... 48
SECTION 4.14 Stay, Extension and Usury Laws.......................... 49
SECTION 4.15 Investment Company Act.................................. 49
SECTION 4.16 Change of Control....................................... 49
SECTION 4.17 Limitation on Sale and Leaseback Transactions........... 51
SECTION 4.18 Appointments to Fill Vacancies in Trustee's Office...... 52
SECTION 4.19 Further Instruments and Acts............................ 52
ARTICLE 5 SUCCESSORS..................................................... 52
SECTION 5.01 When the Company May Merge, etc......................... 52
SECTION 5.02 Successor Corporation Substituted....................... 54
SECTION 5.03 Purchase Option on Change of Control.................... 54
ARTICLE 6 DEFAULTS AND REMEDIES.......................................... 54
SECTION 6.01 Events of Default....................................... 54
SECTION 6.02 Acceleration............................................ 56
SECTION 6.03 Other Remedies.......................................... 57
SECTION 6.04 Waiver of Past Defaults................................. 57
SECTION 6.05 Control by Majority..................................... 57
SECTION 6.06 Limitation on Suits..................................... 58
SECTION 6.07 Rights of Holders To Receive Payment.................... 58
SECTION 6.08 Collection Suit by Trustee.............................. 58
SECTION 6.09 Trustee May File Proofs of Claim........................ 59
SECTION 6.10 Priorities.............................................. 59
SECTION 6.11 Undertaking for Costs................................... 59
ARTICLE 7 THE TRUSTEE.................................................... 60
SECTION 7.01 Duties of the Trustee................................... 60
SECTION 7.02 Rights of the Trustee................................... 61
SECTION 7.03 Individual Rights of the Trustee........................ 62
SECTION 7.04 Trustee's Disclaimer.................................... 62
SECTION 7.05 Notice of Defaults...................................... 62
SECTION 7.06 Reports by the Trustee to Holders....................... 63
SECTION 7.07 Compensation and Indemnity.............................. 63
SECTION 7.08 Replacement of the Trustee.............................. 64
SECTION 7.09 Successor Trustee by Merger, etc........................ 65
SECTION 7.10 Eligibility, Disqualification........................... 66
SECTION 7.11 Preferential Collection of Claims Against Company....... 66
ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE........................ 66
SECTION 8.01 Termination of Company's Obligations.................... 66
SECTION 8.02 Application of Trust Money.............................. 70
SECTION 8.03 Repayment to Company.................................... 70
SECTION 8.04 Reinstatement........................................... 70
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 9 AMENDMENTS..................................................... 71
SECTION 9.01 Without the Consent of Holders......................... 71
SECTION 9.02 With the Consent of Holders............................ 71
SECTION 9.03 Compliance with the Trust Indenture Act................ 72
SECTION 9.04 Revocation and Effect of Consents...................... 72
SECTION 9.05 Notation on or Exchange of Senior Notes................ 73
SECTION 9.06 Trustee Protected...................................... 73
ARTICLE 10 GENERAL PROVISIONS............................................ 74
SECTION 10.01 Trust Indenture Act Controls........................... 74
SECTION 10.02 Notices................................................ 74
SECTION 10.03 Communication by Holders With Other Holders............ 75
SECTION 10.04 Certificate and Opinion as to Conditions Precedent..... 75
SECTION 10.05 Statements Required in Certificate or Opinion.......... 75
SECTION 10.06 Rules by Trustee and Agents............................ 76
SECTION 10.07 Legal Holidays......................................... 76
SECTION 10.08 No Recourse Against Others............................. 77
SECTION 10.09 Counterparts........................................... 77
SECTION 10.10 Other Provisions....................................... 77
SECTION 10.11 Governing Law.......................................... 78
SECTION 10.12 No Adverse Interpretation of Other Agreements.......... 78
SECTION 10.13 Successors............................................. 78
SECTION 10.14 Severability........................................... 78
SECTION 10.15 Table of Contents, Headings, etc....................... 78
</TABLE>
iii
<PAGE>
CROSS-REFERENCE TABLE*
TRUST INDENTURE ACT SECTION INDENTURE SECTION
310(a)(1)................................................................. 7.10
(a)(2)................................................................. 7.11
(a)(3)................................................................. N.A.
(a)(4)................................................................. N.A.
(b)....................................................... 7.08, 7.10, 10.02
(c).................................................................... N.A.
311(a).................................................................... 7.11
(b).................................................................... 7.11
(c).................................................................... N.A.
312(a).................................................................... 2.05
(b)................................................................... 10.03
(c)................................................................... 10.03
313(a).................................................................... 7.06
(b)(1)................................................................. N.A.
(b)(2)................................................................. 7.06
(c)............................................................. 7.06, 10.02
(d).................................................................... 7.06
314(a)............................................................. 4.01, 10.02
(b).................................................................... N.A.
(c)(1)................................................................ 10.04
(c)(2)................................................................ 10.04
(c)(3)................................................................. N.A.
(d).................................................................... N.A.
(e)................................................................... 10.05
(f).................................................................... N.A.
315(a)................................................................. 7.01(b)
(b)............................................................. 7.05, 10.02
(c)................................................................. 7.01(a)
(d)................................................................. 7.01(c)
(e).................................................................... 6.11
316(a)(last sentence)..................................................... 2.09
(a)(1)(A).............................................................. 6.05
(a)(2)(B).............................................................. 6.04
(a)(2)................................................................. N.A.
(b).................................................................... 6.02
317(a)(1)................................................................. 6.08
(a)(2)..................................................................6.09
(b).................................................................... 2.04
318(a)................................................................... 10.01
N.A. means not applicable.
- ---------
* This Cross-Reference Table is not part of the Indenture.
iv
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THIS INDENTURE, dated as of May 15, 1994, is between Rohr, Inc., a Delaware
corporation (the "Company"), and IBJ Schroder Bank & Trust Company, a New York
banking corporation ("Trustee"). The Company has duly authorized the creation
of its % Senior Notes due 2003 (the "Senior Notes") and to provide therefor
the Company has duly authorized the execution and delivery of this Indenture.
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the holders from time to time of the Senior
Notes.
ARTICLE 1
Definitions
Section 1.01 Definitions.
"Acquired Indebtedness" of any specified Person means Indebtedness of any
other Person and its Subsidiaries existing at the time such other Person
merged with or into or became a Subsidiary of such specified Person or assumed
by the specified Person in connection with the acquisition of assets from such
other Person including, without limitation, Indebtedness of such other Person
and its Subsidiaries incurred in connection with or in anticipation of (a)
such other Person and its Subsidiaries being merged with or into or becoming a
Subsidiary of such specified Person or (b) such acquisition by the specified
Person.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, the referent Person, as the case may be, or any Person
who beneficially owns (within the meaning of Rule 13d-3 andRule 13d-5 under
the Exchange Act), directly or indirectly, 10% or more of the equity interests
of the referent Person or warrants, options or other rights to acquire or hold
more than 10% of any class of equity interests of the referent Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct or cause the direction of management or poli-
cies of the referent Person, directly or indirectly, whether through the own-
ership of voting securities, by contract or otherwise; and the terms "control-
ling" and "controlled" have meanings correlative of the foregoing.
<PAGE>
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means any sale, lease, transfer, exchange or other disposition
by the Company or any Subsidiary (or series of related sales, leases, trans-
fers, exchanges or dispositions) in excess of $1,000,000, including, without
limitation, dispositions pursuant to merger, consolidation or sale and lease-
back transactions, of (a) shares of Capital Stock of a Subsidiary of the Com-
pany (pro rated to the extent of the Company's interest therein), (b) all or
substantially all of the properties and assets of any division or line of
business of the Company or any Subsidiary of the Company or (c) any other
property or assets of the Company (pro rated to the extent of the Company's
interest therein) or of any Subsidiary of the Company (pro rated to the extent
of the Company's interest therein,) (each referred to for purposes of this
definition as a "disposition") by the Company or by any of its Subsidiaries
(other than (i) dispositions by the Company to a Wholly Owned Subsidiary of
the Company or by a Subsidiary of the Company to the Company or to a Wholly
Owned Subsidiary of the Company, (ii) sales or other dispositions of inventory
in the ordinary course of business, (iii) any disposition of properties or as-
sets that is consummated in accordance with the provisions of Section 5.01,
(iv) any disposition of any account receivable pursuant to the Pooling and
Servicing Agreement, (v) dispositions by the Company or any Subsidiary of the
Company of the business, jet product line, the overhaul and repair business,
as conducted by Rohr Aero Services, Inc. and Rohr Aero Services Europe, re-
spectively, on the Issue Date, the Hagerstown, Maryland plant and the Auburn,
Washington plant, in each case, including related assets, (vi) the disposition
by the Company or any Subsidiary of the Company of interests owned on the Is-
sue Date in two trusts which own an Airbus A300 aircraft and a McDonnell Doug-
las DC10 aircraft, respectively and (vii) the disposition of Building 107 (at
the Company's facility in Chula Vista, California) to (a) any pension plan of
the Company or (b) to any other Person if the net proceeds of such disposition
are delivered to any pension plan referred to in clause (a) of this defini-
tion, in either case resulting in the full satisfaction (or in case the full
amount of such net proceeds are so delivered and shall be insufficient to ef-
fect such full satisfaction, the partial satisfaction,) of the Company's fund-
ing liabilities with respect to any such pension plans).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or security, the quotient obtained by dividing (a) the sum of the
product of (i) the number of years from such date to the date of each
2
<PAGE>
successive scheduled principal or redemption payment of such Indebtedness or
security multiplied by (ii) the amount of such principal or redemption payment
by (b) the sum of all such principal or redemption payments.
"Bank Agent" means, at any time, the then-acting agent under the Revolving
Credit Agreement, which shall initially be Citicorp USA, Inc.
"Board of Directors" means the Board of Directors of the Company or any au-
thorized committee of the Board of Directors.
"Capital Stock" means, with respect to any Person, any and all shares, in-
terests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock, including
each class of Common Stock or Preferred Stock of such Person, whether out-
standing on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock (but excluding any debt security that is exchangeable for or convertible
into such capital stock).
"Capitalized Lease Obligation" means any obligation under a lease that is
required to be classified and accounted for as a capital lease obligation un-
der GAAP and, for purposes of this Indenture, the amount of such obligations
at any date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP. The Stated Maturity of such obligation
shall be the date of the last payment of rent or any other amount due under
such lease prior to the first date upon which such lease may be terminated by
the lessee without penalty.
"Cash Equivalents" means (a) marketable direct obligations issued by, or un-
conditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within three years from the date of acquisition thereof,
(b) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public instru-
mentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having a long-term rating of at least
A from either Standard & Poor's Corporation ("S&P") or Moody's Investors Serv-
ice, Inc. ("Moody's") or a short-term rating of at least A-1 from S&P or P-1
from Moody's, (c) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of
at least
3
<PAGE>
A-1 from S&P or at least P-1 from Moody's, (d) certificates of deposit, bank-
ers' acceptances, time deposits, eurocurrency deposits or similar types of in-
vestments routinely offered by commercial banks and maturing within one year
from the date of acquisition thereof issued by any commercial bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any United States branch of a foreign bank having, at
the date of acquisition thereof, combined capital and surplus of not less than
$500 million, (e) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (a) above en-
tered into with any commercial bank meeting the qualifications specified in
clause (d) above or with investment banks reporting to the Market Reports Di-
vision of the Federal Reserve Bank ("FRB") meeting the FRB's capital criteria
and having a long-term rating of at least A from either S&P or Moody's and (f)
investments in money market funds which invest substantially all their assets
in securities of the types described in clauses (a) through (e) above.
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the Board of Directors of the Company): (a)
an event or series of events by which any Person or other entity or group of
Persons or other entities acting in concert as determined in accordance with
Section 13(d) of the Exchange Act, whether or not applicable (a "Group of Per-
sons") shall, as a result of a tender or exchange offer, open market pur-
chases, privately negotiated purchases, merger or otherwise (i) be or become,
directly or indirectly, the beneficial owner (within the meaning of Rule 13d-3
and Rule 13d-5 under the Exchange Act, whether or not applicable) of 50% or
more of the combined voting power of the then outstanding Voting Stock of the
Company or (ii) have or has the ability to elect, directly or indirectly, a
majority of the members of the Board of Directors of the Company or other
equivalent governing body thereof, (b) the stockholders of the Company shall
approve any Plan of Liquidation of the Company (whether or not otherwise in
compliance with the provisions of this Indenture), (c) individuals who at the
beginning of any period of two consecutive calendar years constituted the
Board of Directors of the Company (together with any new directors whose elec-
tion or appointment by the Board of Directors of the Company or whose nomina-
tion for election by the Company's shareholders was approved by a vote of at
least a majority of the members of the Board of Directors of the Company then
still in office who either were members of the Board of Directors of the Com-
pany at the beginning of such period or whose
4
<PAGE>
election, appointment or nomination for election was previously so approved)
cease for any reason to constitute a majority of the members of the Board of
Directors of the Company then in office, or (d) the direct or indirect sale,
lease, exchange or other transfer, in one transaction or a series of related
transactions, of all or substantially all of the property or assets of the
Company to any Person or Group of Persons (whether or not otherwise in compli-
ance with the provisions of this Indenture).
"Commission" means the Securities and Exchange Commission.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether vot-
ing or non-voting) of any Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation,
all series and classes of such common stock.
"Company" means the party named as such above until a successor replaces it
in accordance with Article 5 and thereafter means the successor.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any Per-
son, the ratio of (a) the aggregate amount of EBITDA of such Person for the
four full fiscal quarters ending on or immediately prior to the date of the
transaction (the "Transaction Date") giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period
being referred to herein as the "Four Quarter Period") to (b) the aggregate
Consolidated Fixed Charges of such Person for such Four Quarter Period. For
purposes of this definition, if the Transaction Date occurs prior to the first
anniversary of the Issue Date, EBITDA and Consolidated Fixed Charges shall be
calculated, in the case of the Company, after giving effect on a pro forma ba-
sis as if the issuance of the Senior Notes and the application of the net pro-
ceeds therefrom occurred on the first day of the Four Quarter Period. In addi-
tion to and without limitation of the foregoing, for purposes of this defini-
tion, EBITDA and Consolidated Fixed Charges shall be calculated after giving
effect on a pro forma basis for the period of such calculation to (x) the
incurrence or retirement, as the case may be, of any Indebtedness (including
Acquired Indebtedness) of such Person or of any of its Subsidiaries during the
period commencing on the first day of the Four Quarter Period to and including
the Transaction Date (the "Reference Period"), including, without limitation,
the incurrence of the Indebtedness giving rise to the need to make such calcu-
lation, as if such incurrence or retirement, as the case may be, occurred
5
<PAGE>
on the first day of the Reference Period and (y) the EBITDA attributable to
any Person, business, property or asset acquired or divested during the Refer-
ence Period (provided that with respect to any such acquisition, only to the
extent the EBITDA of such Person is otherwise includible in the referent Per-
son's EBITDA) as if such transaction occurred on the first day of the Refer-
ence Period. Furthermore, in calculating "Consolidated Fixed Charges" for pur-
poses of determining the denominator (but not the numerator) of this "Consoli-
dated Fixed Charge Coverage Ratio," (i) interest on Indebtedness determined on
a fluctuating basis as of the Transaction Date and which will continue to be
so determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date; (ii) if interest on any Indebtedness actually incurred on
the Transaction Date may be optionally determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate or other rates, then the interest rate in effect on the Transaction Date
will be deemed to have been in effect during the entire Reference Period; and
(iii) notwithstanding the foregoing, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by Interest Rate
Protection Agreements, shall be deemed to accrue at the rate per annum result-
ing after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any peri-
od, the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (a) Consolidated Interest Expense and (b) the
product of (i) the amount of all dividend requirements whether in cash or oth-
erwise (except dividends payable in shares of Common Stock) paid, accrued or
scheduled to be paid or accrued during such period multiplied by (ii) a frac-
tion, the numerator of which is one and the denominator of which is one minus
the then current effective consolidated Federal, state, local and foreign tax
rate (expressed as a decimal number between 1 and 0) of such Person (as re-
flected in the audited consolidated financial statements of such Person for
the most recently completed fiscal year).
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense (without deduction of interest
income) of such Person and its Consolidated Subsidiaries for such period, on a
consolidated basis, as determined in accordance with GAAP, including all amor-
tization of original issue discount, the interest component of Capitalized
Lease Obligations, net cash costs under all Interest Rate Protection Agree-
6
<PAGE>
ments (including amortization of fees), all capitalized interest, the interest
portion of any deferred payment obligations for such period and cash contribu-
tions to any employee stock ownership plan to the extent such contributions
are used by such employee stock ownership plan to pay interest or fees to any
Person (other than the referent Person or one of its Wholly Owned Subsidiar-
ies) in connection with loans incurred by such employee stock ownership plan
to purchase capital stock of the referent Person, but net of any amortization
of any debt issuance costs. If the Person for whom this calculation is being
made or any of its Subsidiaries directly or indirectly guarantees Indebtedness
of a third person, the calculation shall give effect to the incurrence of such
guaranteed Indebtedness as if such Person or Subsidiary of such Person had di-
rectly incurred or otherwise assumed such guaranteed Indebtedness as of the
first day of the Reference period.
"Consolidated Net Income" means, with respect to any Person for any period,
the consolidated net income (or deficit) of such Person and its Consolidated
Subsidiaries for such period, on a consolidated basis, as determined in accor-
dance with GAAP consistently applied, provided that the net income of any
other Person (other than a Subsidiary) in which the referent Person or any
Subsidiary of the referent Person has a joint interest with a third party
(which interest does not cause the net income of such other Person to be con-
solidated into the net income of the referent Person in accordance with GAAP)
shall be included only to the extent of the lesser of (a) such net income that
has been actually received by the referent Person or Wholly Owned Subsidiary
of the referent Person in the form of cash dividends or similar cash distribu-
tions (subject to, in the case of a dividend or other distribution to a Wholly
Owned Subsidiary of the referent Person, the limitations set forth in clause
(i)(1) of the next proviso hereof) or (b) the net income of such other Person
(which in no event shall be less than zero); provided further, that there
shall be excluded (i)(1) the net income (but not loss) of any Subsidiary of
the referent Person to the extent that the declaration or payment of dividends
or similar distributions by such Subsidiary is not permitted by operation of
the terms of its charter or any agreement, instrument, judgment, decree, or-
der, statute, rule or governmental regulation applicable to such Subsidiary,
(2) the net income of any Person acquired in a pooling of interests transac-
tion accrued prior to the date it became a Subsidiary of the referent Person,
and (3) all gains and losses resulting from the cumulative effect of any ac-
counting change pursuant to the application of Accounting Principles Board
Opinion No. 20, as amended, or any successor thereto; (ii) any gain (but not
loss), net of any related provisions
7
<PAGE>
for taxes, realized upon the sale or other disposition (including, without
limitation, dispositions pursuant to Sale-Leaseback Financings) of any prop-
erty or assets which are not sold or otherwise disposed of in the ordinary
course of business and upon the sale or other disposition of any Capital Stock
of any Subsidiary of the referent Person; (iii) any gain arising from the ac-
quisition of any securities, or the extinguishment, under GAAP, of any Indebt-
edness of the referent Person; (iv) any extraordinary gain (but not extraordi-
nary loss) net of any related provision for taxes on any such extraordinary
gain; (v) any amounts paid or accrued as dividends on Preferred Stock of such
Person or Preferred Stock of any Subsidiary of such Person; (vi) income or
loss attributable to discontinued operations; and (vii) in the case of a suc-
cessor to the Company by consolidation or merger or as a transferee of the
Company's assets, any earnings of the successor corporation prior to such con-
solidation, merger or transfer of assets.
"Consolidated Net Worth" of a Person at any date means the Consolidated
Stockholders' Equity of such Person less (a) the amount of any gain resulting,
directly or indirectly, from the extinguishment, retirement or repurchase of
any Indebtedness of such Person or of any of its Subsidiaries, (b) any revalu-
ation or other write-ups subsequent to the Issue Date in the book value of any
asset owned by such Person or a Consolidated Subsidiary and (c) any amounts
attributable to the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of Capital Stock of such Person or
of any of its Subsidiaries. Notwithstanding any of the foregoing, net deferred
income tax assets recorded in accordance with Statement of Financial Account-
ing Standards No. 109, Accounting for Income Taxes ("SFAS 109"), shall be cal-
culated without regard to any valuation allowance with respect to such net de-
ferred tax asset recorded by the Company in accordance withSFAS 109.
"Consolidated Stockholders' Equity" as of any date means, with respect to
any Person, the amount by which the assets of such Person and of its Subsidi-
aries on a consolidated basis exceed (a) the total liabilities of such Person
and of its Subsidiaries on a consolidated basis, plus (b) any redeemable Pre-
ferred Stock (including Disqualified Capital Stock) of such Person or any re-
deemable Preferred Stock (including Disqualified Capital Stock) of any Subsid-
iary of such Person issued to any Person other than to such Person or to a
Wholly Owned Subsidiary of such Person, in each case determined in accordance
with GAAP.
8
<PAGE>
"Consolidated Subsidiary" of any Person means a Subsidiary which for finan-
cial reporting purposes is or, in accordance with GAAP, should be, accounted
for by such Person as a consolidated subsidiary.
"Consolidated Tax Expense" means, with respect to any Person for any period,
the aggregate of the U.S. Federal, state and local tax expense attributable to
taxes based on income and foreign income tax expenses of such Person and its
Consolidated Subsidiaries for such period (net of any income tax benefit), de-
termined in accordance with GAAP.
"Convertible Subordinated Notes" means the % Convertible Subordinated
Notes due 2004 of the Company offered concurrently with the Senior Notes.
"Convertible Subordinated Note Indenture" means that certain indenture by
and between the Company and The Bank of New York, as Trustee, governing the
Convertible Subordinated Notes as amended or supplemented from time to time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values to
or under which the Company or any of its Subsidiaries is a party or a benefi-
ciary on the date of this Indenture or becomes a party or a beneficiary there-
after.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default (as defined in Section 6.01).
"Disqualified Capital Stock" means any Capital Stock that, other than solely
at the option of the issuer thereof, by its terms (or by the terms of any se-
curity into which it is convertible or exchangeable) is, or upon the happening
of an event or the passage of time would be, required to be redeemed or repur-
chased, in whole or in part, or has, or upon the happening of an event or the
passage of time would have, a redemption or similar payment due on or prior to
the first anniversary of the Maturity Date of the Senior Notes, or is convert-
ible into or exchangeable for debt securities at the option of the holder
thereof at any time prior to such Maturity Date.
9
<PAGE>
"EBITDA" for any Person means for any period for which it is to be deter-
mined the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (a) Consolidated Net Income of such Person for
such period, plus (b) only to the extent Consolidated Net Income has been re-
duced thereby, (i) Consolidated Tax Expense of such Person paid or accrued in
accordance with GAAP for such period, (ii) Consolidated Interest Expense of
such Person for such period, (iii) depreciation and amortization expenses (in-
cluding, without limitation, amortization of capitalized debt issuance costs)
of such Person and its Consolidated Subsidiaries for such period; all as de-
termined on a consolidated basis in conformity with GAAP consistent with those
principles applied in the preparation of the audited financial state ments of
such Person and its Consolidated Subsidiaries on the Issue Date; provided that
if a Person has any Subsidiary that is not a Wholly Owned Subsidiary, EBITDA
of such Person shall be reduced by an amount equal to (1) the Consolidated Net
Income of such Subsidiary for such period multiplied by (2) the quotient of
(A) the number of shares of outstanding Common Stock of such Subsidiary not
owned on the last day of such period by such Person or by any Wholly Owned
Subsidiary of such Person that is not subject to any encumbrance or restric-
tion on the payment of dividends to such Person divided by (B) the total num-
ber of shares of outstanding Common Stock of such Subsidiary on the last day
of such period.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" has the meaning set forth in the definition of Per-
mitted Refinancing Indebtedness.
"Fair Market Value" or "fair value" means, with respect to any asset or
property or Capital Stock, the price which could be negotiated in an arm's-
length, free market transaction, for cash, between an informed and willing
seller and an informed, willing and able buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined by the Board of Directors of the Company acting reasonably and in
good faith and shall be evidenced by a written resolution of said Board of Di-
rectors (certified by the Secretary or Assistant Secretary of the Company) de-
livered to the Trustee, provided that if the aggregate non-cash consideration
to be received by the Company or any of its Subsidiaries from any Asset Sale
shall exceed $10,000,000, then Fair Market Value shall be determined by an In-
dependent Financial Advisor.
10
<PAGE>
"GAAP" means generally accepted accounting principles set forth in the opin-
ions and pronouncements of the Accounting Principles Board of the American In-
stitute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), as-
sume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise,
of any such Indebtedness or other obligation on the balance sheet of such Per-
son (and "incurrence," "incurred," "incurable" and "incurring" shall have
meanings correlative to the foregoing), provided that the accrual of interest
(whether such interest is payable in cash or in kind) and the accretion of
original issue discount shall not be deemed an incurrence of Indebtedness,
provided, further, that (a) any Indebtedness or Disqualified Capital Stock of
a Person existing at the time such Person becomes (after the Issue Date) a
Subsidiary (whether by merger, consolidation, acquisition or otherwise) of the
Company shall be deemed to be incurred by such Subsidiary at the time it be-
comes a Subsidiary of the Company and (b) any amendment, modification or
waiver of any document pursuant to which Indebtedness was previously incurred
shall be deemed to be an incurrence of Indebtedness unless such amendment,
modification or waiver does not (i) increase the principal or premium thereof
or interest rate thereon (including by way of original issue discount), (ii)
change to an earlier date the Stated Maturity thereof or the date of any
scheduled or required principal payment thereon or the time or circumstances
under which such Indebtedness may or shall be redeemed, (iii) if such Indebt-
edness is subordinated to the Senior Notes, modify or affect, in any manner
adverse to the holders such subordination, (iv) if the Company is the obligor
thereon, provide that a Subsidiary of the Company not already an obligor
thereon shall be an obligor thereon or (v) violate, or cause the Indebtedness
to violate, the provisions described under Sections 4.07 and 4.11 of this In-
denture.
"Indebtedness" means, with respect to any Person, at any date, any of the
following, without duplication, (a) any liability, contingent or otherwise, of
such Person (i) for borrowed money (whether or not the recourse of the
11
<PAGE>
lender is to the whole of the assets of such Person or only to a portion
thereof) (ii) evidenced by a note, bond, debenture or similar instrument or
(iii) for the payment of money relating to a Capitalized Lease Obligation or
other obligation (whether issued or assumed) relating to the deferred purchase
price of property but excluding advances, deposits, partial and progress pay-
ments, unpaid wages and related employee obligations, trade accounts payable
and accrued liabilities in each case arising in the ordinary course of busi-
ness that are not overdue by 180 days or more or are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted;
(b) all conditional sale obligations and all obligations under any title re-
tention agreement (even if the rights and remedies of the seller under such
agreement in the event of default are limited to repossession or sale of such
property); (c) reimbursement obligations of such Person with respect to let-
ters of credit and all obligations of such Person in respect of any banker's
acceptance or similar credit transaction entered into in the ordinary course
of business; (d) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on any asset or property (including, without limita-
tion, leasehold interests and any other tangible or intangible property) of
such Person, whether or not such Indebtedness is assumed by such Person or is
not otherwise such Person's legal liability, provided that if the obligations
so secured have not been assumed in full by such Person or are otherwise not
such Person's legal liability in full, the amount of such Indebtedness for the
purposes of this definition shall be limited to the lesser of the amount of
such Indebtedness secured by such Lien or the Fair Market Value of the assets
or property securing such Lien; (e) all Indebtedness of others guaranteed (in-
cluding all dividends of other Persons the payment of which is guaranteed),
directly or indirectly, by such Person or that is otherwise its legal liabil-
ity or which such Person has agreed to purchase or repurchase or in respect of
which such Person has agreed contingently to supply or advance funds; (f) all
Disqualified Capital Stock issued by such Person (other than such Disqualified
Capital Stock owned by the referent Person or by any Wholly Owned Subsidiary
of the referent Person, provided that if any Wholly Owned Subsidiary of the
referent Person shall cease to be a Wholly Owned Subsidiary of the referent
Person or shall transfer such Disqualified Capital Stock (other than to the
referent Person or another Wholly Owned Subsidiary of the referent Person) the
date on which such Wholly Owned Subsidiary so ceases to be a Wholly Owned Sub-
sidiary of the referent Person or so transfers such Disqualified Capital Stock
shall be deemed to be
12
<PAGE>
the issuance of such Disqualified Capital Stock by the Subsidiary issuer
thereof) with the amount of Indebtedness represented by such Disqualified Cap-
ital Stock being equal to the greater of its voluntary or involuntary liquida-
tion preference and its maximum fixed repurchase price, but excluding accrued
dividends if any; and (g) all obligations under Currency Agreements and Inter-
est Rate Protection Agreements. For purposes hereof, the "maximum fixed repur-
chase price" of any Disqualified Capital Stock which does not have a fixed re-
purchase price shall be calculated in accordance with the terms of such Dis-
qualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant
to this Indenture. The amount of Indebtedness of any Person at any date shall
be the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the contin-
gency giving rise to the obligation, of any contingent obligations at such
date, provided that the amount outstanding at any time of any Indebtedness is-
sued with original issue discount is the full amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such In-
debtedness at such time as determined in conformity with GAAP.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable and
good faith judgment of the Board of Directors of the Company, qualified to
perform the task for which such firm has been engaged and disinterested and
independent with respect to the Company and its Affiliates.
"Interest Rate Protection Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement, in-
terest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or ar-
rangement designed to protect a Person or any of its Subsidiaries against
fluctuations in interest rates to or under which such Person or any of its
Subsidiaries is a party or a beneficiary on the Issue Date or becomes a party
or a beneficiary thereafter.
"Investment" by any Person means (a) any direct or indirect loan, advance or
other extension of credit or capital contribution to (by means of transfers of
cash or other property (valued at the Fair Market Value thereof
13
<PAGE>
as of the date of transfer) to others or payments for property or services for
the account or use of others, or otherwise), (b) any direct or indirect pur-
chase or acquisition of Capital Stock, bonds, notes, debentures or other secu-
rities or evidences of Indebtedness issued by any other Person (whether by
merger, consolidation, amalgamation or otherwise and whether or not purchased
directly from the issuer of such securities or evidences of Indebtedness), (c)
any direct or indirect guarantee or assumption of the Indebtedness of any
other Person, and (d) all other items that would be classified as investments
(including, without limitation, purchases of assets outside the ordinary
course of business) on a balance sheet of such Person prepared in accordance
with GAAP. The amount of any Investment shall be the original cost of such In-
vestment plus the cost of all additions thereto, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Issue Date" means the date on which the Senior Notes are originally issued
under this Indenture.
"Lien" means, with respect to any Person, any mortgage, pledge, lien, encum-
brance, easement, restriction, covenant, right-of-way, charge or adverse claim
affecting title or resulting in an encumbrance against real or personal prop-
erty of such Person, or a security interest of any kind (including any condi-
tional sale or other title retention agreement, any lease in the nature there-
of, including any sale and leaseback transaction, any option or other similar
agreement to sell, in each case securing obligations of such Person and any
filing of or agreement to give any financing statement under the Uniform Com-
mercial Code (or equivalent statute or statutes) of any jurisdiction other
than to reflect ownership by a third party of property leased to the referent
Person or any of its Subsidiaries under a lease that is not in the nature of a
conditional sale or title retention agreement).
"Material Subsidiary" means, at any date of determination, any Subsidiary of
the Company that, together with its Subsidiaries, (i) for the most recent fis-
cal year of the Company accounted for more than 5% of the consolidated reve-
nues of the Company or (ii) as of the end of such fiscal year, was the owner
of more than 5% of the consolidated assets of the Company, all as set forth on
the most recently available consolidated financial statements of the Company
and its consolidated Subsidiaries for such fiscal year prepared in conformity
with generally accepted accounting principles as then in effect.
14
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"Maturity Date" means [ ], 2003.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Subsidiary of the Company) and
proceeds from the conversion of other property received when converted to cash
or Cash Equivalents, net of (a) reasonable third-party brokerage commissions
and other reasonable third-party fees and expenses (including fees and ex-
penses of counsel and investment bankers) related to such Asset Sale, (b) pro-
visions for all taxes as a result of such Asset Sale computed on a consoli-
dated basis reflecting the consolidated results of operations of the Company
and its Subsidiaries, taken as a whole, (c) payments made to repay Indebted-
ness or any other obligation outstanding at the time of such Asset Sale that
was incurred in accordance with this Indenture and that either (i) is secured
by a Lien incurred in accordance with this Indenture on the property or assets
sold or (ii) is required to be paid as a result of such sale in each case to
the extent actually repaid in cash and (d) appropriate amounts to be provided
by the Company or any Subsidiary of the Company as a reserve against liabili-
ties associated with such Asset Sale, including without limitation pension and
other post-employment benefit liabilities, liabilities related to environmen-
tal matters and liabilities under any indemnification obligations associated
with such Asset Sale, all as determined in conformity with generally accepting
accounting principles as then in effect. For purposes of this definition and
Section 4.10, "cash" means U.S. dollars or such money as is freely and readily
convertible into U.S. dollars.
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net proceeds received by
the Company, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in other property
(valued as determined reasonably and in good faith by the Board of Directors
of the Company, as evidenced by a written resolution of said Board of Direc-
tors, at the Fair Market Value thereof at the time of receipt) and (b) in the
case of any exchange, exercise, conversion or surrender of any outstanding In-
debtedness of the Company or any Subsidiary for or into shares of Qualified
Capital Stock of the Company, the amount of such Indebtedness (or,
15
<PAGE>
if such Indebtedness was issued at an amount less than the stated principal
amount thereof, the accrued amount thereof as determined in accordance with
generally accepted accounting principles as then in effect) as reflected in
the consolidated financial statements of the Company prepared in accordance
with generally accepted accounting principles as then in effect as of the most
recent date next preceding the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder of
such Indebtedness of the Company or to any wholly owned Subsidiary of the Com-
pany upon such exchange, exercise, conversion or surrender) and less any and
all payments made to the holders of such Indebtedness, and all other expenses
incurred by the Company in connection therewith, in the case of each of
clauses (a) and (b) to the extent consummated after the Issue Date, provided
that the exchange exercise, conversion or surrender of any Indebtedness out-
standing on the Issue Date, including the Convertible Subordinated Notes,
which is subordinated (whether pursuant to its terms or by operation of law)
to the Senior Notes shall not be or be deemed to be included in Net Equity
Proceeds.
"New Indebtedness" has the meaning set forth in the definition of Permitted
Refinancing Indebtedness.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Financial Officer, the Chief Accounting Officer, any Ex-
ecutive Vice President, Senior Vice President or Vice President, the Treasur-
er, any other executive officer, the Secretary and any Assistant Treasurer or
any Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers, one of
whom must be the principal executive officer, principal financial officer, the
treasurer or principal accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is rea-
sonably acceptable to the Trustee. The counsel may be an employee of or coun-
sel to the Company or the Trustee except to the extent otherwise indicated in
this Indenture.
"Pari Passu Indebtedness" means the Senior Notes and any Indebtedness under
the Company's Revolving Credit Agreement, its 9.33% Senior Notes due 2002, its
9.35% Senior Notes due 2000, and any other Indebtedness per-
16
<PAGE>
mitted under this Indenture which is pari passu in right of payment with the
Senior Notes.
"Permitted Indebtedness" means, without duplication, (a) Indebtedness of the
Company and its Subsidiaries remaining outstanding immediately after the Issue
Date after giving effect to the consummation of the transactions described in
the Prospectus under "Use of Proceeds"; (b) $110 million of Indebtedness of
the Company evidenced by or arising under the Revolving Credit Agreement; (c)
Indebtedness of the Company evidenced by or arising under the Senior Notes and
this Indenture; (d) Permitted Refinancing Indebtedness incurred by the Company
or by any of its Subsidiaries; (e) unsecured Indebtedness of the Company to a
Wholly Owned Subsidiary of the Company, provided that (i) any Indebtedness of
the Company to a Wholly Owned Subsidiary of the Company shall be evidenced by
an intercompany promissory note that is subordinated in right of payment to
the payment and performance of the Company's obligations under this Indenture
and the Senior Notes, and (ii) any subsequent issuance or transfer of Capital
Stock of a Wholly Owned Subsidiary of the Company (the "Creditor Subsidiary")
that results in such Creditor Subsidiary ceasing to be a Wholly Owned Subsidi-
ary of the Company or any subsequent transfer of Indebtedness owing from the
Company to such Creditor Subsidiary (other than a transfer to another Wholly
Owned Subsidiary of the Company) shall be deemed in each case to constitute
the incurrence of Indebtedness by the Company to the extent of any such In-
debtedness then outstanding; (f) Indebtedness of the Company in an aggregate
principal amount not to exceed, when added to Indebtedness and Preferred Stock
of Subsidiaries of the Company incurred under clause (d) of Section 4.09 here-
of, 10% of Consolidated Net Worth of the Company, provided, however, that no
Default or Event of Default shall have occurred and be continuing at the time
of or as a consequence of the incurrence of such Indebtedness; and (g) Indebt
edness (1) of the Company or of any Subsidiary of the Company in respect of
bankers' acceptances provided in the ordinary course of business, (2) of the
Company under Currency Agreements and Interest Rate Protection Agreements
which are entered into for the purpose of protection against risk of currency
or interest rate fluctuations affecting the Company or any of its Subsidiaries
in the ordinary course of business that are related to payment obligations of
the Company or any of its Subsidiaries otherwise permitted under this Inden-
ture, provided that in the case of Currency Agreements or Interest Rate Pro-
tection Agreements that relate to other Indebtedness, such
17
<PAGE>
Currency Agreements or Interest Rate Protection Agreements do not increase the
obligations of the Company outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates, as applica-
ble, or by reason of fees, indemnities and compensation payable thereunder and
(3) of the Company or any of the Subsidiaries of the Company in respect of
letters of credit issued in connection with self-insurance and reinsurance ob-
ligations incurred in the ordinary course of business, provided that the total
amount of outstanding Indebtedness incurred under this clause (3), other than
in connection with workers' compensation, unemployment insurance and other so-
cial security obligations, shall not exceed $9 million at any one time.
"Permitted Investments" means (a) investments held in the form of cash and
Cash Equivalents; (b) Investments in any Wholly Owned Subsidiary (or any Per-
son which will, upon the making of such Investment, become a Wholly Owned Sub-
sidiary) of the Company by the Company or by any other Wholly Owned Subsidiary
of the Company, provided that (i) any Indebtedness evidencing an Investment in
a Wholly Owned Subsidiary of the Company shall not be subordinated or junior
to any other Indebtedness or other obligation of such Wholly Owned Subsidiary
and (ii) such Investment shall only be a Permitted Investment so long as any
such Wholly Owned Subsidiary in which the Investment has been made or which
has made such Investment remains a Wholly Owned Subsidiary of the Company; (c)
Investments made after the Issue Date, not exceeding $15 million at any one
time in excess of Investments made as Restricted Payments, in joint ventures,
partnerships or Persons that are not Wholly Owned Subsidiaries of the Company
that are made solely for the purpose of acquiring or furthering businesses re-
lated to the Company's business; (d) Investments of the Company and its Sub-
sidiaries arising as a result of any Asset Sale otherwise complying with the
terms of this Indenture, provided that for each Asset Sale the maximum aggre-
gate amount of Investments permitted under this clause (d) shall not exceed
20% of the total consideration received for such Asset Sale by the Company or
any Subsidiary of the Company; (e) Investments in the Company by any Subsidi-
ary of the Company, provided that any Indebtedness evidencing such Investment
is subordinated to the Senior Notes; (f) Investments of the Company and its
Subsidiaries in the form of promissory notes or deferred payment obligations
as a result of the sale of the Company's business jet product line or its Ha-
gerstown, Maryland plant; provided that the aggregate amount of such non-cash
consideration does not exceed $15 million; (g) Investments arising from, or of
the type contemplated
18
<PAGE>
by, the Company's Pooling and Servicing Agreement as in effect on the Issue
Date; (h) Investments received in connection with the bona fide settlement of
legal proceedings or other disputed obligations arising in the ordinary course
of business; (i) loans, advances or other extensions of credit to actual or
potential customers or suppliers that are made as part of the purchase or sale
of goods or services by the Company or any of its Subsidiaries, as made from
time to time by the Company or any Subsidiary in the ordinary course of busi-
ness and consistent with practices in the industry of the Company; and (j)
other Investments made after the Issue Date in the ordinary course of business
of the Company not to exceed $10 million at any one time.
"Permitted Liens" means, without duplication, (a) Liens for taxes, assess-
ments and governmental charges or levies (other than any Lien imposed by the
Employee Retirement Income Security Act of 1974, as amended) that are not yet
subject to penalties for non-payment or are being contested in good faith by
appropriate proceedings and for which adequate reserves, if required, have
been established or other provisions have been made in accordance with GAAP;
(b) statutory mechanics', workmen's, materialmen's, operators',
warehousemen's, repairmen's, and bankers' liens, and similar Liens imposed by
law and arising in the ordinary course of business for sums which are not
overdue by more than 15 days, or if so overdue, are being contested in good
faith by appropriate proceedings and for which adequate reserves, if required,
have been established or other provisions have been made in accordance with
GAAP; (c) minor imperfections of, or encumbrances on, title that do not impair
the value of property for its intended use; (d) Liens (other than any Lien un-
der the Employee Retirement Income Security Act of 1974, as amended) incurred
or deposits made in the ordinary course of business in connection with (or
made to secure reinsurance obligations of the Company or any of its Subsidiar-
ies incurred in connection with its or their obligations with respect to)
workers' compensation, unemployment insurance and other types of social secu-
rity; (e) Liens incurred or deposits made to secure the performance of ten-
ders, bids, leases, statutory or regulatory obligations, bankers' acceptances,
surety and appeal bonds, government contracts, performance and return of money
bonds and other obligations of a similar nature incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed mon-
ey); (f) easements, rights-of-way, municipal and zoning ordinances and similar
charges, encumbrances, title defects or other irregularities that do not mate-
rially interfere with the ordinary course of business of the Company or of any
19
<PAGE>
of its Subsidiaries; (g) Liens (including extensions and renewals thereof)
upon real or tangible personal property acquired after the Issue Date, pro-
vided that (1) any such Lien is created solely for the purpose of securing In-
debtedness (other than Permitted Indebtedness) (A) that is incurred in accor-
dance with Section 4.05 or 4.09 to finance the cost (including the cost of im-
provement or construction) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within 365 days after the
later of the acquisition, the completion of construction or the commencement
of full operation of such property or (B) that is Permitted Refinancing In-
debtedness to Refinance any Indebtedness previously so secured, (2) the prin-
cipal amount of the Indebtedness secured by any such Lien does not exceed 100%
of such cost and (3) any such Lien shall not extend to or cover any property
or assets of the Company or of any of its Subsidiaries other than such item of
property or assets and any improvements on such item; (h) leases or subleases
granted to others that do not materially interfere with the ordinary course of
business of the Company or of any of its Subsidiaries; (i) Liens encumbering
property or assets to secure repayment of advances, deposits or progress or
partial payments by a customer of the Company or of any of its Subsidiaries
relating to such property or assets; (j) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (k) Liens in favor of
the Company or any Wholly Owned Subsidiary of the Company; (l) Liens secured
by real property or other assets of the Company or of any Subsidiary of the
Company in connection with the financing of industrial revenue and similar
bond facilities and related obligations or of any equipment or other property
designed primarily for the purpose of air or water pollution control, provided
that any such Lien on such facilities, equipment or other property shall not
apply to any other property or assets of the Company or of such Subsidiary of
the Company; (m) Liens arising from the rendering of a final judgment or order
against the Company or any Subsidiary of the Company that does not give rise
to an Event of Default; (n) Liens securing reimbursement obligations with re-
spect to letters of credit incurred in accordance with this Indenture that en-
cumber documents and other property relating to such letters of credit and the
products and proceeds thereof; (o) Liens in favor of customs and revenue au-
thorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (p) Liens encumbering customary ini-
tial deposits and margin deposits, and other Liens that are within the general
parameters customary in the industry and incurred in the ordinary course of
business securing Indebtedness under Interest Rate Protection Agreements
20
<PAGE>
and Currency Agreements and forward contracts, options, futures contracts,
futures options or fluctuations in the price of commodities; (q) Liens on
sales of receivables; (r) Liens in favor of the Trustee arising under this In-
denture; (s) Liens incurred or deposits made in the ordinary course of busi-
ness to secure up to $9 million of self-insurance and reinsurance obligations,
other than obligations related to workers' compensation, unemployment insur-
ance and other types of social security; and (t) deposits made to secure pro-
curement credit card obligations arising from miscellaneous, non-repetitive
purchases of supplies and services in the ordinary course of business, with no
such purchase to exceed $5,000.
"Permitted Payments" means, so long as no Default or Event of Default shall
have occurred and be continuing or would result as a consequence thereof, (a)
the prepayment, acquisition, retirement or decrease of Indebtedness of the
Company that is subordinated (whether pursuant to its terms or by operation of
law) to the Senior Notes that is prepaid, acquired, decreased or retired (i)
by conversion into or in exchange for Qualified Capital Stock of the Company
or (ii) in exchange for or with or out of the net cash proceeds of the sub-
stantially concurrent sale (other than by the Company to a Subsidiary of the
Company) of Permitted Refinancing Indebtedness (b) payroll, travel, relocation
and similar advances to employees of the Company or any Subsidiaries in the
ordinary course of the Company's business; (c) loans to employees (other than
travel advances) not to exceed $500,000 in the aggregate at any one time out-
standing; (d) any purchases, redemptions, acquisitions, cancellations or other
retirement for value of shares of Capital Stock of the Company or of any Sub-
sidiary of the Company, options on any such shares or related stock apprecia-
tion rights or similar securities held by officers, directors or employees or
former officers or employees (or their estates or beneficiaries under their
estates) and which were issued pursuant to any stock option plan (or other di-
rector officer or employee benefit plan or agreement), upon death, disability,
retirement, termination of employment or pursuant to the terms of such plan or
agreement and which in the aggregate do not exceed $1,000,000 in any fiscal
year; (e) the purchase at a price of not more than $.05 per right of any
rights issued or issuable pursuant to currently existing or future rights
plans of the Company, provided that such purchase shall not exceed $3 million
in the aggregate; or (f) the retirement of shares of the Company's Capital
Stock in exchange for or out of the proceeds of a substantially concurrent
sale (other than a sale to a Subsidiary of the Company) of other shares of its
Capital Stock (other than Disqualified Capital Stock).
21
<PAGE>
"Permitted Program Investment" means an investment in design, engineering,
tooling or similar costs related to a program undertaken by the Company in the
ordinary course of its business.
"Permitted Refinancing Indebtedness" means Indebtedness of the Company or of
any of the Company's Subsidiaries or Preferred Stock of a Subsidiary of the
Company, the net proceeds of which are used to Refinance outstanding Indebted-
ness of the Company or of any of the Company's Subsidiaries that was outstand-
ing as of the Issue Date or incurred in accordance with this Indenture or Pre-
ferred Stock of a Subsidiary of the Company that was out standing as of the
Issue Date or issued in accordance with this Indenture, provided that (a) if
the Indebtedness (including the Senior Notes) being Refinanced (the "Existing
Indebtedness") is pari passu with or subordinated to the Senior Notes, then
any Indebtedness Refinancing of the Existing Indebtedness (the "New Indebted-
ness") shall be pari passu with or subordinated to, as the case may be, the
Senior Notes, at least to the same extent and in the same manner as the Exist-
ing Indebtedness is to the Senior Notes, (b) such New Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the Existing Indebted-
ness, (c) such New Indebtedness has an Average Life at the time such New In-
debtedness is incurred that is equal to or greater than the Average Life of
the Existing Indebtedness as of the date of such Refinancing, (d) such New In-
debtedness is in an aggregate principal amount (or, if such New Indebtedness
is issued at a price less than the principal amount thereof, the aggregate
amount of gross proceeds therefrom is) not in excess of the aggregate princi-
pal amount outstanding under the Existing Indebtedness on the date of the pro-
posed Refinancing thereof (or if the Existing Indebtedness was issued at a
price less than the principal amount thereof, then not in excess of the amount
of liability in respect thereof determined in accordance with GAAP as of the
date of such proposed Refinancing), (e) with respect to such Preferred Stock
of the Company's Subsidiaries, Preferred Stock issued in exchange for or the
proceeds of which are used to Refinance such existing Preferred Stock of a
Subsidiary ("New Preferred Stock") shall have (i) a Stated Maturity no earlier
than the Stated Maturity of the Preferred Stock being exchanged or Refinanced,
(ii) an Average Life at the time such New Preferred Stock is proposed to be
incurred that is equal to or greater than the Average Life of the Preferred
Stock to be exchanged or Refinanced as of the date of such proposed exchange
or Refinancing and (iii) a liquidation value no greater than the liquidation
value of the Preferred Stock to be exchanged or Refi-
22
<PAGE>
nanced as of the date of such proposed exchange or Refinancing and (f) if such
Existing Indebtedness is Indebtedness solely of the Company, such New Indebt-
edness will only be permitted if it is Indebtedness solely of the Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or po-
litical subdivision thereof.
"Plan of Liquidation" means a plan (including by operation of law) that pro-
vides for, contemplates or the effectuation of which is preceded or accompa-
nied by (whether or not substantially contemporaneously) (a) the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
the Company otherwise than as an entirety or substantially as an entirety and
(b) the distribution of all or substantially all of the proceeds of such sale,
lease, conveyance or other disposition and all or substantially all of the re-
maining assets of the Company to holders of Capital Stock of the Company.
"Pooling and Servicing Agreement" means the Pooling and Servicing Agreement
dated as of December 23, 1992, among the Company, the Company's Wholly Owned
Subsidiary RI Receivables, Inc. and Bankers Trust Company, as trustee on be-
half of the Certificateholders (as defined therein), and related documentation
and any extension, renewal, modification, restatement or replacement thereof
(in whole or in part), as the same may be amended, supplemented or otherwise
modified from time to time, provided, however, the investors in any such re-
ceivables program shall not obtain an interest in receivables sold under such
program which exceeds $70 million in aggregate principal amount at any one
time.
"Preferred Stock" means the Capital Stock of any Person (other than the Com-
mon Stock of such Person) of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of as-
sets upon any voluntary or involuntary liquidation, dissolution or winding-up
of such Person, to shares of Capital Stock of any other class of such Person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of this Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act.
"Prospectus" means the Company's final prospectus dated , 1994 in respect of
the public offering of the Senior Notes.
23
<PAGE>
"Qualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that is not Disqualified Capital Stock or convertible
into or exchangeable or exercisable for Disqualified Capital Stock and in-
cludes rights and other securities issuable under the Company's Amended and
Restated Rights Agreement, dated as of April 6, 1990, between the Company and
The First National Bank of Chicago, as Rights Agent, as such agreement may be
amended or supplemented from time to time.
"redemption date" when used with respect to any of the Senior Notes to be
redeemed, means the date fixed by the Company for such redemption pursuant to
this Indenture and the Senior Notes.
"redemption price" when used with respect to any of the Senior Notes to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Senior Notes.
"Reference Period" has the meaning set forth in the definition of "Consoli-
dated Fixed Charge Coverage Ratio."
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or In-
debtedness in whole or in part. "Refinanced" and "Refinancing" shall have cor-
relative meanings.
"Restricted Payment" means (a) the declaration or payment of any dividend or
the making of any other distribution, including any dividend or distribution
made in connection with the merger or consolidation of the Company (whether in
any such case in cash, securities or other property or assets of the Company
or of any of its Subsidiaries), on the Company's or any of its Subsidiaries'
Capital Stock, or to the holders of the Company's or any of its Subsidiaries'
Capital Stock, whether outstanding on the Issue Date or thereafter (other than
dividends or distributions payable solely in Qualified Capital Stock of the
Company or of such Subsidiary (subject to the last paragraph of Section 4.06)
and other than any dividend or distribution declared or paid by any Wholly
Owned Subsidiary of the Company); (b) the making of any Investment by the Com-
pany or any of its Subsidiaries in any Person other than Permitted Invest-
ments; (c) any purchase, redemption, retirement or other acquisition for value
by the Company or any Subsidiary of any Capital Stock of the Company or of any
of its Subsidiaries or of any Affiliate of the Company
24
<PAGE>
or any other securities of a direct or indirect parent of the Company, whether
outstanding on the Issue Date or thereafter, or any warrants, rights or op-
tions to purchase or acquire shares of the Capital Stock of the Company or of
any of its Subsidiaries or of any Affiliate of the Company, whether outstand-
ing on the Issue Date or thereafter, held by any Person other than the Company
or one of its Wholly Owned Subsidiaries, other than through the issuance in
exchange therefor solely of Qualified Capital Stock of the Company or of such
Subsidiary; or (d) the prepayment, acquisition, decrease or retirement for
value prior to maturity, scheduled repayment or scheduled sinking fund payment
of any Indebtedness of the Company that is subordinated (whether pursuant to
its terms or by operation of law) to the Senior Notes, in each case to the ex-
tent not contained within the definition of "Permitted Payments". The dollar
amount of any non-cash dividend or distribution by the Company or any of its
Subsidiaries on the Company's or any Subsidiary's Capital Stock shall be equal
to the Fair Market Value of such dividend or distribution at the time of such
dividend or distribution.
"Revolving Credit Agreement" means the Credit Agreement dated as of April
26, 1989, among the Company, the lenders party thereto, and the Bank Agent,
and any agreement governing Indebtedness incurred to refund or Refinance the
borrowings, letters of credit and commitments then outstanding or permitted to
be outstanding under the Revolving Credit Agreement, in each case together
with the related notes and any other instruments and agreements executed from
time to time in connection therewith, and in each case as amended, modified,
supplemented, extended, renewed, restated, refunded, replaced or refinanced
(in whole or in party, and without limitation as to amount, terms, conditions,
covenants and other provisions) from time to time.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Notes" means the Senior Notes issued under this Indenture.
"Stated Maturity" means, with respect to any security or Indebtedness, the
date specified therein as the fixed date on which any principal of such secu-
rity or Indebtedness is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
thereof at the option of the holder thereof).
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<PAGE>
A "Subsidiary" of a Person means (a) a corporation a majority of whose Vot-
ing Stock is at the time, directly or indirectly, owned by such Person, by one
or more Subsidiaries of such Person or by such Person and one or more Subsidi-
aries of such Person or (b) any other Person (other than a corporation) in
which such Person, one or more Subsidiaries of such Person or such Person and
one or more Subsidiaries of such Person, directly or indirectly, at the date
of determination thereof, have (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of the directors or other gov-
erning body of such Person.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ((S))((S)) 77aaa-
77-bbbb) as in effect on the date of execution of this Indenture, except as
provided in Section 9.03.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor.
"Trust Officer" means any officer within the Corporate Trust & Agencies Ad-
ministration Department (or any successor department) of the Trustee, includ-
ing any vice president, assistant vice president, assistant secretary, direc-
tor or associate director; any other officer of the Trustee customarily per-
forming functions similar to those performed by any officer of the Corporate
Trust & Agencies Administration Department; and any other officer of the
Trustee to whom any corporate trust matter is referred because of such per-
son's knowledge of and familiarity with the particular subject.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock of such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the board of
directors or other governing body of such Person.
"Wholly Owned Subsidiary" means, with respect to any Person, any Subsidiary
of such Person all the outstanding shares of Capital Stock (other than direc-
tors' qualifying shares, if applicable) of which are owned directly by such
Person or another Wholly Owned Subsidiary of such Person.
26
<PAGE>
Section 1.02 Other Definitions.
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
- ---- ----------
<S> <C>
"Affiliate Transaction".............................................. 4.08
"Asset Sale Offer"................................................... 4.10
"Asset Sale Offer Amount"............................................ 4.10
"Asset Sale Offer Payment Date"...................................... 4.10
"Asset Sale Offer Termination Date".................................. 4.10
"Asset Sale Offer Trigger Date"...................................... 4.10
"Bankruptcy Law"..................................................... 6.01
"Business Day"....................................................... 10.07
"Change of Control Date"............................................. 4.16
"Change of Control Offer"............................................ 4.16
"Change of Control Offer Payment Date"............................... 4.16
"Change of Control Offer Termination Date"........................... 4.16
"Custodian".......................................................... 6.01
"Event of Default"................................................... 6.01
"Legal Holiday"...................................................... 10.07
"Paying Agent"....................................................... 2.03
"Registrar".......................................................... 2.03
"United States Government Obligations"............................... 8.01
</TABLE>
Section 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the Commission;
"indenture securities" means the Senior Notes;
"indenture security holder" means a holder of a Senior Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Senior Notes means the Company or any other obligor on
the Senior Notes.
All other terms in this Indenture that are defined by the TIA, defined by
TIA reference to another statute or defined by Commission rule under the TIA
have the meanings so assigned to them.
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Section 1.04 Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural include
the singular; and
(e) the male, female and neuter genders include one another.
ARTICLE 2
The Senior Notes
Section 2.01 Form and Dating.
The Senior Notes and the Trustee's certificate of authentication relating
thereto shall be substantially in the form set forth in Exhibit A, which is
part of this Indenture, with such appropriate insertions, omissions, substitu-
tions and other variations as are required or permitted by this Indenture. The
Senior Notes may have notations, legends or endorsements required by law,
stock exchange rule or usage. The Company shall approve the form of the Senior
Notes and any notation, legend or endorsement on them. Each Senior Note shall
be dated the date of its authentication.
The terms and provisions contained in the Senior Notes shall constitute, and
are hereby expressly made, a part of this Indenture and, to the extent appli-
cable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound there-
by.
Section 2.02 Execution and Authentication.
Two Officers shall sign the Senior Notes for the Company by manual or fac-
simile signature. The Company's seal shall be reproduced on the Senior Notes.
If an Officer whose signature is on a Senior Note no longer holds that of-
fice at the time the Senior Note is authenticated, the Senior Note shall nev-
ertheless be valid.
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<PAGE>
A Senior Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Senior
Note has been authenticated under this Indenture.
Upon a written order of the Company signed by an Officer of the Company, the
Trustee shall authenticate Senior Notes for original issue up to the aggregate
principal amount stated in paragraph 4 of the Senior Notes. The aggregate
principal amount of Senior Notes outstanding at any time may not exceed that
amount except as provided in Section 2.07.
The Senior Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 or any integral multiple thereof.
The Trustee may appoint an authenticating agent acceptable to the Company to
authenticate Senior Notes. An authenticating agent may authenticate Senior
Notes whenever the Trustee may do so. Each reference in this Indenture to au-
thentication by the Trustee includes authentication by such agent. An authen-
ticating agent has the same right as an Agent to deal with the Company or an
Affiliate of the Company.
Section 2.03 Registrar and Paying Agent.
The Company shall maintain or cause to be maintained in the Borough of Man-
hattan, New York, New York (the "New York Office"), and in such other loca-
tions as it shall determine, an office or agency: (a) where securities may be
presented for registration of transfer or for exchange ("Registrar"); (b)
where Senior Notes may be presented for payment ("Paying Agent"); and (c)
where notices and demand to or upon the Company in respect of Senior Notes and
this Indenture may be served by the holders of Senior Notes. The Registrar
shall keep a register of the Senior Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Paying Agent" includes any additional paying agent.
The Company may change any Paying Agent, Registrar or co-registrar without
prior notice. The Company shall notify the Trustee of the name and address of
any Agent not a party to this Indenture and shall enter into an appropriate
agency agreement with any Registrar, Paying Agent or co-registrar not a party
to this Indenture. The agreement shall implement the provisions of this Inden-
ture that relate to such Agent. The Company or any of its Subsidiaries may act
as Paying Agent, Registrar or co-registrar, except that for purposes of Arti-
cles 3 and 8 and Sections 4.10 and 4.16, neither the
29
<PAGE>
Company nor any of its Subsidiaries shall act as Paying Agent. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such, and the Trustee shall initially act as such. The
Trustee shall cause the New York Office to be maintained as long as it acts as
Registrar or Paying Agent.
Section 2.04 Paying Agent To Hold Money in Trust.
The Company shall require each Paying Agent (other than the Trustee, who
hereby so agrees), to agree in writing that the Paying Agent will hold in
trust for the benefit of holders of Senior Notes or the Trustee all money held
by the Paying Agent for the payment of principal or interest on the Senior
Notes, and will notify the Trustee of any default by the Company in respect of
making any such payment. While any such default continues, the Trustee may re-
quire a Paying Agent to pay all money held by it to the Trustee. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the
Company or a Subsidiary of the Company) shall have no further liability for
the money. If the Company or a Subsidiary of the Company acts as Paying Agent,
it shall segregate and hold in a separate trust fund for the benefit of the
holders of Senior Notes all money held by it as Paying Agent.
Section 2.05 Holder Lists.
The Trustee shall preserve in as current a form as is reasonably practicable
the most recent list available to it of the names and addresses of holders of
Senior Notes. If the Trustee is not the Registrar, the Company shall furnish
to the Trustee at least seven days before each interest payment date and at
such other times as the Trustee may request in writing a list in such form and
as of such date as the Trustee may reasonably require of the names and ad-
dresses of holders of Senior Notes.
section 2.06 Transfer and Exchange.
Where Senior Notes are presented to the Registrar or a co-registrar with a
request to register a transfer or to exchange them for an equal principal
amount of Senior Notes for other denominations, the Registrar shall register
the transfer or make the exchange if its requirements for such transactions
are met. To permit registrations of transfers and exchanges, the Company shall
issue and the Trustee shall authenticate Senior Notes at the Registrar's re-
quest.
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<PAGE>
No service charge shall be made for any registration of transfer or exchange
(except as otherwise expressly permitted herein), but the Company may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable upon exchanges pursuant to Sections 2.10, 3.06 or 9.05.
The Company shall not be required (a) to issue, register the transfer of or
exchange Senior Notes during a period beginning at the opening of business 15
days before the day of any selection of Senior Notes for redemption under Sec-
tion 3.02 and ending at the close of business on the day of selection, or (b)
to register the transfer or exchange of any Senior Note so selected for re-
demption in whole or in part, except the unredeemed portion of any Senior Note
being redeemed in part.
section 2.07 Replacement Senior Notes.
If the holder of a Senior Note claims that the Senior Note has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Senior Note if the Trustee's requirements are met.
If required by the Trustee or the Company as a condition of receiving a re-
placement Senior Note, the holder of Senior Note must provide an indemnity
bond sufficient, in the judgment of both the Company and the Trustee, to fully
protect the Company, the Trustee, any Agent and any authenticating agent from
any loss which any of them may suffer if the Senior Note is replaced. The Com-
pany and the Trustee may charge the relevant holder for their expenses in re-
placing any Senior Note.
Every replacement Senior Note is an additional obligation of theCompany.
section 2.08 Outstanding Senior Notes.
The Senior Notes outstanding at any time are all the Senior Notes properly
authenticated by the Trustee except for those cancelled by the Trustee, those
delivered to it for cancellation, and those described in this Section as not
outstanding.
If a Senior Note is replaced pursuant to Section 2.07, it ceases to be out-
standing unless the Trustee receives proof satisfactory to it that the re-
placed Senior Note is held by a bona fide purchaser.
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<PAGE>
If Senior Notes are considered paid under Section 4.01, they cease to be
outstanding and interest on them ceases to accrue.
A Senior Note does not cease to be outstanding because the Company or an Af-
filiate of the Company holds the Senior Note.
section 2.09 When Treasury Senior Notes Disregarded.
In determining whether the holders of the required principal amount of Se-
nior Notes have concurred in any direction, waiver or consent, Senior Notes
owned by the Company or an Affiliate of the Company shall be considered as
though they are not outstanding except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction,
waiver or consent, only Senior Notes which the Trustee knows are so owned
shall be so disregarded.
section 2.10 Temporary Senior Notes.
Until definitive Senior Notes are ready for delivery, the Company may pre-
pare and the Trustee shall authenticate temporary Senior Notes. Temporary Se-
nior Notes shall be substantially in the form of definitive Senior Notes but
may have variations that the Company considers appropriate for temporary Se-
nior Notes. If temporary Senior Notes are issued, the Company will cause de-
finitive Senior Notes to be prepared without unreasonable delay. After the
preparation of definitive Senior Notes, the temporary Senior Notes shall be
exchangeable for definitive Senior Notes upon surrender of the temporary Se-
nior Notes at any office or agency of the Company designated pursuant to Sec-
tion 2.03 without charge to the holder. Upon surrender for cancellation of any
one or more temporary Senior Notes the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Senior Notes of authorized denominations. Until so exchanged, the
temporary Senior Notes shall in all respects be entitled to the same benefits
under this Indenture as definitive Senior Notes.
section 2.11 Cancellation.
The Company at any time may deliver Senior Notes to the Trustee for cancel-
lation. The Registrar and Paying Agent shall forward to the Trustee any Senior
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel Senior Notes surrendered
32
<PAGE>
for registration of transfer, exchange, payment, replacement or cancellation
and shall dispose of cancelled Senior Notes as the Company directs. The Com-
pany may not issue new Senior Notes to replace Senior Notes that it has paid
or that have been delivered to the Trustee for cancellation.
section 2.12 Defaulted Interest.
If the Company fails to make a payment of interest on the Senior Notes, it
shall pay such defaulted interest plus, to the extent lawful, any interest
payable on the defaulted interest. It may pay such defaulted interest, plus
any such interest payable on it, to the persons who are holders of Senior
Notes on a subsequent special record date. The Company shall fix any such rec-
ord date and payment date. At least 15 days before any such record date, the
Company shall mail to holders of Senior Notes a notice that states the record
date, payment date and amount of such interest to be paid.
section 2.13 CUSIP Number.
The Company in issuing the Senior Notes may use a "CUSIP" number, and if so,
such CUSIP number shall be included in notices of redemption or exchange as a
convenience to holders of Senior Notes; provided, however, that any such no-
tice may state that no representation is made as to the correctness or accu-
racy of the CUSIP number printed in the notice or on the Senior Notes and that
reliance may be placed only on the other identification numbers printed on the
Senior Notes. The Company will promptly notify the Trustee of any change in
the CUSIP number.
ARTICLE 3
Redemption
section 3.01 Notices to Trustee.
If the Company elects to redeem Senior Notes pursuant to the optional re-
demption provisions of paragraph 5 of the Senior Notes, it shall notify the
Trustee of the redemption date and the principal amount of Senior Notes to be
redeemed. The redemption price shall be the amount determined pursuant to par-
agraph 5 of the Senior Notes.
33
<PAGE>
The Company shall give each notice provided for in this Section at least 50
days before the redemption date (unless a shorter notice period shall be sat-
isfactory to the Trustee).
section 3.02 Selection of Senior Notes To Be Redeemed.
If less than all the Senior Notes are to be redeemed, the Trustee shall se-
lect the Senior Notes to be redeemed by lot or pro rata or by any other method
that the Trustee considers fair and appropriate. The Trustee shall make the
selection not more than 75 days and not less than 30 days before the redemp-
tion date from Senior Notes outstanding not previously called for redemption.
The Trustee may select for redemption a portion of the principal of Senior
Note that has a denomination larger than $1,000. Senior Notes and portions
thereof will be redeemed in the amount of $1,000 or integral multiples of
$1,000. Provisions of this Indenture that apply to Senior Notes called for re-
demption also apply to portions of Senior Notes called for redemption. The
Trustee will make the selection of Senior Notes outstanding and not previously
called for redemption. The Trustee shall notify the Company promptly of the
Senior Notes or portions of Senior Notes to be called for redemption.
section 3.03 Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail a notice of redemption to each holder whose Senior Notes
are to be redeemed.
The notice shall identify the Senior Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Senior Note is being redeemed in part, the portion of the
principal amount of such Senior Note to be redeemed and that, after the
redemption date, upon surrender of such Senior Note, a new Senior Note or
Senior Notes in principal amount equal to the unredeemed portion will be
issued;
(d) that Senior Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(e) that interest on Senior Notes called for redemption and for which
funds have been set apart for payment, ceases to accrue on and after the
34
<PAGE>
redemption date (unless the Company defaults in the payment of the redemp-
tion price);
(f) the paragraph of the Senior Notes pursuant to which the Senior Notes
are being redeemed;
(g) the aggregate principal amount of Senior Notes that are being re-
deemed;
(h) the CUSIP number of the Senior Notes (provided that the disclaimer
permitted by Section 2.13 may be made); and
(i) the name and address of the Paying Agent.
At the Company's request, the Trustee shall give notice of redemption in the
Company's name and at its expense.
section 3.04 Effect of Notice of Redemption.
Once notice of redemption is mailed, Senior Notes called for redemption be-
come due and payable on the redemption date at the price set forth in the Se-
nior Note.
section 3.05 Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit with the Trustee
or with the Paying Agent money in immediately available funds sufficient to
pay the redemption price of and accrued interest on all Senior Notes to be re-
deemed on that date. The Trustee or the Paying Agent shall return to the Com-
pany any money not required for that purpose.
section 3.06 Senior Notes Redeemed in Part.
Upon surrender of a Senior Note that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the holder of a Senior Note at
the expense of the Company a new Senior Note equal in principal amount to the
unredeemed portion of the Senior Note surrendered.
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<PAGE>
ARTICLE 4
Covenants
Section 4.01 Payment of Senior Notes.
The Company shall pay the principal of and interest on the Senior Notes on
the dates and in the manner provided in the Senior Notes. Principal and inter-
est shall be considered paid on the date due if the Trustee or Paying Agent
(other than the Company or a Subsidiary of the Company) holds as of 1:00 P.M.
Eastern Time on that date immediately available funds designated for and suf-
ficient to pay all principal and interest then due.
To the extent lawful, the Company shall pay interest (including post- peti-
tion interest in any proceeding under any Bankruptcy Law) on (a) overdue prin-
cipal, at the rate borne by Senior Notes, compounded semiannually; and (b)
overdue installments of interest (without regard to any applicable grace peri-
od) at the same rate, compounded semiannually.
Section 4.02 Commission Reports.
So long as any Senior Note is outstanding, the Company shall file with the
Commission and, within 15 days after it files them with the Commission, file
with the Trustee and thereafter promptly mail or promptly cause the Trustee to
mail to the holders of Senior Notes at their addresses as set forth in the
register of the Senior Notes copies of the annual reports and of the informa-
tion, documents and other reports which the Company is required to file with
Commission pursuant to Section 13 or 15(d) of the Exchange Act or which the
Company would be required to file with the Commission if the Company then had
a class of securities registered under the Exchange Act. In addition, the Com-
pany shall cause its annual report to stockholders and any quarterly or other
financial reports furnished to its stockholders generally to be filed with the
Trustee, no later than the date such materials are mailed or made available to
the Company's stockholders, and thereafter mailed promptly to the holders of
Senior Notes at their addresses as set forth in the register of Senior Notes.
Section 4.03 Compliance Certificate.
The Company shall deliver to the Trustee, within 60 days after the end of
the first three fiscal quarters and within 120 days after the end of each fis-
cal
36
<PAGE>
year of the Company, an Officers' Certificate stating that a review of the ac-
tivities of the Company and its Subsidiaries during the preceding fiscal pe-
riod has been made under the supervision of the signing Officers with a view
to determining whether the Company has fully performed its obligations under
this Indenture and further stating, as to each such Officer signing such cer-
tificate, that to the best of his or her knowledge the Company has kept, ob-
served, performed and fulfilled each and every covenant contained in this In-
denture and is not in default in the performance or observance of any of the
terms and conditions hereof (or, if any Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of
the principal of or interest on the Senior Notes are prohibited.
The Company shall, so long as any of the Senior Notes are outstanding, de-
liver to the Trustee, forthwith upon becoming aware of any Default, Event of
Default or default in the performance of any term or condition in this Inden-
ture, without regard to any period of grace or requirement of notice provided
hereunder, an Officers' Certificate specifying such Defaults, Event of Default
or default.
So long as not contrary to the then current recommendations of the American
Institute of Certified Public Accountants, at the time the Officers'
Certificate described in the second preceding paragraph is filed with respect
to any fiscal year end of the Company, the Company also shall file with the
Trustee a letter or statement of the independent accountants who shall have
certified the financial statements of the Company for its preceding fiscal
year in connection with the annual report of the Company to its stockholders
for such year to that effect that, in making the examination necessary for
certification of such financial statements, nothing came to their attention
that would lead them to believe that the Company has violated any of the terms
or conditions contained in Sections 4.05, 4.06 and 4.09 of this Indenture,
which Default remains uncured at the date of such letter or statement or, if
they shall have obtained knowledge of any such uncured Default, specifying in
such letter or statement such Default or Defaults and the nature thereof, it
being understood that such accountants shall not be liable directly or
indirectly for failure to obtain knowledge of any such Default or Defaults and
that their examination was not directed primarily toward obtaining knowledge
of such non compliance.
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<PAGE>
Section 4.04 Maintenance of Office or Agency.
The Company shall maintain or cause to be maintained the office or agency
required under Section 2.03. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency not maintained by the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Senior Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designation; provid-
ed, however, that no such designation or rescission shall in any manner re-
lieve the Company of its obligation to maintain or cause to be maintained an
office or agency in the City of New York for such purpose.
Section 4.05 Limitation on Indebtedness.
The Company shall not, directly or indirectly, incur any Indebtedness (in-
cluding Acquired Indebtedness) other than Permitted Indebtedness, unless (a)
no Default or Event of Default shall have occurred and be continuing at the
time of the proposed incurrence thereof or shall occur as a result of such
proposed incurrence and (b) after giving effect to such proposed incurrence
the Company's Consolidated Fixed Charge Coverage Ratio would be greater than
2.0 to 1.0 on or prior to July 31, 1996, and 2.25 to 1.0 on or after August 1,
1996.
Section 4.06 Limitation on Restricted Payments.
The Company shall not, and shall not permit or cause any of its Subsidiaries
to, directly or indirectly, make any Restricted Payment unless, at the time of
such proposed Restricted Payment, and on a pro forma basis immediately after
giving effect thereto:
A. no Default or Event of Default has occurred and is continuing;
B. the aggregate amount expended for all Restricted Payments subsequent
to the Issue Date would not exceed the sum of:
(1) 50% of aggregate Consolidated Net Income of the Company (or if
such Consolidated Net Income is a loss, minus 100% of such loss)
earned on a cumulative basis during the period beginning on May 2,
1994 and ending on the last date of the Company's fiscal quarter imme-
diately preceding such proposed Restricted Payment; plus
38
<PAGE>
(2) 100% of the aggregate Net Equity Proceeds received by the Com-
pany from any Person (other than from a Subsidiary of the Company)
from the issuance and sale subsequent to the Issue Date of Qualified
Capital Stock of the Company (excluding (a) any Qualified Capital
Stock of the Company paid as a dividend on any Capital Stock of the
Company or of any of its Subsidiaries or as interest on any Indebted-
ness of the Company or of any of its Subsidiaries, (b) the issuance of
Qualified Capital Stock upon the conversion of, or in exchange for,
any Capital Stock of the Company or of any of its Subsidiaries and (c)
any Qualified Capital Stock of the Company with respect to which the
purchase price thereof has been financed directly or indirectly using
funds (i) borrowed from or advanced by the Company or any of its Sub-
sidiaries, unless and until and to the extent such borrowing advanced
is repaid or (ii) contributed or guaranteed by the Company or by any
of its Subsidiaries (including, without limitation, in respect of any
employee stock ownership or benefit plan) unless and until such guar-
antee terminates; and
C. The Company would be able to incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under clause (a) of Section 4.05 (as-
suming a market rate of interest with respect thereto).
The foregoing provisions of this covenant will not prevent: (a) the payment
of any dividend within 60 days after the date of its declaration if at such
date of declaration the payment of such dividend would comply with the provi-
sions set forth above, provided that (i) such dividend will be deemed to have
been paid as of its date of declaration for the purposes of this covenant and
(ii) at the time of payment of such dividend no other Default or Event of De-
fault shall have occurred and be continuing or would result therefrom, (b) if
no Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof, the purchase, redemption, retirement or acqui-
sition of any shares of Capital Stock of the Company or of any Subsidiary or
any Indebtedness of the Company that is subordinated to the Senior Notes
solely by conversion into, in exchange for or with or out of the net cash pro-
ceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company and neither such
purchase, redemption, retirement, acquisition, conversion or exchange nor the
proceeds of any such sale shall be included in any computation made under
clause (B)(2) above or (c) the making of any Permitted Payments. The amounts
expended pursuant to clauses (a) and (c) (with respect to those items identi-
fied in clauses (a)(i), (d), (e) or (f) of the definition
39
<PAGE>
of Permitted Payments) of this paragraph will be included in computing the
amounts available for Restricted Payments for purposes of the immediately pre-
ceding paragraph.
For purposes of this covenant a distribution to holders of the Company's
Capital Stock of (a) shares of Capital Stock of any of its Subsidiaries or (b)
other assets of the Company or of any of its Subsidiaries, without, in either
case, the receipt of equivalent consideration therefor shall be deemed to be
the equivalent of a cash dividend equal to the excess of the Fair Market Value
of the shares or other assets being so distributed at the time of such distri-
bution over the consideration, if any, received therefor.
Section 4.07 Limitations on Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Subsidiaries to, di-
rectly or indirectly, create or become (after the Issue Date) subject to any
consensual encumbrance or restriction of any kind (a) on the ability of any
such Subsidiary to (i) pay dividends, in cash or otherwise, or make other pay-
ments or distributions on its Capital Stock or any other equity interest or
participation in, or measured by, its profits, owned by the Company or by any
of its Subsidiaries, or make payments on any Indebtedness owed to the Company
or to any of its Subsidiaries, (ii) make loans or advances to the Company or
to any of its Subsidiaries, (iii) transfer any of their respective property or
assets to the Company or to any of its Subsidiaries or (b) on the ability of
the Company or any of its Subsidiaries to receive or retain any such (i) divi-
dends, payments or distributions, (ii) loans or advances or (iii) transfer of
property or assets, except for such encumbrances or restrictions existing un-
der or by reason of (1) customary provisions restricting subletting, transfer
or assignment under any lease governing a leasehold interest of the Company or
of any of its Subsidiaries, (2) applicable law, (3) reasonable covenants set
forth in the agreements governing the formation of a joint venture otherwise
permitted by this Indenture, (4) Acquired Indebtedness incurred in accordance
with this Indenture, provided that such encumbrance or restriction in respect
of such Acquired Indebtedness is not applicable to any Person, or the property
of any Person, other than the Person, or the property of the Person, so ac-
quired and that such Acquired Indebtedness was not incurred by the Company or
any of its Subsidiaries or by the Person being acquired in connection with or
anticipation of such acquisition, (5) with respect to clause (a)(iii) and
(b)(iii) above, purchase money obligations for property acquired in the ordi-
nary course of
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business, (6) Indebtedness outstanding immediately after the Issue Date (as in
effect on the Issue Date), (7) customary provisions in instruments or agree-
ments relating to a Lien permitted to be created, incurred or assumed pursuant
to the provisions of Section 4.11 hereof which restrict the transfer of the
property or assets subject to such Lien, (8) customary provisions in any
agreement otherwise permitted under this Indenture which (i) provide that
transactions between the Company and its Subsidiaries be no less favorable to
any such Subsidiary than could be obtained from an unaffiliated third party,
and (ii) do not have any material adverse effect on the ability of such Sub-
sidiary to pay dividends to the Company or otherwise advance cash, directly or
indirectly to the Company on terms no less favorable to any such Subsidiary
than could be obtained from an unaffiliated third party or (9) any New Indebt-
edness that is Permitted Refinancing Indebtedness incurred to Refinance any of
the Indebtedness set forth in clauses (4), (5) and (6) above to the extent
such encumbrance or restriction in respect of the New Indebtedness is no less
favorable to the holders and no more restrictive than such encumbrances or re-
strictions contained in the Indebtedness being Refinanced as of the date of
such Refinancing and do not extend to or cover any other Person or the prop-
erty of any other Person other than the Person in respect of whom such encum-
brance or restriction relating to the Indebtedness being Refinanced applied.
Section 4.08 Limitations on Transactions with Affiliates.
The Company shall not, nor shall the Company permit any of its Subsidiaries
to, (a) sell, lease, transfer or otherwise dispose of any of its property or
assets to, (b) purchase any property or assets from, (c) make any Investment
in, or (d) enter into or amend any contract, agreement or understanding with
or for the benefit of, any Affiliate of the Company or of any Subsidiary of
the Company (an "Affiliate Transaction"), other than Affiliate Transactions
that, in its reasonable judgment are necessary or desirable for the Company or
such Subsidiary in the conduct of its business and that (i) a majority of the
members of the Board of Directors of the Company reasonably and in good faith
determines are in the best interests of the Company or such Subsidiary and
(ii) are on terms (which terms are in writing) that are fair and reasonable to
the Company or the Subsidiary and that are no less favorable to the Company or
such Subsidiary than those that could be obtained in a comparable arm's length
transaction by the Company or such Subsidiary from an unaffiliated party, as
determined reasonably and in good faith by the Board of Directors of the Com-
pany, provided that if the Company or any Subsidiary of the Company enters
into an Affiliate Transaction or series of Affiliate Transactions involving or
having an aggregate value of more than $10 million such Affiliate Transaction
shall, prior to the consummation thereof, have been approved by
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a majority of the disinterested directors of the Company (or by a majority of
the disinterested directors on any committee of directors authorized to con-
sider such matter, provided that the delegation of such matter to such commit-
tee has been approved by a majority of disinterested directors of the Company)
and, provided, further, that with respect to any such transaction or series of
related transactions that involve an aggregate value of more than $20 million
the Company or such Subsidiary shall, prior to the consummation thereof, ob-
tain a favorable opinion as to the fairness to itself of such transaction or
series of related transactions from a financial point of view from an Indepen-
dent Financial Advisor and file the same with the Trustee. The foregoing re-
striction shall not apply to (x) any transaction between Wholly Owned Subsidi-
aries of the Company, or between the Company and any Wholly Owned Subsidiary
of the Company if such transaction is not otherwise prohibited by the terms of
this Indenture and (y) any Restricted Payment made in accordance with Section
4.06.
Notwithstanding the foregoing, the term "Affiliate Transaction" shall not
include any contract, agreement or understanding with or for the benefit of,
or a plan for the benefit of, any or all employees of the Company or its Sub-
sidiaries (in their capacity as such) that has been approved by the Company's
Board of Directors, a disinterested committee thereof, or a stock issuance to
directors pursuant to plans approved by stockholders of the Company.
section 4.09 Limitation on Subsidiary Indebtedness and Preferred Stock.
The Company shall not permit any Subsidiary to, directly or indirectly, in-
cur any Indebtedness or issue any Preferred Stock other than, without duplica-
tion: (a) Indebtedness or Preferred Stock issued to and held by the Company or
a Wholly Owned Subsidiary of the Company, provided that (i) such Indebtedness
is not subordinated to any other Indebtedness of such Subsidiary, and (ii) any
subsequent issuance or transfer of Capital Stock of a Wholly Owned Subsidiary
of the Company (the "Obligee Subsidiary") to whom a Subsidiary of the Company
is indebted (the "Obligor Subsidiary") that results in such Obligee Subsidiary
ceasing to be a Wholly Owned Subsidiary of the Company or any subsequent
transfer such Indebtedness or Preferred Stock of such Obligor Subsidiary by
such Obligee Subsidiary (other than to the Company or another Wholly Owned
Subsidiary of the Company) shall be deemed in each case to be the incurrence
of such Indebtedness or the issuance of such Preferred Stock by each Obligor
Subsidiary owing to or issued to, as the case may be, such Obligee Subsidiary
to the extent outstanding as of such date; (b) Indebtedness or Preferred Stock
of a Subsidiary of the Company which represents the assumption by such Subsid-
iary of Indebtedness or Preferred Stock of
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another Subsidiary of the Company in connection with a merger of such Subsidi-
aries; (c) Indebtedness or Preferred Stock of any Person (other than a Person
that has acquired, directly or indirectly, assets from the Company other than
in the ordinary course of business) existing at the time such Person becomes a
Subsidiary of the Company, provided that (i) such Indebtedness or Preferred
Stock was not incurred or issued as a result of or in connection with or in
anticipation of such Person becoming a Subsidiary of the Company, (ii) immedi-
ately after giving effect to such Person becoming a Subsidiary of the Company
(as if such Indebtedness and Preferred Stock were incurred and issued on the
first day of the Reference Period) the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under clause (a) of Section
4.05 (assuming a market rate of interest with respect thereto), and (iii) the
total of the aggregate principal amount of Indebtedness and the aggregate liq-
uidation value of Preferred Stock of such Person outstanding on the date it
becomes a Subsidiary of the Company, plus the total of the aggregate principal
amount of Indebtedness and the aggregate liquidation value of Preferred Stock
of such other Persons incurred under this clause (c) (but only to the extent
such debt or Preferred Stock remains outstanding on the date of determina-
tion), does not exceed 10% of the Consolidated Net Worth of the Company; (d)
Indebtedness and Preferred Stock of any Subsidiary of the Company, provided
that (i) immediately after giving effect thereto (as if the incurrence or is-
suance thereof occurred on the first day of the Reference Period) the Company
could incur $1.00 of additional Indebtedness (other than Permitted Indebted-
ness) under clause (a) of Section 4.05 (assuming a market rate of interest
with respect thereto), and (ii) the total of the aggregate principal amount of
the Indebtedness and the aggregate liquidation value of Preferred Stock pro-
posed to be issued and incurred by such Subsidiary plus the total of the ag-
gregate principal amount of Indebtedness and the aggregate liquidation value
of Preferred Stock incurred and issued by all Subsidiaries of the Company un-
der this clause (d) does not exceed, when added to Indebtedness of the Company
incurred under clause (f) of the definition of "Permitted Indebtedness," 10%
of Consolidated Net Worth; (e) Permitted Indebtedness incurred by any Subsidi-
ary of the Company under clauses (a) and (g) of the definition of "Permitted
Indebtedness"; (f) Indebtedness or Preferred Stock that is Permitted Refinanc-
ing Indebtedness incurred or issued to Refinance any Indebtedness or Preferred
Stock incurred or issued by a Subsidiary of the Company prior to the Issue
Date or in accordance with this Indenture; or (g) Indebtedness of the
Company's non-U.S. Subsidiaries under any working cap-
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ital or other revolving credit facility in an aggregate amount not to exceed
$5 million at any one time.
Section 4.10 Limitation on Sale of Assets.
The Company will not, and will not permit any of its Subsidiaries to, consum-
mate any Asset Sale unless such Asset Sale is for at least Fair Market Value
and at least 80% of the consideration therefrom received by the Company or
such Subsidiary is in the form of cash or Cash Equivalents.
Following any Asset Sale, an amount equal to the Net Cash Proceeds of such
Asset Sale shall be applied by the Company or such Subsidiary within 365 days
of the date of the Asset Sale, at its election, to either: (a) the payment of
Pari Passu Indebtedness with an equal and concurrent reduction in the commit-
ment related to such Pari Passu Indebtedness, if applicable, provided any Net
Cash Proceeds which are applied on such pro rata basis to reduce Indebtedness
under the Revolving Credit Agreement shall result in a permanent reduction of
the borrowing availability thereunder; (b) make any Permitted Program Invest-
ment or any other investment in capital assets usable in the Company's or its
Subsidiaries' lines of business or in an asset or business in the same line of
business as the Company; or (c) a combination of payment and investment per-
mitted by the foregoing clauses (a) and (b). On the earlier of (A) the 366th
day after the date of an Asset Sale or (B) such date as the Board of Directors
of the Company or of such Subsidiary determines (as evidenced by a written
resolution of said Board of Directors) not to apply an amount equal to the Net
Cash Proceeds relating to such Asset Sale as set forth in the immediately pre-
ceding sentence (each of (A) and (B), an "Asset Sale Offer Trigger Date"), the
Company or such Subsidiary shall be obligated to apply an amount equal to ag-
gregate amount of Net Cash Proceeds which have not been applied on or before
such Asset Sale Offer Trigger Date as permitted by the foregoing clauses (a),
(b) and (c) of the immediately preceding sentence (each an "Asset Sale Offer
Amount") to make an offer to purchase for cash (the "Asset Sale Offer") from
all holders of Senior Notes on a pro rata basis that amount of Senior Notes
equal to the Asset Sale Offer Amount at a price equal to 100% of the principal
amount of the Senior Notes to be repurchased, plus accrued and unpaid interest
thereon to the date of repurchase. Notwithstanding the foregoing, if an Asset
Sale Offer Amount is less than $10 million, the application of such Asset Sale
Offer Amount to an Asset Sale Offer may be deferred until such time as such
Asset Sale Offer Amount plus the aggregate amount of all Asset Sale Offer
Amounts arising subsequent to such Asset Sale
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Offer Trigger Date from all Asset Sales by the Company and its Subsidiaries
aggregates at least $10 million, at which time the Company or such Subsidiary
shall apply all Asset Sale Offer Amounts that have been so deferred to make an
Asset Sale Offer (the first date the aggregate of all such deferred Asset Sale
Offer Amounts is equal to $10 million or more shall be deemed to be an "Asset
Sale Offer Trigger Date").
In the event of the transfer of substantially all (but not all) of the prop-
erty and assets of the Company as an entirety to a Person in a transaction
permitted under Section 5.01, the successor corporation shall be deemed to
have sold the properties and assets of the Company not so transferred for pur-
poses of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale.
Each Asset Sale Offer shall be mailed to the holders of the Senior Notes at
the addresses shown on the register of holders maintained by the Registrar
with a copy to the Trustee and the Paying Agent, within 10 days following the
applicable Asset Sale Offer Trigger Date, and shall comply with each of the
procedures for notice set forth below. Each Asset Sale Offer shall remain open
until a specified date (the "Asset Sale Offer Termination Date") which is at
least 20 Business Days from the date such Asset Sale Offer is mailed. During
the period specified in the Asset Sale Offer, holders of Senior Notes may
elect to tender their Senior Notes in whole or in part in integral multiples
of $1,000 in exchange for cash. Payment shall be made by the Company (or ap-
plicable Subsidiary) in respect of Senior Notes properly tendered pursuant to
this Section on a specified Business Day (the "Asset Sale Offer Payment Date")
which shall be no earlier than three Business Days after the Asset Sale Offer
Termination Date and no later then 60 days after such applicable Asset Sale
Offer Trigger Date. To the extent holders of Senior Notes properly tender Se-
nior Notes in an amount exceeding the Asset Sale Offer Amount, Senior Notes of
tendering holders will be repurchased on a pro rata basis (based on amounts
tendered).
The notice, which shall govern the terms of the Asset Sale Offer, shall in-
clude such disclosures as are required by law and shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
4.10;
(b) the purchase price (including the amount of the accrued interest, if
any) for each Senior Note, the Asset Sale Offer Termination Date and the
Asset Sale Offer Payment Date;
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<PAGE>
(c) that any Senior Note not tendered or accepted for payment will con-
tinue to accrue interest in accordance with the terms thereof;
(d) that, unless the Company defaults on making the payment, any Senior
Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest after the Asset Sale Offer Payment Date;
(e) that holders electing to have Senior Notes purchased pursuant to an
Asset Sale Offer will be required to surrender their Senior Notes to the
Paying Agent at the address specified in the notice prior to 5:00 p.m.,
New York City time, on the Asset Sale Offer Termination Date and must com-
plete any form letter of transmittal proposed by the Company and accept-
able to the Trustee and the Paying Agent;
(f) that holders of Senior Notes will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New York
City time, on the Asset Sale Offer Termination Date, a tested telex, fac-
simile transmission or letter setting forth the name of the holder, the
principal amount of Senior Notes the holder delivered for purchase, the
Senior Note certificate number (if any) and a statement that such holder
is withdrawing his election to have such Senior Notes purchased;
(g) that if Senior Notes in a principal amount in excess of the Asset
Sale Offer Amount are tendered pursuant to the Asset Sale Offer, the Com-
pany shall purchase Senior Notes on a pro rata basis among the Senior
Notes tendered (with such adjustments as may be deemed appropriate by the
Company so that only Senior Notes in denominations of $1,000 or integral
multiples of $1,000 shall be acquired);
(h) that holders whose Senior Notes are purchased only in part will be
issued new Senior Notes equal in principal amount to the unpurchased por-
tion of the Senior Notes surrendered; and
(i) the instructions that holders must follow in order to tender their
Senior Notes.
On the Asset Sale Offer Termination Date, the Company shall (i) accept for
payment Senior Notes or portions thereof tendered pursuant to the Asset Sale
Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Senior Notes or portions thereof so tendered and accepted and
(iii) deliver to the Trustee the Senior Notes so accepted together with an Of-
ficers' Certificate setting forth the Senior Notes or portions thereof ten-
dered to and accepted for payment by the Company. On the Asset Sale Offer Pay-
ment Date, the Paying Agent shall mail or deliver to the holders of Senior
Notes so accepted payment in an amount equal to the purchase price, and the
Trustee
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<PAGE>
shall promptly authenticate and mail or deliver to such holders a new Senior
Note equal in principal amount to any unpurchased portion of the Senior Note
surrendered. Any Senior Notes not so accepted shall be promptly mailed or de-
livered by the Company to the holder thereof.
If an offer is made to repurchase the Senior Notes pursuant to an Asset Sale
Offer, the Company will and will cause its Subsidiaries to comply with all
tender offer rules under state and Federal securities laws, including, but not
limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to
the extent applicable to such offer. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Section 4.10,
the Company shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under this Section
4.10 by virtue thereof.
Section 4.11 Limitation on Liens.
The Company may not, and may not permit any of its Subsidiaries to, volun-
tarily or involuntarily, create, incur or assume any Liens upon any of their
respective properties or assets whether owned on the Issue Date or acquired
thereafter, or on any income or profits therefrom, or assign or otherwise con-
vey any right to receive income or profits thereon, securing any Indebtedness
of the Company or of any of its Subsidiaries other than, without duplication
(a) Liens granted by the Company securing Indebtedness of the Company that is
incurred in accordance with this Indenture and that is Pari Passu Indebted-
ness, provided that the Senior Notes are secured on an equal and ratable basis
to such Liens, (b) Liens granted by the Company securing Indebtedness of the
Company incurred in accordance with this Indenture and that is subordinated to
the Senior Notes, provided that the Senior Notes are secured by Liens ranking
prior to such Liens, (c) Liens existing on the Issue Date to the extent and in
the manner such Liens are in effect on the Issue Date, (d) Permitted Liens,
(e) Liens relating to other Indebtedness and Sale-Leaseback Financings in an
aggregate amount not to exceed at any one time 10% of the Company's Consoli-
dated Net Worth, (f) Liens in respect of Acquired Indebtedness incurred by the
Company in accordance with Section 4.05 and in respect of Acquired Indebted-
ness incurred by a Subsidiary of the Company in accordance with clause (d) of
Section 4.09, provided that the Lien in respect of such Acquired Indebtedness
secured such Acquired Indebtedness at the time of the incurrence of such Ac-
quired Indebtedness by the Company or by
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<PAGE>
one of its Subsidiaries and such Lien and the Acquired Indebtedness were not
incurred by the Company or any of its Subsidiaries or by the Person being ac-
quired or from whom the assets are proposed to be acquired in connection with,
or in anticipation of, the incurrence of such Acquired Indebtedness by the
Company or by one of its Subsidiaries and, provided further, that such Liens
do not extend to or cover any property or assets of the Company or of any of
its Subsidiaries other than the property or assets that secured the Acquired
Indebtedness prior to the time such Indebtedness became Acquired Indebtedness
of the Company or of one of its Subsidiaries, (g) Liens granted by a corpora-
tion, which Liens are in existence at the time such corporation becomes a Sub-
sidiary of the Company, provided that such Liens were not created by such cor-
poration in connection with or in anticipation of such corporation becoming a
Subsidiary of the Company, and provided further that such Liens do not extend
to or cover any property or assets of the Company or any of its Subsidiaries
other than the property or assets of such acquired corporation prior to the
time it became a Subsidiary of the Company and (h) Liens in respect of New In-
debtedness that is Permitted Refinancing Indebtedness incurred to Refinance
any of the Indebtedness set forth in clauses (a), (b), (c), (e), (f) and (g)
above, provided that such Liens in respect of such New Indebtedness are no
less favorable to the holders of Senior Notes than the Liens in respect of the
Indebtedness being Refinanced and such Liens in respect of New Indebtedness do
not extend to or cover any properties or assets of the Company or of any of
the Company's Subsidiaries other than the property or assets that secured the
Indebtedness being Refinanced.
Section 4.12 Continued Existence.
Subject to Article 5, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate exist-
ence.
Section 4.13 Taxes.
The Company shall pay prior to delinquency all taxes, assessments and gov-
ernmental levies, except as contested in good faith and by appropriate pro-
ceedings or where the failure to do so (together with all other such failures)
would not have a material adverse effect on the financial condition or results
of operations of the Company and its Subsidiaries, taken as a whole.
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Section 4.14 Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the Company's
obligation to pay the Senior Notes; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law insofar as such law applies to the Senior Notes, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the execu-
tion of every such power as though no such law has been enacted.
Section 4.15 Investment Company Act.
The Company, as of the Issue Date, is not and shall not become an investment
company subject to registration under the Investment Company Act of 1940, as
amended.
Section 4.16 Change of Control.
Following a Change of Control (the date of each such occurrence being the
"Change of Control Date"), the Company shall notify the holders of Senior
Notes in writing of such occurrence and shall make an offer (the "Change of
Control Offer") to purchase all Senior Notes then outstanding at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the "Change of Control Offer Payment Date" (as defined
below).
Notice of a Change of Control shall be mailed by or at the direction of the
Company to the holders of Senior Notes as shown on the register of such hold-
ers maintained by the Registrar not less than 15 days nor more than 30 days
after the applicable Change of Control Date at the addresses as shown on the
register of holders maintained by the Registrar, with a copy to the Trustee
and the Paying Agent. The Change of Control Offer shall remain open until a
specified date (the "Change of Control Offer Termination Date") which is at
least 20 Business Days from the date such notice is mailed. During the period
specified in such notice, holders of Senior Notes may elect to tender their
Senior Notes in whole or in part in integral multiples of $1,000 in exchange
for cash. Payment shall be made by the Company in respect of Senior
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<PAGE>
Notes properly tendered pursuant to this Section on a specified Business Day
(the "Change of Control Offer Payment Date") which shall be no earlier than 3
Business Days after the applicable Change of Control Offer Termination Date
and no later than 60 days after the applicable Change of Control Date.
The notice, which shall govern the terms of the Change of Control Offer,
shall include such disclosures as are required by law and shall state:
(a) that a Change of Control Offer is being made pursuant to this Sec-
tion 4.16 and that all Senior Notes will be accepted for payment;
(b) the purchase price (including the amount of accrued interest, if
any) for each Senior Note, the Change of Control Offer Termination Date
and the Change of Control Offer Payment Date;
(c) that any Senior Note not accepted for payment will continue to ac-
crue interest in accordance with the terms thereof;
(d) that, unless the Company defaults on making the payment, any Senior
Note accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Offer Payment Date;
(e) that holders electing to have Senior Notes purchased pursuant to a
Change of Control Offer will be required to surrender their Senior Notes
to the Paying Agent at the address specified in the notice prior to 5:00
p.m., New York City time, on the Change of Control Offer Termination Date
and must complete any form letter of transmittal proposed by the Company
and acceptable to the Trustee and the Paying Agent;
(f) that holders of Senior Notes will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New York
City time, on the Change of Control Offer Termination Date, a tested tel-
ex, facsimile transmission or letter setting forth the name of the holder,
the principal amount of Senior Notes the holder delivered for purchase,
the Senior Note certificate number (if any) and a statement that such
holder is withdrawing his election to have such Senior Notes purchased;
(g) that holders whose Senior Notes are purchased only in part will be
issued Senior Notes equal in principal amount to the unpurchased portion
of the Senior Notes surrendered;
(h) the instructions that holders must follow in order to tender their
Senior Notes; and
(i) the circumstances and relevant facts regarding such Change of Con-
trol (including, but not limited to, information with respect to pro
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<PAGE>
forma historical financial information after giving effect to such Change
of Control, information regarding the Persons acquiring control and such
Persons' business plans going forward).
On the Change of Control Offer Payment Date, the Company shall (i) accept
for payment Senior Notes or portions thereof tendered pursuant to the Change
of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay
the purchase price of all Senior Notes or portions thereof so tendered and ac-
cepted and (iii) deliver to the Trustee the Senior Notes so accepted together
with an Officers' Certificate setting forth the Senior Notes or portions
thereof tendered to and accepted for payment by the Company. On the Change of
Control Offer Payment Date, the Paying Agent shall mail or deliver to the
holders of Senior Notes so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and mail or deliver to such
holders a new Senior Note equal in principal amount to any unpurchased portion
of the Senior Note surrendered. Any Senior Notes not so accepted shall be
promptly mailed or delivered by the Company to the holder thereof.
In addition, in the event of any Change of Control, the Company shall not,
and shall not permit any of its Subsidiaries to, purchase, redeem or otherwise
acquire any Indebtedness subordinated or junior to the Senior Notes pursuant
to any analogous provision relating to such Indebtedness on or prior to the
payment in full in cash or Cash Equivalents of all Senior Notes, together with
accrued and unpaid interest thereon with respect to which the Change of Con-
trol Offer was accepted.
If an offer is made to redeem Senior Notes as a result of a Change of Con-
trol, the Company will be required to comply with all tender offer rules under
state and Federal securities laws, including, but not limited to, Section
14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applica-
ble to such offer.
Section 4.17 Limitation on Sale and Leaseback Transactions.
The Company will not, and will not permit any of its Subsidiaries to, enter
into any sale and leaseback transaction, provided that the Company (and not a
Subsidiary of the Company) may enter into such a sale and leaseback transac-
tion if (a) with respect to any such transaction involving the incurrence of
Capitalized Lease Obligations, the Company could have (i) incurred Indebted-
ness in an amount equal to the debt relating to such sale and leaseback
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transaction pursuant to the Consolidated Fixed Charge Coverage Ratio test set
forth in Section 4.05 and (ii) incurred a Lien to secure such Indebtedness
pursuant to Section 4.11, (b) the proceeds of such sale and leaseback transac-
tion are at least equal to the Fair Market Value of the property that is sub-
ject of such sale and leaseback transaction and (c) the Company shall apply or
cause to be applied the proceeds of such transaction in compliance with Sec-
tion 4.10.
Section 4.18 Appointments to Fill Vacancies in Trustee's Office.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 7.08, a Trustee, so
that there shall at all times be a Trustee hereunder.
Section 4.19 Further Instruments and Acts.
Upon request of the Trustee, the Company will execute and deliver such fur-
ther instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
ARTICLE 5
Successors
Section 5.01 When the Company May Merge, Etc.
The Company will not, in a single transaction or series of related transac-
tions, consolidate or merge with or into, or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets to, any
Person or adopt a Plan of Liquidation unless:
(a) either (i) the Company shall be the surviving or continuing corpora-
tion or (ii) the Person (if other than the Company) formed by such consol-
idation or into which the Company is merged or the Person which acquires
by conveyance, transfer or lease the properties and assets of the Company
substantially as an entirety or in the case of a Plan of Liquidation, the
Person to which all or substantially all of the assets of the Company have
been transferred (1) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District
of Columbia and (2) shall expressly assume, by supplemental indenture, ex-
ecuted and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of
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the Senior Notes and the performance of every covenant of the Senior Notes
and this Indenture on the part of the Company to be performed or observed;
(b) immediately after giving effect to such transaction and any assump-
tion contemplated by clause (2) above (including giving effect to any In-
debtedness and Acquired Indebtedness incurred or anticipated to be in-
curred in connection with or in respect of such transaction), the Company
(in the case of clause (i) of the foregoing clause (a)) or such Person (in
the case of clause (ii) thereof) (i) shall have a Consolidated Net Worth
(immediately after the transaction but prior to any purchase accounting
adjustments relating to such transaction) equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transac-
tion and (ii) shall be able to incur (assuming a market rate of interest
with respect thereto) at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under Section 4.05, provided that in deter-
mining the "Consolidated Fixed Charge Coverage Ratio" of the resulting,
transferee or surviving Person, such ratio shall be calculated as if the
transaction (including the incurrence of any Indebtedness or Acquired In-
debtedness) occurred on the first day of the Reference Period;
(c) immediately before and after giving effect to such transaction and
the assumption contemplated by clause (a)(ii)(2) above (including giving
effect to any Indebtedness and Acquired Indebtedness incurred in connec-
tion with or in respect of the transaction) no Default or Event of Default
shall have occurred and be continuing;
(d) the Company or such Person shall have delivered to the Trustee (i)
an Officers' Certificate and an Opinion of Counsel (which may be in-house
counsel of the Company), each stating that such consolidation, merger,
sale, assignment, conveyance, transfer or lease or Plan of Liquidation
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, comply with the provisions of
this Indenture and that all conditions precedent in this Indenture relat-
ing to such transaction have been satisfied and (ii) a certification from
the Company's independent certified public accountants stating that the
Company has made the calculations required by clause (b) above in accor-
dance with the terms of this Indenture; and
(e) neither the Company nor any Subsidiary of the Company nor such Per-
son, as the case may be, would thereupon become obligated with respect to
any Indebtedness (including Acquired Indebtedness), nor any of its prop-
erty or assets subject to any Lien, unless the Company or such Subsidiary
or such Person, as the case may be, could incur such Indebtedness (includ-
ing Acquired Indebtedness) or create such Lien under this
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Indenture (giving effect to such Person being bound by all the terms of
this Indenture).
For purposes of Section 5.01, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or sub-
stantially all of the properties or assets of one or more Subsidiaries of the
Company, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer
of all or substantially all of the properties and assets of the Company.
section 5.02 Successor Corporation Substituted.
Upon any such consolidation, merger, sale, assignment, conveyance, lease or
transfer in accordance with Section 5.01, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
lease or transfer is made will succeed to, and be substituted for, and may ex-
ercise every right and power of, the Company under this Indenture with the
same effect as if such successor had been named as the Company therein, and
thereafter (except in the case of a sale, assignment, transfer, lease, convey-
ance or other disposition) the predecessor corporation will be relieved of all
further obligations and covenants under this Indenture and the Senior Notes.
section 5.03 Purchase Option on Change of Control.
This Article 5 does not affect the obligations of the Company (including
without limitation any successor to the Company) under Section 4.16.
ARTICLE 6
Defaults and Remedies
section 6.01 Events of Default.
An "Event of Default" with respect to any Senior Notes occurs if:
(a) the Company defaults in the payment of principal of, or premium, if
any, on the Senior Notes when due at maturity, upon repurchase, upon ac-
celeration or otherwise, including, without limitation, failure of the
Company to repurchase the Senior Notes on the date required pursuant to
Section 4.10 or 4.16 or failure to make any optional redemption payment
when due; or
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(b) the Company defaults in the payment of any installment of interest
on the Senior Notes when due (including any interest payable in connection
with any optional redemption payment) and continuance of such default for
more than 30 days; or
(c) The Company fails to observe, perform or comply with any of the pro-
visions described under Sections 4.05, 4.06, 4.09, 4.10, 4.16 and 5.01 and
the failure to remedy such failure prior to the receipt of written notice
from the Trustee by the holders of at least 25% in aggregate principal
amount of the outstanding Senior Notes; or
(d) the Company defaults (other than a default set forth in Section
6.01, clauses (a), (b) and (c) above) in the performance of, or breach of,
any other covenant or warranty of the Company in this Indenture or the Se-
nior Notes and fails to remedy such default or breach within a period of
60 days after the receipt of written notice from the Trustee or the hold-
ers of at least 25% in aggregate principal amount of the then outstanding
Senior Notes; or
(e) the Company fails to pay at maturity or a default in the obligation
to pay when due the principal of, interest on (but only to the extent any
such failure to pay interest is not fully cured prior to the expiration of
the grace period provided in such Indebtedness on the date such interest
payment was initially due), or any other payment obligation on any other
Indebtedness (other than the Senior Notes) of the Company or of any Sub-
sidiary of the Company, whether such Indebtedness exists on the Issue Date
or shall be incurred thereafter, having, individually or in the aggregate,
an outstanding principal amount of $15,000,000 or more or (ii) any other
Indebtedness (other than the Senior Notes) of the Company or of any Sub-
sidiary of the Company, whether such Indebtedness exists on the Issue Date
or shall be incurred thereafter, having, individually or in the aggregate,
an outstanding principal amount of $15,000,000 or more, is declared due
and payable prior to its stated maturity; or
(f) a court of competent jurisdiction enters one or more judgments or
orders against the Company or any Subsidiary of the Company or any of
their respective property or assets in an aggregate amount in excess of
$15,000,000 and that are not covered by insurance written by third par-
ties, which judgments or orders have not been vacated, discharged, satis-
fied or stayed pending appeal within 60 days from the entry thereof; or
(g) the Company or any Material Subsidiary, pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
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(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property, or
(D) makes a general assignment for the benefit of its creditors; or
(h) a court of competent jurisdiction enters a judgment, order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Material Subsidiary in
an involuntary case,
(B) appoints a Custodian of the Company or any Material Subsidiary
for all or substantially all of its property, or
(C) orders the liquidation of the Company or any Material Subsidi-
ary, and the order or decree remains unstayed and in effect for 60
days.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal
or state law for the relief of debtors. The term "Custodian" means any receiv-
er, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
Section 6.02 Acceleration.
If an Event of Default (other than an Event of Default specified in clauses
(g) and (h) of Section 6.01) occurs and is continuing, then and in every such
case the Trustee, by written notice to the Company, or the holders of at least
25% in aggregate principal amount of the then outstanding Senior Notes, by
written notice to the Company and the Trustee, may declare the unpaid princi-
pal of and accrued interest on all the Senior Notes to be due and payable.
Upon such declaration such principal amount, premium, if any, and accrued and
unpaid interest shall be immediately due and payable notwithstanding anything
contained in this Indenture or the Senior Notes to the contrary. If an Event
of Default with respect to the Company specified in clauses (g) or (h) of Sec-
tion 6.01 occurs, all unpaid principal of, and premium, if any, and accrued
and unpaid interest or, Senior Notes then outstanding shall automatically be-
come and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holder of Senior Notes.
The holders of a majority in principal amount of the then outstanding Senior
Notes by notice to the Trustee may rescind an acceleration and its conse-
quences if all existing Events of Default, other than the nonpayment of prin-
cipal and premium, if any, and interest on the Senior Notes which has
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become due solely by virtue of such acceleration have been cured or waived and
if the rescission would not conflict with any judgment or decree of any court
of competent jurisdiction. No such rescission shall affect any subsequent De-
fault or impair any right consequent thereto.
Section 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of or interest on the Senior Notes or to enforce the performance of
any provision of the Senior Notes or this Indenture. The Trustee may maintain
a proceeding even if it does not possess any of the Senior Notes or does not
produce any of them in the proceeding. A delay or omission by the Trustee or
any holder of a Senior Note in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or constitute a waiver
of or acquiescence in the Event of Default. All remedies are cumulative to the
extent permitted by law.
Section 6.04 Waiver of Past Defaults.
The holders of a majority in aggregate principal amount of the Senior Notes
then outstanding may, on behalf of the holders of all the Senior Notes, waive
an existing Default or Event of Default and its consequences, except Default
or Event of Default in the payment of the principal of or interest on the Se-
nior Notes (other than nonpayment of principal of and premium, if any, or in-
terest on the Senior Notes which has become due solely by virtue of an accel-
eration which has been duly rescinded, as provided above), or in respect of a
covenant or provision of this Indenture which cannot be modified or amended
without the consent of all holders of Senior Notes. When a Default is waived,
it is cured and stops continuing. No waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 6.05 Control by Majority.
The holders of a majority in principal amount of the then outstanding Senior
Notes may direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on it. However, the Trustee may refuse to follow any direction that conflicts
with law or this Indenture, that the Trustee determines may be unduly prejudi-
cial to the rights of other holders of Senior Notes or that may
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involve the Trustee in personal liability; provided that the Trustee may take
any other action the Trustee deems proper that is not inconsistent with such
directions.
Section 6.06 Limitation on Suits.
A holder of a Senior Note may not pursue any remedy with respect to this In-
denture or the Senior Notes unless:
(a) the holder gives to the Trustee notice of a continuing Event of De-
fault;
(b) the holders of at least 25% in principal amount of the then out-
standing Senior Notes make a request to the Trustee to pursue the remedy;
(c) such holder or holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the holders of a majority in principal
amount of the then outstanding Senior Notes do not give the Trustee a di-
rection inconsistent with the request.
A holder of a Senior Note may not use this Indenture to prejudice the rights
of another holder or to obtain a preference or priority over another holder.
Section 6.07 Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
holder of a Senior Note to receive payment of principal and interest on the
Senior Note, on or after the respective due dates expressed in the Senior
Note, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent
of the holder of a Senior Note.
Section 6.08 Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee
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of an express trust against the Company for the whole amount of principal and
interest remaining unpaid on the Senior Notes and interest on overdue princi-
pal and interest and such further amount as shall be sufficient to cover the
costs and, to the extent lawful, expenses of collection, including the reason-
able compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel.
Section 6.09 Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee and
the holders of Senior Notes allowed in any judicial proceedings relative to
the Company, its creditors or its property. Nothing contained herein shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any holder of a Senior Note any plan of reorganization, arrange-
ment, adjustment or composition affecting the Senior Notes or the rights of
any holder thereof, or to authorize the Trustee to vote in respect of the
claim of any holder in any such proceeding.
Section 6.10 Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay out
the money in the following order:
First: to the Trustee for amounts due under Section 7.07, including payment
of all compensation, expenses and liabilities incurred, and all advances made,
by the Trustee, and the costs and expenses of collection;
Second: to holders of Senior Notes for amounts due and unpaid on the Senior
Notes for principal and interest, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Senior Notes for
principal and interest, respectively; and
Third: to the Company.
Except as otherwise provided in Section 2.12, the Trustee may fix a record
date and payment date for any payment to holders of Senior Notes.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party liti-
gant
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in the suit of an undertaking to pay the costs of the suit, and the court in
its discretion may assess reasonable costs, including reasonable attorneys
fees, against any party litigant in the suit, having due regard to the merits
and good faith of the claims or defenses made by the party litigant. This Sec-
tion does not apply to a suit by the Trustee, a suit by a holder pursuant to
Section 6.07 or a suit by holders of more than 10% in principal amount of the
then outstanding Senior Notes.
ARTICLE 7
The Trustee
The Trustee hereby accepts the trust imposed upon it by this Indenture and
covenants and agrees to perform the same, as herein expressed.
Section 7.01 Duties of the Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of his or her own af-
fairs.
(b) Except during the continuance of an Event of Default:
(i) The duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those du-
ties that are specifically set forth in this Indenture and no others and
no implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) In the absence of bad faith on its part, the Trustee may conclu-
sively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent ac-
tion, its own negligent failure to act or its own willful misconduct, except
that:
(i) This paragraph does not limit the effect of paragraph (b) of this
Section;
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(ii) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction re-
ceived by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that is in any way related to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee may refuse to perform
any duty or exercise any right or power unless it receives indemnity satisfac-
tory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by it
except as the Trustee may agree with the Company. Money held in trust by the
Trustee need not be segregated from other funds except to the extent required
by law.
section 7.02 Rights of the Trustee.
(a) The Trustee may rely on any document believed by it to be genuine and to
have been signed or presented by the proper person. The Trustee need not in-
vestigate any fact or matter stated in such a document.
(b) Before the Trustee acts or refrains from acting, it may require an Offi-
cers' Certificate, an Opinion of Counsel or both. The Trustee shall not be li-
able for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in re-
liance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any attorney or agent ap-
pointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take
in good faith which it believes to be authorized or within its rights or pow-
ers.
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(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
Officers of the Company.
(f) The Trustee shall not be required to give any bond or surety in respect
of the performance of its powers and duties hereunder.
section 7.03 Individual Rights of the Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Senior Notes and may otherwise deal with the Company or an Affili-
ate with the same rights it would have if it were not Trustee. Any Agent may
do the same with like rights. However, the Trustee is subject to Sections 7.10
and 7.11.
section 7.04 Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Senior Notes, it shall not
be accountable for the Company's use of the proceeds from the Senior Notes or
any money paid to the Company or upon the Company's direction under any provi-
sion of this Indenture, it shall not be responsible for the use or application
of any money received by any Paying Agent other than the Trustee, and it shall
not be responsible for any statement or recital herein or any statement in the
Senior Notes or any other document in connection with the sale of the Senior
Notes or pursuant to this Indenture other than its certificate of authentica-
tion.
Section 7.05 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is known
to the Trustee, the Trustee shall mail to each holder of a Senior Note a no-
tice of the Default or Event of Default within 60 days after it occurs. A De-
fault or an Event of Default shall not be considered known to the Trustee un-
less it is a Default or Event of Default in the payment of principal or inter-
est when due under Section 6.01(a) or (b) or the Trustee shall have received
notice thereof, in accordance with this Indenture, from the Company or from
the holders of a majority in principal amount of the outstanding Senior Notes.
Except in the case of a Default or Event of Default in payment of principal or
interest on any Senior Note, the Trustee may withhold the notice if and so
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long as a committee of its Trust Officers in good faith determines that with-
holding the notice is in the interest of the holders of Senior Notes.
Section 7.06 Reports by the Trustee to Holders.
Within 60 days after the reporting date stated in Section 10.10, the Trustee
shall mail to holders of Senior Notes a brief report dated as of such report-
ing date that complies with TIA () 313(a) (but if no event described in TIA ()
313(a) has occurred within twelve months preceding the reporting date, no re-
port need be transmitted). The Trustee also shall comply with TIA ()
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA () 313(c).
A copy of each report at the time of its mailing to holders of Senior Notes
shall be filed with the Commission and each stock exchange, if any, on which
the Senior Notes are listed. The Company shall notify the Trustee when the Se-
nior Notes are listed on any stock exchange.
Section 7.07 Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable compensa-
tion for its acceptance of this Indenture and its services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred
or made by it in addition to the compensation for its services. Such expenses
may include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any loss, liability or ex-
pense incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, except as set forth in the
next paragraph. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company
shall not relieve the Company of its obligations hereunder. The Company shall
defend the claim with counsel designated by the Company, who may be outside
counsel to the Company but shall in all events be reasonably satisfactory to
the Trustee, and the Trustee shall cooperate in the defense. In addition, the
Trustee may retain one separate counsel and, if deemed advisable by such coun-
sel, local counsel, and the Company shall pay the reasonable fees and
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expenses of such separate counsel and local counsel. The indemnification
herein extends to any settlement, provided that the Company will not be liable
for any settlement made without its consent, provided, further, that such con-
sent will not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through its own negligence or bad faith.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Senior Notes on all money or property
held or collected by the Trustee, except that held in trust to pay principal
and interest on Senior Notes. Such Liens shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of De-
fault specified in Section 6.01(g) or (h) occurs, the expenses and the compen-
sation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any Bank-
ruptcy Law.
Section 7.08 Replacement of the Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign at any time and be discharged from the trust hereby
created by so notifying the Company. The holders of a majority in principal
amount of the then outstanding Senior Notes may remove the Trustee by so noti-
fying the Trustee and the Company. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason, the Company shall promptly appoint a successor Trust-
ee. Within one year after the successor Trustee takes office, the holders of a
majority in principal amount of the then outstanding Senior Notes may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the retir-
ing Trustee resigns or is removed, the retiring Trustee, the Company or the
holders of at least 10% in principal amount of the then outstanding Senior
Notes may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
If the Trustee after written request by any holder of a Senior Note who has
been a holder for at least six months fails to comply with Section 7.10, such
holder may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to
the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee
shall have all the rights, powers and duties of the Trustee under this Inden-
ture. The successor Trustee shall mail a notice of its succession to holders
of Senior Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided that all sums owing
to the retiring Trustee hereunder have been paid and subject to the lien pro-
vided for in Section 7.07. Notwithstanding the replacement of the Trustee pur-
suant to this Section 7.08, the Company's obligations under Section 7.07 shall
continue for the benefit of the retiring Trustee.
Section 7.09 Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation
or national banking association, the resulting, surviving or transferee corpo-
ration or national banking association without any further act shall be the
successor Trustee.
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Section 7.10 Eligibility, Disqualification.
This Indenture shall always have a Trustee who satisfies the requirements of
TIA () 310(a)(1). The Trustee shall always have a combined capital and surplus
as stated in Section 10.10. The Trustee is subject to TIA () 310(b) regarding
the disqualification of a trustee upon acquiring a conflicting interest.
Section 7.11 Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA () 311(a), excluding any creditor rela-
tionship set forth in TIA () 311(b). A Trustee who has resigned or been re-
moved shall be subject to TIA () 311(a) to the extent indicated therein.
ARTICLE 8
Satisfaction and Discharge of Indenture
Section 8.01 Termination of Company's Obligations.
(i) This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.07 and 8.03 shall survive) when all out-
standing Senior Notes theretofore authenticated and issued have been delivered
(other than destroyed, lost or stolen Senior Notes that have been replaced or
paid) to the Trustee for cancellation and the Company has paid all sums pay-
able hereunder. In addition, the Company may terminate its obligations under
this Indenture (except the Company's obligations under Sections 7.07 and 8.03)
if, under terms satisfactory to the Trustee: (a) the Senior Notes have either
become due and payable or are by their terms due and payable within one year
(or scheduled for redemption within one year); and (b) the Company irrevocably
deposits in trust with the Trustee money or United States Government Obliga-
tions (defined below in this Section 8.01), or a combination thereof, suffi-
cient, without consideration of the reinvestment of interest in the opinion of
the chief financial officer of the Company expressed in a written certificate
delivered to the Trustee, to pay principal and interest on the Senior Notes to
maturity or upon redemption, as the case may be. The Company may make the de-
posit only during the one year period.
However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07,
4.01, 4.04, 7.07, 7.08, 8.03 and 8.04 shall survive until the Senior Notes are
no longer outstanding. Thereafter, only the Company's obligations in Sections
7.07 and 8.03 shall survive.
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After a deposit made pursuant to this Section 8.01, the Trustee upon request
of the Company shall acknowledge in writing the discharge of the Company's ob-
ligations under this Indenture except for those surviving obligations speci-
fied above.
In addition, the Company may elect to have either clause (ii) or clause
(iii) below be applied to the outstanding Senior Notes upon compliance with
the conditions set forth in clause (iv) below.
(ii) Upon the Company's exercise under the last sentence of paragraph (i)
above of the option applicable to this paragraph (ii), the Company shall be
deemed to have been released and discharged from its obligations with respect
to the outstanding Senior Notes on the date the conditions set forth below are
satisfied ("legal defeasance"). For this purpose, legal defeasance means that
the Company shall be deemed to have paid and discharged the entire Indebted-
ness represented by the outstanding Senior Notes, which shall thereafter be
deemed to be "outstanding" only for the purpose of the Sections of and matters
under this Indenture referred to in subclauses (A), (B), (C) and (D) of this
clause (ii), and to have satisfied all its other obligations under such Senior
Notes and this Indenture insofar as such Senior Notes are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments ac-
knowledging the same), except for the following, which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of holders of
outstanding Senior Notes to receive solely from the trust fund described in
clause (iv) below and as more fully set forth in such clause, payments in re-
spect of the principal of, and premium, if any, and interest on such Senior
Notes when such payments are due, (B) the Company's obligations with respect
to such Senior Notes when such payments are due, (C) the Company's obligations
with respect to such Senior Notes under Sections 2.03, 2.05, 2.06, 2.07 and
4.04, and, with respect to the Trustee, under Section 7.07, (D) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and (E) this
Section 8.01 and Sections 8.03 and 8.04. Subject to compliance with this Sec-
tion 8.01, the Company may exercise its option under this clause (ii) notwith-
standing the prior exercise of its option under paragraph (iii) below with re-
spect to the Senior Notes.
(iii) Upon the Company's exercise under the last sentence of clause (i) of
the option applicable to this clause (iii), the Company shall be released and
discharged from its obligations under any covenant contained in Article 4 (ex-
cept for Sections 4.01 and 4.04) and Article 5 with respect to the outstand-
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<PAGE>
ing Senior Notes on and after the date the conditions set forth below are sat-
isfied ("covenant defeasance"), and the Senior Notes shall thereafter be
deemed to be not "outstanding" for the purpose of any direction, waiver, con-
sent or declaration or act of holders of Senior Notes (and the consequences of
any thereof) in connection with such covenants, but shall continue to be
deemed "outstanding" for all other purposes hereunder. For this purpose, such
covenant defeasance means that, with respect to the outstanding Senior Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether di-
rectly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other pro-
vision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 but, except as
specified above, the remainder of this Indenture (including without limitation
obligations set forth in Sections 8.03 and 8.04 hereof) and such Senior Notes
shall be unaffected thereby.
(iv) The following shall be the conditions to the application of either
clause (ii) or (iii) above to the outstanding Senior Notes:
(a) the Company has irrevocably deposited in trust with the Trustee or,
at the option of the Trustee, with a trustee, satisfactory to the Trustee
and the Company, under terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee, cash in United States dollars,
United States Government Obligations, or a combination thereof, suffi-
cient, without consideration of the reinvestment of interest, in the opin-
ion of the chief financial officer of the Company expressed in a written
certificate delivered to the Trustee, to pay at maturity principal and in-
terest on the Senior Notes; provided that (i) the trustee of the irrevoca-
ble trust shall have been irrevocably instructed to pay such money or the
proceeds of such United States Government Obligations to the Trustee and
(ii) the Trustee shall have been irrevocably instructed to apply such
money or the proceeds of such United States Government Obligations to the
payment of said principal and interest with respect to the Senior Notes;
(b) in the case of an election under clause (ii) above, the Company
shall have delivered to the Trustee an Opinion of Counsel from nationally
recognized counsel reasonably acceptable to the Trustee stating that (x)
the Company has received from, or there has been published by, the Inter-
nal Revenue Service a ruling or (y) since the date of this Indenture,
there has been a change in the applicable federal income tax law, in ei-
ther case to the effect that the holders of the outstanding Senior Notes
will not recognize income, gain or loss for federal income tax purposes as
a result
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<PAGE>
of such legal defeasance and will be subject to federal income tax on the
same amount and in the same manner and at the same time as would have been
the case if such legal defeasance had not occurred;
(c) in the case of an election under clause (iii) above, the Company
shall have delivered to the Trustee an Opinion of Counsel from nationally
recognized counsel reasonably acceptable to the Trustee (i) to the effect
that the holders of the outstanding Senior Notes will not recognize in-
come, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amount and in the same manner and at the same time as would have been the
case if such covenant defeasance had not occurred or (ii) that the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling to the foregoing effect.
(d) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit;
(e) such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default or Event of Default under
any material agreement or instrument to which the Company or any of its
subsidiaries is bound;
(f) The Company shall deliver to the Trustee an Opinion of Counsel to
the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolven-
cy, reorganization or similar laws affecting creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers' Certif-
icate stating that the deposit was not made by the Company with the intent
of preferring the holders over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(h) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel stating that all conditions precedent provided
for relating to the legal defeasance under clause (ii) above or the cove-
nant defeasance under clause (iii) above, as the case may be, have been
complied with.
After such irrevocable deposit made pursuant to this Section 8.01 (and sat-
isfaction of the other conditions set forth herein), the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified above.
As used herein, "United States Government Obligations" means obligations for
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
69
<PAGE>
Section 8.02 Application of Trust Money.
The Trustee shall hold in trust money or United States Government Obliga-
tions deposited with it pursuant to Section 8.01. It shall apply the deposited
money and the money from United States Government Obligations through the Pay-
ing Agent and in accordance with this Indenture to the payment of principal
and interest on the Senior Notes.
Section 8.03 Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon re-
quest any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon request any
money held by them for the payment of principal or interest that remains un-
claimed for two years after the date upon which such payment shall have become
due; provided, however, that the Company shall have first caused notice of
such payment to the Company to be mailed to each holder entitled thereto no
less than 30 days prior to such payment. After payment to the Company, holders
entitled to the money must look to the Company for payment as general credi-
tors unless an applicable abandoned property law designates another person and
all liability of the Trustee and such Paying Agent with respect to such money
shall cease.
Section 8.04 Reinstatement.
If the Trustee or Paying Agent is unable to apply any money in accordance
with Section 8.02 by reason of any order or judgment of any court or govern-
mental authority enjoining, restraining or otherwise prohibiting such applica-
tion, the Company's obligations under this Indenture and the Senior Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01 until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with Section 8.02; provided, however, that
if the Company makes any payment of interest on or principal of any Senior
Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the holders of such Senior Notes to receive such
payment from the money held by the Trustee or Paying Agent.
70
<PAGE>
ARTICLE 9
Amendments
Section 9.01 Without the Consent of Holders.
The Company and the Trustee may amend or modify this Indenture (including
the terms and conditions of the Senior Notes) without notice to or the consent
of any holder of Senior Notes for the purpose of:
(a) adding to the covenants of the Company for the benefit of the hold-
ers of Senior Notes;
(b) surrendering any right or power conferred upon the Company;
(c) evidencing the successor of another corporation to the Company and
the assumption of the Company thereunder and in the Senior Notes as per-
mitted herein;
(d) curing any ambiguity, or correcting or supplementing any defective
provision contained herein or making any changes in any other provisions
of this Indenture which the Company and the Trustee deem necessary or de-
sirable and which, in either case, will not adversely affect the interests
of the holders of Senior Notes.
Section 9.02 With the Consent of Holders.
Subject to Section 6.07, the Company and the Trustee may amend this Inden-
ture or the Senior Notes with the written consent of the holders of not less
than a majority in aggregate principal amount of the then outstanding Senior
Notes.
Subject to Sections 6.04 and 6.07, the holders of a majority in principal
amount of the Senior Notes then outstanding may also waive compliance in a
particular instance by the Company with any provision of this Indenture or the
Senior Notes.
However, without the consent of each holder of a Senior Note affected, an
amendment or waiver under this Section may not:
(a) reduce the amount of Senior Notes whose holders must consent to an
amendment, supplement or waiver;
(b) reduce the rate of or extend the time for payment of, interest, in-
cluding defaulted interest, on any Senior Note;
71
<PAGE>
(c) reduce the principal of or premium on or change the fixed maturity
of any Senior Note or alter the redemption provisions with respect there-
to;
(d) make the principal of or premium, if any, or interest on, any Senior
Note payable in money other than as provided for in this Indenture and the
Senior Note;
(e) waive a continuing default in the payment of the principal of or
premium, if any, interest on, or redemption or repurchase payment with re-
spect to, any Senior Note, including, without limitation, a continuing de-
fault to make payment when required upon a Change of Control or after an
Asset Sale Offer Trigger Date;
(f) after the Company's obligation to purchase the Senior Notes arises
hereunder, to then amend, modify or change the obligation of the Company
to make or consummate a Change of Control Offer in the event of a Change
of Control or an Asset Sale Offer in the event of an Asset Sale Offer
Trigger Date or waive any default in the performance thereof or modify any
of the provisions or definitions with respect to any such offers; or
(g) make any change in provisions relating to waivers of defaults, the
abilities of holders of Senior Notes to enforce their rights hereunder or
the provisions of clauses (a) through (g) of this Section 9.02.
To secure a consent of the holders under this Section, it shall not be nec-
essary for such holders to approve the particular form of any proposed amend-
ment or waiver, but it shall be sufficient if such consent approves the sub-
stance thereof.
After an amendment or waiver under this Section becomes effective, the Com-
pany shall mail to holders of Senior Notes a notice briefly describing the
amendment or waiver.
Section 9.03 Compliance with the Trust Indenture Act.
Every amendment to this Indenture or the Senior Notes shall be set forth in
a supplemental indenture that complies with the TIA as then in effect.
Section 9.04 Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a holder
of a Senior Note is a continuing consent by the holder and every subsequent
holder of a Senior Note or portion of a Senior Note that evidences
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<PAGE>
the same debt as the consenting holder's Senior Note, even if notation of the
consent is not made on any Senior Note. However, any such holder or subsequent
holder may revoke the consent as to his or her Senior Note or portion of a Se-
nior Note if the Trustee receives the notice of revocation before the date on
which the Trustee receives an Officers' Certificate certifying that the hold-
ers of the requisite principal amount of Senior Notes have consented to the
amendment or waiver.
The Company may, but shall not obligated to, fix a record date for the pur-
pose of determining the holders entitled to consent to any amendment or waiv-
er. If a record date is fixed, then notwithstanding the provisions of the im-
mediately preceding paragraph, those persons who were holders at such record
date (or their duly designated proxies), and only those persons, shall be en-
titled to consent to such amendment or waiver or to revoke any consent previ-
ously given, whether or not such persons continue to be holders after such
record date. No consent shall be valid or effective for more than 90 days af-
ter such record date unless consents from holders of the principal amount of
Senior Notes required hereunder for such amendment or waiver to be effective
shall have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every holder,
unless it is of the type described in any of clauses (a) through (g) of Sec-
tion 9.02. In such case, the amendment or waiver shall bind each holder of a
Senior Note who has consented to it.
Section 9.05 Notation on or Exchange of Senior Notes.
Senior Notes authenticated and delivered after the execution of any supple-
mental indenture pursuant to this Article 9 may, and shall if required by the
Trustee, bear a notation in the form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so deter-
mine, new Senior Notes so modified as to conform, in the opinion of the Com-
pany and the Trustee, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in ex-
change for outstanding Senior Notes.
Section 9.06 Trustee Protected.
The Trustee shall sign any amendment or supplemental indenture authorized
pursuant to this Article 9 if such amendment or supplemental indenture
73
<PAGE>
does not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may, but need not, sign it. In signing such
amendment or supplemental indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that such amendment or supplemental
indenture is authorized or permitted by this Indenture, that it is not incon-
sistent herewith, and that it will be valid and binding upon the Company in
accordance with its terms.
ARTICLE 10
General Provisions
Section 10.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA () 318(c), the imposed duties shall control.
Section 10.02 Notices.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in person or mailed by first-class
mail, with postage prepaid (registered or certified, return receipt request-
ed), facsimile or overnight air couriers guaranteeing next day delivery, to
the other's address stated in Section 10.10. The Company or the Trustee by no-
tice to the other may designate additional or different addresses for subse-
quent notices or communications.
All notices and communications (other than those sent to holders of Senior
Notes) shall be deemed to have been duly given at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when transmission confirmed, if transmitted by
facsimile; and the next Business Day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a holder of a Senior Note shall be mailed by
first-class mail, with postage prepaid, to his or her address shown on the
register kept by the Registrar. Failure to mail a notice or communication to a
holder or any defect in it shall not affect its sufficiency with respect to
other holders.
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If a notice or communication is sent in the manner provided above within the
time prescribed, it is duly given, whether or not the addressee receives it.
If the Company sends a notice or communication to holders of Senior Notes,
it shall send a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
section 10.03 Communication by Holders With Other Holders.
Holders of Senior Notes may communicate pursuant to TIA () 312(b) with other
holders with respect to their rights under this Indenture or the Senior Notes.
The Company, the Trustee, the Registrar and anyone else shall have the protec-
tion of TIA ((S)) 312(c).
section 10.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfac-
tory to the Trustee (which shall include the statements set forth in Sec-
tion 10.05) stating that, in the opinion of such person, all conditions
precedent and covenants, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section
10.05) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been complied with.
section 10.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA ((S)) 314(a)(4)) shall include:
(a) a statement that the person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such cer-
tificate or opinion are based;
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<PAGE>
(c) a statement that, in the opinion of such person, he or she has made
such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condi-
tion has been complied with; and
(d) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
Any Officers' Certificate may be based, insofar as it relates to legal mat-
ters, upon an Opinion of Counsel, unless such Officer knows that the opinion
with respect to the matters upon which his certificate may be based as afore-
said is erroneous. Any Opinion of Counsel may be based, insofar as it relates
to factual matters, upon certificates, statements or opinions of, or represen-
tations by an officer or officers of the Company, or other persons or firms
deemed appropriate by such counsel, unless such counsel knows that the certif-
icates, statements or opinions or representations with respect to the matters
upon which his certificate, statement or opinion may be based as aforesaid are
erroneous.
Any Officers' Certificate, statement or Opinion of Counsel may be based, in-
sofar as it relates to accounting matters, upon a certificate or opinion of or
representation by an accountant (who may be an employee of the Company), or
firm of accountants, unless such Officer or counsel, as the case may be, knows
that the certificate or opinion or representation with respect to the account-
ing matters upon which his certificate, statement or opinion may be based as
aforesaid is erroneous.
section 10.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of holders
of Senior Notes. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 10.07 Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institu-
tions in the City of New York are not required to be open, and a "Business
Day" is any day that is not a Legal Holiday. If a payment date is a Legal Hol-
iday at a place of payment, payment may be made at that place on the next suc-
ceeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
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Section 10.08 No Recourse Against Others.
No director, officer, employee or stockholder, as such, of the Company from
time to time shall have any liability for any obligations of the Company under
the Senior Notes or this Indenture or for any claim based on, in respect of,
or by reason of such obligations or their creation. Each holder by accepting a
Senior Note waives and releases all such liability. This waiver and release
are part of the consideration for the Senior Notes. Each of such directors,
officers, employees and stockholders is a third party beneficiary of this Sec-
tion 10.08.
Section 10.09 Counterparts.
This Indenture may be executed in any number of counterparts and by the par-
ties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
Section 10.10 Other Provisions.
The Company initially appoints the Trustee as Paying Agent, Registrar and
authenticating agent.
The first certificate pursuant to Section 4.03 shall be for the first full
fiscal quarter of the Company following the issuance of Senior Notes hereun-
der.
The reporting date for Section 7.06 is February 15 of each year. The first
reporting date is the first February 15th following the issuance of Senior
Notes hereunder.
The Trustee shall always have, or shall be a Subsidiary of a bank or bank
holding company which has, a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of condi-
tion.
The Company's address is:
Rohr, Inc.
850 Lagoon Drive
Chula Vista, CA 91910
Attention: General Counsel
Facsimile: (619) 691-4222
Telephone: (619) 691-2025
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<PAGE>
The Trustee's address is:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust & Agencies Administration
Facsimile: (212) 858-2952
Telephone: (212) 858-2529
Section 10.11 Governing Law.
The internal laws of the State of New York shall govern this Indenture and
the Senior Notes, without regard to the conflict of laws provisions thereof.
Section 10.12 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary. Any such other indenture, loan or
debt agreement may not be used to interpret this Indenture.
Section 10.13 Successors.
All agreements of the Company in this Indenture and the Senior Notes shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 10.14 Severability.
In case any provision in this Indenture or in the Senior Notes shall be in-
valid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 10.15 Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof and shall in no way modify or re-
strict any of the terms or provisions hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly exe-
cuted and attested, all as of the date first above written, signifying their
agreements contained in this Indenture.
SIGNATURES
ROHR, INC.
By _________________________________________
Name:
Title:
Attest:
- -------------------------
IBJ SCHRODER BANK & TRUST
COMPANY
By _________________________________________
Name:
Title:
Attest:
- -------------------------
S-1
<PAGE>
EXHIBIT A
(Face of Security)
No. $
CUSIP
ROHR, INC.
% SENIOR NOTE DUE 2003
promises to pay to
or registered assigns,
the principal sum of Dollars on , 2003
Interest Payment Dates: and
Regular Record Dates: and
Certificate of Authentication
This Senior Note is one of the Senior Notes
issued pursuant to the within-mentioned Indenture.
IBJ SCHRODER BANK & TRUST COMPANY, as Trustee
ROHR, INC.
By______________________________ By___________________________________________
Authorized Signature President and Chief Executive Officer
Dated:
By___________________________________________
Secretary
(SEAL)
<PAGE>
EXHIBIT A
(Back of Security)
ROHR, INC.
% SENIOR NOTE DUE 2003
1. INTEREST. Rohr, Inc., a Delaware corporation (the "Company"), promises to
pay interest on the principal amount of this Senior Note at the rate per annum
shown above. The Company will pay interest semiannually on May 15 and November
15 of each year. Interest on the Senior Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
, 1994. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. Interest on overdue principal and (to the extent
permitted by law) on overdue installments of interest will accrue at a rate of
% per annum.
2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes (ex-
cept defaulted interest) to the person in whose name each Senior Note is reg-
istered at the close of business on the May 1 or November 1 immediately pre-
ceding the relevant interest payment date even though Senior Notes are can-
celled after such record date and on or before the interest payment date.
Holders must surrender Senior Notes to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal and interest by check
payable in such money, and may mail such check to the holder's registered ad-
dress.
3. PAYING AGENT AND REGISTRAR. IBJ Schroder Bank & Trust Company, a New York
banking corporation (together with any successor trustee under the Indenture
referred to below, the "Trustee"), will act as Paying Agent and Registrar. The
Company may change the Paying Agent, Registrar or co-registrar without prior
notice. Subject to certain limitations in the Indenture, the Company or any of
its Subsidiaries may act in any such capacity.
A-2
<PAGE>
4. INDENTURE. The Company issued the Senior Notes under an Indenture dated
as of May 15, 1994 (the "Indenture") between the Company and the Trustee. The
terms of the Senior Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.
Code ((S))((S)) 77aaa-77bbbb) as in effect on the date of the Indenture. The
Senior Notes are subject to, and qualified by, all such terms, certain of
which are summarized hereon, and holders are referred to the Indenture and
such Act for a statement of such terms. The Senior Notes are unsecured general
obligations of the Company limited to $100,000,000 in aggregate principal
amount. Capitalized terms not defined below have the same meaning as is given
to them in the Indenture.
5. OPTIONAL REDEMPTION. The Company may redeem the Senior Notes, in whole or
in part, prior to maturity at any time on or after , 1999 at
the redemption prices (expressed in percentages of principal amount) set forth
below plus accrued interest to the date fixed for redemption, if redeemed dur-
ing the 12-month period beginning on of each year starting with
the year indicated below.
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1999........................................................... %
2000........................................................... %
2001 and thereafter............................................ %
</TABLE>
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the date fixed for redemption to each
holder of Senior Notes to be redeemed at his or her registered address. Senior
Notes in denominations larger than $1,000 may be redeemed in part but only in
whole multiples of $1,000. In the event of a redemption of less than all of
the Senior Notes, the Senior Notes will be chosen for redemption by the
Trustee by lot or pro rata or, if required, in compliance with the require-
ments of the principal national securities exchange, if any, on which the Se-
nior Notes are listed. On and after the redemption date interest ceases to ac-
crue on Senior Notes or portions of them called for redemption (unless the
Company defaults in the payment of the redemption price). If this Senior Note
is redeemed subsequent to a record date with respect to any interest payment
date specified above and on or prior to such interest payment date, then any
accrued interest will be paid to the person in whose name this Senior Note is
registered at the close of business on such record date.
A-3
<PAGE>
7. CHANGE OF CONTROL. Upon a Change of Control, the Company shall make a
Change of Control Offer to purchase all outstanding securities at a price
equal to 101% of the aggregate principal amount of the Senior Notes, plus ac-
crued and unpaid interest to the date of purchase, such offer to be made as
provided in the Indenture. To accept the Change of Control Offer, the holder
hereof must comply with the terms thereof, including surrendering this Senior
Note, with the "Option of Holder to Elect Purchase" portion hereof completed,
to the Company, a depositary, if appointed by the Company, or a Paying Agent,
at the address specified in the notice of the Change of Control Offer mailed
to holders as provided in the Indenture, prior to termination of the Change of
Control Offer.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Senior Notes may be registered and Senior Notes may be
exchanged as provided in the Indenture. As a condition of transfer, the Regis-
trar may require a holder, among other things, to furnish appropriate endorse-
ments and transfer documents and the Company may require a holder to pay any
taxes and fees required by law or permitted by the Indenture. The Registrar
need not exchange or register the transfer of any Senior Note or portion of a
Senior Note selected for redemption. Also, it need not exchange or register
the transfer of any Senior Notes for a period of 15 days before a selection of
Senior Notes to be redeemed.
9. PERSONS DEEMED OWNERS. The registered holder of a Senior Note may be
treated as its owner for all purposes.
10. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture or
the Senior Notes may be amended with the consent of the holders of at least a
majority in principal amount of the then outstanding Senior Notes and any ex-
isting default may be waived with the consent of the holders of a majority in
principal amount of the then outstanding Senior Notes. Without the consent of
any holder, the Indenture or the Senior Notes may be amended to: add to the
covenants of the Company for the benefit of the holders; surrender any right
or power conferred upon the Company; evidence the succession of another person
to the Company and the assumption by such successor of the covenants and obli-
gations of the Company thereunder and in the Senior Notes as permitted in the
Indenture; and cure any ambiguity or correct or supplement any defective pro-
vision herein or make any changes
A-4
<PAGE>
in any other provisions of the Indenture which the Company and the Trustee
deem necessary or desirable and which in either case will not adversely affect
the interest of the holders of the Senior Notes.
11. DEFAULTS AND REMEDIES. An Event of Default is: default for 30 days in
payment of interest on the Senior Notes; default in payment of principal of or
premium if any, on the Senior Notes; failure by the Company for 60 days after
notice to it to comply with any of its other agreements in the Indenture or
the Senior Notes (except that with respect to certain other covenants, such
defaults shall be Events of Default with such notice but without such passage
of time); certain defaults under and accelerations prior to maturity of cer-
tain indebtedness; certain final judgments which remain undischarged; and cer-
tain events of bankruptcy or insolvency. If an Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the then outstanding Senior Notes may declare all the Senior Notes to be due
and payable immediately, except that in the case of an Event of Default aris-
ing from certain events of bankruptcy or insolvency, all outstanding Senior
Notes become due and payable without further action or notice. Holders may not
enforce the Indenture or the Senior Notes except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Senior Notes. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Senior Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from holders notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interests. The Company must furnish quarterly compliance certificates to the
Trustee.
12. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee or any of its Affiliates,
in their individual or any other capacities, may make or continue loans to or
guaranteed by, accept deposits from and perform services for the Company or
its Affiliates and may otherwise deal with the Company or its Affiliates as if
it were not Trustee.
13. NO RECOURSE AGAINST OTHERS. No director, officer, employee or stockhold-
er, as such, of the Company shall have any liability for any obligations of
the Company under the Senior Notes or the Indenture or for any claim based on,
in respect of or by reason of such obligations or their creation. Each holder
by accepting a Senior Note waives and releases all such
A-5
<PAGE>
liability. The waiver and release are part of the consideration for the Senior
Notes.
14. AUTHENTICATION. This Senior Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
15. ABBREVIATIONS. Customary abbreviations may be used in the name of a
holder or an assignee, such as: TEN CO = tenants in common, TEN ENT = tenants
by the entireties, JT TEN = joint tenants with right of survivorship and not
as tenants in common, CUST = Custodian and U/G/M/A = Uniform Gifts to Minors
Act.
The Company will furnish to any holder upon written request and without
charge a copy of the Indenture. Requests may be made to: General Counsel,
Rohr, Inc., 850 Lagoon Drive, Chula Vista, California 91910.
A-6
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Senior Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Senior Note to
-------------------------------
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
---------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
agent to transfer this Senior Note on the books of the Company. The agent may
substitute another to act for him.
Date:
-------------------------------------------------------------------------
Your signature:
----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this
Senior Note)
Signature Guarantee:
----------------------------------------------------------
A-7
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Senior Note purchased by the Company pursuant to
Sections 4.10 or 4.16 of the Indenture, check the Box: [_]
If you wish to have a portion of this Senior Note purchased by the Company
pursuant to Sections 4.10 or 4.16 of the Indenture, state the amount in multi-
ples of $1,000:
$
----------------------------------------
Date:
--------------------------------------
Your signature:
----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this
Senior Note)
Signature Guarantee:
----------------------------------------------------------
A-8
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ROHR, INC.
AND
THE BANK OF NEW YORK,
AS TRUSTEE
--------------------
$50,000,000
% CONVERTIBLE SUBORDINATED NOTES DUE 2004
--------------------
INDENTURE
DATED AS OF MAY 15, 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 DEFINITIONS................................................... 1
SECTION 1.01 Definitions............................................ 1
SECTION 1.02 Other Definitions...................................... 15
SECTION 1.03 Incorporation by Reference of Trust Indenture Act...... 15
SECTION 1.04 Rules of Construction.................................. 16
ARTICLE 2 THE CONVERTIBLE SUBORDINATED NOTES............................ 16
SECTION 2.01 Form and Dating........................................ 16
SECTION 2.02 Execution and Authentication........................... 17
SECTION 2.03 Registrar and Paying Agent............................. 17
SECTION 2.04 Paying Agent To Hold Money in Trust.................... 18
SECTION 2.05 Holder Lists........................................... 19
SECTION 2.06 Transfer and Exchange.................................. 19
SECTION 2.07 Replacement Convertible Subordinated Notes............. 19
SECTION 2.08 Outstanding Convertible Subordinated Notes............. 20
SECTION 2.09 When Treasury Convertible Subordinated Notes
Disregarded.......................................... 20
SECTION 2.10 Temporary Convertible Subordinated Notes............... 21
SECTION 2.11 Cancellation........................................... 21
SECTION 2.12 Defaulted Interest..................................... 21
SECTION 2.13 CUSIP Number........................................... 22
ARTICLE 3 REDEMPTION.................................................... 22
SECTION 3.01 Notices to Trustee..................................... 22
SECTION 3.02 Selection of Convertible Subordinated Notes To Be
Redeemed............................................. 22
SECTION 3.03 Notice of Redemption................................... 23
SECTION 3.04 Effect of Notice of Redemption......................... 24
SECTION 3.05 Deposit of Redemption Price............................ 24
SECTION 3.06 Convertible Subordinated Notes Redeemed in Part........ 24
ARTICLE 4 COVENANTS..................................................... 25
SECTION 4.01 Payment of Convertible Subordinated Notes.............. 25
SECTION 4.02 Commission Reports..................................... 25
SECTION 4.03 Compliance Certificate................................. 26
SECTION 4.04 Maintenance of Office or Agency........................ 26
SECTION 4.05 Limitation on Sale of Assets........................... 27
SECTION 4.06 Continued Existence.................................... 30
SECTION 4.07 Taxes.................................................. 30
SECTION 4.08 Change of Control...................................... 31
SECTION 4.09 Appointments to Fill Vacancies in Trustee's Office..... 33
SECTION 4.10 Further Instruments and Acts........................... 33
SECTION 4.11 Stay, Extension and Usury Laws......................... 34
SECTION 4.12 Investment Company Act................................. 34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 5 SUCCESSORS.................................................... 34
SECTION 5.01 When the Company May Merge, etc........................ 34
SECTION 5.02 Successor Corporation Substituted...................... 36
SECTION 5.03 Purchase Option on Change of Control................... 36
ARTICLE 6 DEFAULTS AND REMEDIES......................................... 36
SECTION 6.01 Events of Default...................................... 36
SECTION 6.02 Acceleration........................................... 38
SECTION 6.03 Other Remedies......................................... 39
SECTION 6.04 Waiver of Past Defaults................................ 39
SECTION 6.05 Control by Majority.................................... 40
SECTION 6.06 Limitation on Suits.................................... 40
SECTION 6.07 Rights of Holders To Receive Payment................... 40
SECTION 6.08 Collection Suit by Trustee............................. 41
SECTION 6.09 Trustee May File Proofs of Claim....................... 41
SECTION 6.10 Priorities............................................. 41
SECTION 6.11 Undertaking for Costs.................................. 42
ARTICLE 7 THE TRUSTEE................................................... 42
SECTION 7.01 Duties of the Trustee.................................. 42
SECTION 7.02 Rights of the Trustee.................................. 44
SECTION 7.03 Individual Rights of the Trustee....................... 45
SECTION 7.04 Trustee's Disclaimer................................... 45
SECTION 7.05 Notice of Defaults..................................... 46
SECTION 7.06 Reports by the Trustee to Holders...................... 46
SECTION 7.07 Compensation and Indemnity............................. 47
SECTION 7.08 Replacement of the Trustee............................. 48
SECTION 7.09 Successor Trustee by Merger, etc....................... 49
SECTION 7.10 Eligibility, Disqualification.......................... 49
SECTION 7.11 Preferential Collection of Claims Against Company...... 50
ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE....................... 50
SECTION 8.01 Termination of Company's Obligations................... 50
SECTION 8.02 Application of Trust Money............................. 54
SECTION 8.03 Repayment to Company................................... 54
SECTION 8.04 Reinstatement.......................................... 55
ARTICLE 9 AMENDMENTS.................................................... 55
SECTION 9.01 Without the Consent of Holders......................... 55
SECTION 9.02 With the Consent of Holders............................ 56
SECTION 9.03 Compliance with the Trust Indenture Act................ 58
SECTION 9.04 Revocation and Effect of Consents...................... 58
SECTION 9.05 Notation on or Exchange of Convertible Subordinated
Notes................................................ 59
SECTION 9.06 Trustee Protected...................................... 59
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 10 GENERAL PROVISIONS............................................ 59
SECTION 10.01 Trust Indenture Act Controls........................... 59
SECTION 10.02 Notices................................................ 60
SECTION 10.03 Communication by Holders With Other Holders............ 60
SECTION 10.04 Certificate and Opinion as to Conditions Precedent..... 61
SECTION 10.05 Statements Required in Certificate or Opinion.......... 61
SECTION 10.06 Rules by Trustee and Agents............................ 62
SECTION 10.07 Legal Holidays......................................... 62
SECTION 10.08 No Recourse Against Others............................. 62
SECTION 10.09 Counterparts........................................... 62
SECTION 10.10 Other Provisions....................................... 63
SECTION 10.11 Governing Law.......................................... 64
SECTION 10.12 No Adverse Interpretation of Other Agreements.......... 64
SECTION 10.13 Successors............................................. 64
SECTION 10.14 Severability........................................... 64
SECTION 10.15 Table of Contents, Headings, etc....................... 64
ARTICLE 11 SUBORDINATION................................................. 65
SECTION 11.01 Agreement To Subordinate............................... 65
SECTION 11.02 Liquidation; Dissolution; Bankruptcy................... 65
SECTION 11.03 Default on Designated Senior Indebtedness.............. 66
SECTION 11.04 Acceleration of Convertible Subordinated Notes......... 66
SECTION 11.05 When Distributions Must Be Paid Over................... 66
SECTION 11.06 Notice by the Company.................................. 67
SECTION 11.07 Subrogation............................................ 68
SECTION 11.08 Relative Rights........................................ 68
SECTION 11.09 Subordination May Not Be Impaired by the Company....... 69
SECTION 11.10 Distribution of Notice to the Representative........... 69
SECTION 11.11 Rights of the Trustee and Paying Agent................. 69
SECTION 11.12 No Fiduciary Duty to Holders of Senior Indebtedness.... 70
SECTION 11.13 Authorization to Effect Subordination.................. 71
ARTICLE 12 CONVERSION OF CONVERTIBLE SUBORDINATED NOTES.................. 71
SECTION 12.01 Conversion Privilege................................... 71
SECTION 12.02 Manner of Exercise of Conversion Privilege............. 72
SECTION 12.03 Cash Payments in Lieu of Fractional Shares............. 74
SECTION 12.04 Adjustment of Conversion Price......................... 74
SECTION 12.05 Notice to Holders Prior to Certain Corporate Actions... 82
SECTION 12.06 Reservation of Shares of Common Stock.................. 83
SECTION 12.07 Taxes upon Conversion.................................. 83
SECTION 12.08 Covenants as to Common Stock........................... 83
SECTION 12.09 Consolidation or Merger or Sale of Assets.............. 84
SECTION 12.10 Disclaimer of Responsibility for Certain Matters....... 85
SECTION 12.11 Cancellation of Converted Notes........................ 86
SECTION 12.12 Voluntary Reduction.................................... 86
</TABLE>
iii
<PAGE>
CROSS-REFERENCE TABLE*
TRUST INDENTURE ACT SECTION INDENTURE SECTION
310(a)(1)................................................................. 7.10
(a)(2)................................................................. 7.11
(a)(3)................................................................. N.A.
(a)(4)................................................................. N.A.
(b)....................................................... 7.08, 7.10, 10.02
(c).................................................................... N.A.
311(a).................................................................... 7.11
(b).................................................................... 7.11
(c).................................................................... N.A.
312(a).................................................................... 2.05
(b)................................................................... 10.03
(c)................................................................... 10.03
313(a).................................................................... 7.06
(b)(1)................................................................. N.A.
(b)(2)................................................................. 7.06
(c)............................................................. 7.06, 10.02
(d).................................................................... 7.06
314(a)............................................................. 4.01, 10.02
(b).................................................................... N.A.
(c)(1)................................................................ 10.04
(c)(2)................................................................ 10.04
(c)(3)................................................................. N.A.
(d).................................................................... N.A.
(e)................................................................... 10.05
(f).................................................................... N.A.
315(a)................................................................. 7.01(b)
(b)............................................................. 7.05, 10.02
(c)................................................................. 7.01(a)
(d)................................................................. 7.01(c)
(e).................................................................... 6.11
316(a)(last sentence)..................................................... 2.09
(a)(1)(A).............................................................. 6.05
(a)(2)(B).............................................................. 6.04
(a)(2)................................................................. N.A.
(b).................................................................... 6.02
317(a)(1)................................................................. 6.08
(a)(2)..................................................................6.09
(b).................................................................... 2.04
318(a)................................................................... 10.01
N.A. means not applicable.
- ---------
* This Cross-Reference Table is not part of the Indenture.
iv
<PAGE>
THIS INDENTURE, dated as of May 15, 1994, is between Rohr, Inc., a Delaware
corporation (the "Company"), and The Bank of New York, a New York State bank-
ing corporation ("Trustee"). The Company has duly authorized the creation of
its % Convertible Subordinated Notes due 2004 (the "Convertible Subordi-
nated Notes") and to provide therefor the Company has duly authorized the exe-
cution and delivery of this Indenture. Each party agrees as follows for the
benefit of the other party and for the equal and ratable benefit of the hold-
ers from time to time of the Convertible Subordinated Notes.
ARTICLE 1
Definitions
Section 1.01 Definitions.
"Acquired Indebtedness" of any specified Person means Indebtedness of any
other Person and its subsidiaries existing at the time such other Person
merged with or into or became a subsidiary of such specified Person or assumed
by the specified Person in connection with the acquisition of assets from such
other Person including, without limitation, Indebtedness of such other Person
and its subsidiaries incurred in connection with or in anticipation of (a)
such other Person and its subsidiaries being merged with or into or becoming a
subsidiary of such specified Person or (b) such acquisition by the specified
Person.
"Affiliate" means, when used with reference to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, the referent Person, as the case may be, or any Person
who beneficially owns (within the meaning of Rule 13d-3 and Rule 13d-5 under
the Exchange Act), directly or indirectly, 10% or more of the equity interests
of the referent Person or warrants, options or other rights to acquire or hold
more than 10% of any class of equity interests of the referent Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct or cause the direction of management or poli-
cies of the referent Person, directly or indirectly, whether through the own-
ership of voting securities, by contract or otherwise; and the terms "control-
ling" and "controlled" have meanings correlative of the foregoing.
1
<PAGE>
"Agent" means any Registrar, Paying Agent, Conversion Agent or co-registrar.
"Asset Sale" means any sale, lease, transfer, exchange or other disposition
by the Company or any subsidiary (or series of related sales, leases, trans-
fers, exchanges or dispositions) in excess of $1,000,000, including, without
limitation, dispositions pursuant to merger, consolidation or sale and lease-
back transactions, of (a) shares of Capital Stock of a subsidiary of the Com-
pany (prorated to the extent of the Company's interest therein), (b) all or
substantially all of the properties and assets of any division or line of
business of the Company or any subsidiary of the Company or (c) any other
property or assets of the Company (prorated to the extent of the Company's in-
terest therein) or of any subsidiary of the Company (prorated to the extent of
the Company's interest therein) outside the ordinary course of business of the
Company or such subsidiary (each referred to for purposes of this definition
as a "disposition") by the Company or by any of its subsidiaries (other than
(i) dispositions by the Company to a wholly owned subsidiary of the Company or
by a subsidiary of the Company to the Company or to a wholly owned subsidiary
of the Company, (ii) sales or other dispositions of inventory, (iii) any dis-
position of properties or assets that is consummated in accordance with the
provisions of Section 5.01, (iv) any disposition of any account receivable
pursuant to the Pooling and Servicing Agreement, (v) dispositions by the Com-
pany or any subsidiary of the Company of the business jet related product
line, the overhaul and repair business as conducted by Rohr Aero Services,
Inc. and Rohr Aero Services Europe, respectively, on the Issue Date, the Ha-
gerstown, Maryland plant and the Auburn, Washington plant, in each case in-
cluding related assets, (vi) the disposition by the Company or any subsidiary
of the Company of interests owned on the Issue Date in two trusts which own an
Airbus A300 aircraft and a McDonnell Douglas DC10 aircraft, respectively and
(vii) the disposition of Building 107 (at the Company's facility in Chula Vis-
ta, California) to (a) any pension plan of the Company or (b) to any other
Person if the net proceeds of such disposition are delivered to any pension
plan referred to in clause (a) of this definition, in either case resulting in
the full satisfaction (or in case the full amount of such net proceeds are so
delivered and shall be insufficient to effect such full satisfaction, the par-
tial satisfaction) of the Company's funding liabilities with respect to any
such pension plan or plans).
"Bank Agent" means, at any time, the then-acting agent under the Revolving
Credit Agreement, which shall initially be Citicorp USA, Inc.
2
<PAGE>
"Board of Directors" means the Board of Directors of the Company or any au-
thorized committee of the Board of Directors.
"Capital Stock" means, with respect to any Person, any and all shares, in-
terests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock, including
each class of Common Stock or Preferred Stock of such Person, whether out-
standing on the Issue Date or issued after the Issue Date, and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock (but excluding any debt security that is exchangeable for or convertible
into such capital stock).
"Capitalized Lease Obligation" means any obligation under a lease that is
required to be classified and accounted for as a capital lease obligation un-
der GAAP and, for purposes of this Indenture, the amount of such obligations
at any date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Cash Equivalents" means (a) marketable direct obligations issued by, or un-
conditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof,
(b) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public instru-
mentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's In-
vestors Service, Inc. ("Moody's"), (c) commercial paper maturing no more than
one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's, (d)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any commercial bank organized under
the laws of the United States of America or any state thereof or the District
of Columbia or any United States branch of a foreign bank having, at the date
of acquisition thereof, combined capital and surplus of not less than $250
million, (e) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (a) above entered
into with any bank meeting the qualifications specified in clause (d) above
and (f) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (a) through (e) above.
3
<PAGE>
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the Board of Directors of the Company): (a)
an event or series of events by which any Person or other entity or group of
Persons or other entities acting in concert as determined in accordance with
Section 13(d) of the Exchange Act, whether or not applicable (a "Group of Per-
sons") shall, as a result of a tender or exchange offer, open market pur-
chases, privately negotiated purchases, merger or otherwise (i) be or become,
directly or indirectly, the beneficial owner (within the meaning of Rule 13d-3
and Rule 13d-5 under the Exchange Act, whether or not applicable) of 50% or
more of the combined voting power of the then outstanding Voting Stock of the
Company or (ii) have or has the ability to elect, directly or indirectly, a
majority of the members of the Board of Directors of the Company or other
equivalent governing body thereof, (b) the shareholders of the Company shall
approve any Plan of Liquidation of the Company (whether or not otherwise in
compliance with the provisions of this Indenture), (c) individuals who at the
beginning of any period of two consecutive calendar years constituted the
Board of Directors of the Company (together with any new directors whose elec-
tion or appointment by the Board of Directors of the Company or whose nomina-
tion for election by the Company's shareholders was approved by a vote of at
least a majority of the members of the Board of Directors of the Company then
still in office who either were members of the Board of Directors of the Com-
pany at the beginning of such period or whose election, appointment or nomina-
tion for election was previously so approved) cease for any reason to consti-
tute a majority of the members of the Board of Directors of the Company then
in office, or (d) the direct or indirect sale, lease, exchange or other trans-
fer, in one transaction or a series of related transactions, of all or sub-
stantially all of the property or assets of the Company to any Person or Group
of Persons (whether or not otherwise in compliance with the provisions of this
Indenture).
"Commission" means the Securities and Exchange Commission.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and
4
<PAGE>
whether voting or non-voting) of any Person's common stock, whether outstand-
ing on the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Company" means the party named as such above until a successor replaces it
in accordance with Article 5 and thereafter means the successor.
"Consolidated Net Worth" of a Person at any date means the Consolidated
Stockholders' Equity of such Person less (a) the amount of any gain resulting,
directly or indirectly, from the extinguishment, retirement or repurchase of
any Indebtedness of such Person or of any of its subsidiaries, (b) any revalu-
ation or other write-ups subsequent to the Issue Date in the book value of any
asset owned by such Person or a Consolidated Subsidiary and (c) any amounts
attributable to the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of Capital Stock of such Person or
of any of its subsidiaries. Notwithstanding any of the foregoing, net deferred
income tax assets recorded in accordance with Statement of Financial Account-
ing Standards No. 109, Accounting for Income Taxes ("SFAS 109"), shall be cal-
culated without regard to any valuation allowance with respect to such net de-
ferred tax asset recorded by the Company in accordance with SFAS 109.
"Consolidated Stockholders' Equity" as of any date means, with respect to
any Person, the amount by which the assets of such Person and of its subsidi-
aries on a consolidated basis exceed (a) the total liabilities of such Person
and of its subsidiaries on a consolidated basis, plus (b) any redeemable Pre-
ferred Stock of any such Person or any redeemable Preferred Stock of any sub-
sidiary of such issued to any Person other than to such Person or to a wholly
owned subsidiary of such Person, in each case determined in accordance with
GAAP.
"Consolidated Subsidiary" of any Person means a subsidiary which for finan-
cial reporting purposes is or, in accordance with GAAP, should be, accounted
for by such Person as a consolidated subsidiary.
"Convertible Subordinated Notes" means the Convertible Subordinated Notes
issued under this Indenture.
"Conversion Agent" means any Person authorized by the Company to accept Con-
vertible Subordinated Notes for conversion pursuant to this inden-
5
<PAGE>
ture and deliver shares of Common Stock (or other securities or property) de-
liverable upon such conversion.
"Conversion Notice" has the meaning specified in Section 12.02.
"Conversion Price" means the initial conversion price specified in the form
of Note in Section 2 of such form, as adjusted in accordance with the provi-
sions of Article 12.
"Daily Market Price" when used with reference to the Common Stock or another
security means the price of a share of Common Stock or such other security on
any date, determined (a) on the basis of the last reported sales price of the
Common Stock or such other security for such date (i) as reported on the com-
posite tape, or similar reporting system, for issues listed on the New York
Stock Exchange (or if the Common Stock or such other security has not been
listed on that exchange, for issues listed on such other national securities
exchange upon which the Common Stock or such other securities are listed as
may be designated by the Board of Directors from time to time for the purposes
hereof) or (ii) if the Common Stock or such other security is not listed or
admitted to trading on any national securities exchange, as reported on the
National Market System of the National Association of Securities Dealers Auto-
mated Quotation System ("Nasdaq") or (b) if there is no such reported sale on
the date in question, on the basis of the average of the closing bid and asked
quotations regular way so reported for such date or (c) if the Common Stock or
security is not listed on any national securities exchange or on the Nasdaq
National Market System, on the basis of the average of the high bid and low
asked quotations regular way on the date in question in the over-the-counter
market as reported by Nasdaq, or if not so quoted, as reported by National
Quotation Bureau, Incorporated or a similar organization.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default (as defined in Section 6.01).
"Designated Senior Indebtedness" means Senior Indebtedness of the Company
now or hereafter outstanding under (i) the Revolving Credit Agreement; (ii)
the Company's 9.35% Senior Notes due 2000 and 9.33% Senior Notes due 2002;
(iii) the Senior Notes; and (iv) any other Senior Indebtedness issued in one
or more substantially concurrent issuances on substantially similar terms, the
aggregate original principal amount which is $50 million or more.
6
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" or "fair value" means, with respect to any asset or
property or Capital Stock, the price which could be negotiated in an arm's-
length, free market transaction, for cash, between an informed and willing
seller and an informed and willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair Market Value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a written resolution of said Board
of Directors (certified by the Secretary or Assistant Secretary of the Compa-
ny) delivered to the Trustee, provided that if the aggregate non-cash consid-
eration to be received by the Company or any of its subsidiaries from any As-
set Sale shall exceed $10,000,000, then Fair Market Value shall be determined
by an Independent Financial Advisor.
"GAAP" means generally accepted accounting principles set forth in the opin-
ions and pronouncements of the Accounting Principles Board of the American In-
stitute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), as-
sume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise,
of any such Indebtedness or other obligation on the balance sheet of such Per-
son (and "incurrence," "incurred," "incurable" and "incurring" shall have
meanings correlative to the foregoing), provided that the accrual of interest
(whether such interest is payable in cash or in kind) and the accretion of
original issue discount shall not be deemed an incurrence of Indebtedness,
provided, further, that (a) any Indebtedness of a Person existing at the time
such Person becomes (after the Issue Date) a subsidiary (whether by merger,
consolidation, acquisition or otherwise) of the Company shall be deemed to be
incurred by such subsidiary at the time it becomes a subsidiary of the Company
and (b) any amendment, modification or waiver of any document pursuant to
which Indebtedness was previously incurred shall be deemed to be an incurrence
of Indebtedness unless such amendment, modification or waiver
7
<PAGE>
does not (i) increase the principal or premium thereof or interest rate
thereon (including by way of original issue discount), (ii) change to an ear-
lier date the Stated Maturity thereof or the date of any scheduled or required
principal payment thereon or the time or circumstances under which such In-
debtedness may or shall be redeemed, (iii) if such Indebtedness is subordi-
nated to the Convertible Subordinated Notes, modify or affect, in any manner
adverse to the holders of the Convertible Subordinated Notes, such subordina-
tion or (iv) if the Company is the obligor thereon, provide that a subsidiary
of the Company not already an obligor thereon shall be an obligor thereon.
"Indebtedness" means, with respect to any Person, at any date, any of the
following, without duplication, (a) any liability, contingent or otherwise, of
such Person (i) for borrowed money (whether or not the recourse of the lender
is to the whole of the assets of such Person or only to a portion thereof),
(ii) evidenced by a note, bond, debenture or similar instrument, (iii) for the
payment of money relating to a Capitalized Lease Obligation or (iv) with re-
spect to an obligation (whether issued or assumed) relating to the deferred
purchase price of property but excluding advances, deposits, partial and pro-
gress payments, unpaid wages and related employee obligations, trade accounts
payable and accrued liabilities in each case arising in the ordinary course of
business that are not overdue by 180 days or more or are being contested in
good faith by appropriate proceedings promptly instituted and diligently con-
ducted; (b) all conditional sale obligations and all obligations under any ti-
tle retention agreement (even if the rights and remedies of the seller under
such agreement in the event of default are limited to repossession or sale of
such property); (c) reimbursement obligations of such Person with respect to
letters of credit and all obligations of such Person in respect of any bank-
er's acceptance or similar credit transaction entered into in the ordinary
course of business; (d) all Indebtedness of others secured by (or for which
the holder of such Indebtedness has an existing right, contingent or other-
wise, to be secured by) any Lien on any asset or property (including, without
limitation, leasehold interests and any other tangible or intangible property)
of such Person, whether or not such Indebtedness is assumed by such Person or
is not otherwise such Person's legal liability, provided that if the obliga-
tions so secured have not been assumed in full by such Person or are otherwise
not such Person's legal liability in full, the amount of such Indebtedness for
the purposes of this definition shall be limited to the lesser of the amount
of such Indebtedness secured by such Lien or the Fair Market Value of the as-
sets or
8
<PAGE>
property securing such Lien; and (e) all Indebtedness of others guaranteed
(including all dividends of other Persons the payment of which is guaranteed),
directly or indirectly, by such Person or that is otherwise its legal liabil-
ity or which such Person has agreed to purchase or repurchase or in respect of
which such Person has agreed contingently to supply or advance funds.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable and
good faith judgment of the Board of Directors of the Company, qualified to
perform the task for which such firm has been engaged and disinterested and
independent with respect to the Company and its Affiliates.
"Interest Payment Date" means May 15 and November 15 of each year.
"Issue Date" means the date on which the Convertible Subordinated Notes are
originally issued under this Indenture.
"Lien" means, with respect to any Person, any mortgage, pledge, lien, encum-
brance, easement, restriction, covenant, right-of-way, charge or adverse claim
affecting title or resulting in an encumbrance against real or personal prop-
erty of such Person, or a security interest of any kind (including any condi-
tional sale or other title retention agreement, any lease in the nature there-
of, including any sale and leaseback transaction, any option or other similar
agreement to sell, in each case securing obligations of such Person and any
filing of or agreement to give any financing statement under the Uniform Com-
mercial Code (or equivalent statute or statutes) of any jurisdiction other
than to reflect ownership by a third party of property leased to the referent
Person or any of its subsidiaries under a lease that is not in the nature of a
conditional sale or title retention agreement).
"Material Subsidiary" means, at any date of determination, any subsidiary of
the Company that, together with its subsidiaries, (i) for the most recent fis-
cal year of the Company accounted for more than 5% of the consolidated reve-
nues of the Company or (ii) as of the end of such fiscal year, was the owner
of more than 5% of the consolidated assets of the Company, all as set forth on
the most recently available consolidated financial statements of the Company
9
<PAGE>
and its Consolidated Subsidiaries for such fiscal year prepared in conformity
with generally accepted accounting principles as then in effect.
"Maturity Date" means May , 2004.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any subsidiary of the Company) and
proceeds from the conversion of other property received when converted to cash
or Cash Equivalents, net of (a) reasonable third-party brokerage commissions
and other reasonable third-party fees and expenses (including fees and ex-
penses of counsel and investment bankers) related to such Asset Sale, (b) pro-
visions for all taxes as a result of such Asset Sale computed on a consoli-
dated basis reflecting consolidated results of operations of the Company and
its subsidiaries, taken as a whole, (c) payments made to repay Indebtedness or
any other obligation outstanding at the time of such Asset Sale that was in-
curred in accordance with this Indenture and that either (i) is secured by a
Lien incurred in accordance with this Indenture on the property or assets sold
or (ii) is required to be paid as a result of such sale in each case to the
extent actually repaid in cash and (d) appropriate amounts to be provided by
the Company or any subsidiary of the Company as a reserve against liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmen-
tal matters and liabilities under any indemnification obligations associated
with such Asset Sale, all as determined in conformity with generally accepted
accounting principles as then in effect. For purposes of this definition and
Section 4.05 "cash" means U.S. dollars or such money as is freely and readily
convertible into U.S. dollars.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Financial Officer, the Chief Accounting Officer, any Ex-
ecutive Vice President, Senior Vice President or Vice President, the Treasur-
er, any other executive officer, the Secretary and any Assistant Treasurer or
any Assistant Secretary of the Company.
10
<PAGE>
"Officers' Certificate" means a certificate signed by two Officers, one of
whom must be the principal executive officer, principal financial officer, the
treasurer or principal accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who may be
an employee of or counsel to the Company or the Trustee except to the extent
otherwise indicated in this Indenture.
"Permitted Program Investment" means an investment in design, engineering,
tooling or similar costs related to a program undertaken by the Company in the
ordinary course of its business.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or po-
litical subdivision thereof.
"Plan of Liquidation" means a plan (including by operation of law) that pro-
vides for, contemplates or the effectuation of which is preceded or accompa-
nied by (whether or not substantially contemporaneously) (i) the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
the Company otherwise than as an entirety or substantially as an entirety and
(ii) the distribution of all or substantially all of the proceeds of such
sale, lease, conveyance or other disposition and all or substantially all of
the remaining assets of the Company to holders of capital stock of the Compa-
ny.
"Pooling and Servicing Agreement" means the Pooling and Servicing Agreement
dated as of December 23, 1992, among the Company, the Company's wholly owned
subsidiary RI Receivables, Inc. and Bankers Trust Company, as trustee on be-
half of the Certificateholders (as defined therein), and related documentation
and any extension, renewal, modification, restatement or replacement thereof
(in whole or in part), as the same may be amended, supplemented or otherwise
modified from time to time; provided, however, the investors in any such re-
ceivables program shall not obtain an interest in receivables sold under such
program which exceeds $70 million in aggregate principal amount at any one
time.
"Preferred Stock" means the Capital Stock of any Person (other than the Com-
mon Stock of such Person) of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of
11
<PAGE>
assets upon any voluntary or involuntary liquidation, dissolution or winding-
up of such Person, to shares of Capital Stock of any other class of such Per-
son.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of this Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act.
"Prospectus" means the Company's final prospectus dated , 1994 in respect of
the public offering of the Convertible Subordinated Notes.
"Qualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that is not Disqualified Capital Stock or convertible
into or exchangeable or exercisable for Disqualified Capital Stock and in-
cludes Rights and other securities issuable under the Company's Amended and
Restated Rights Agreement, dated as of April 6, 1990, between the Company and
The First National Bank of Chicago, as Rights Agent, as such agreement may be
amended or supplemented from time to time.
"redemption date" when used with respect to any of the Convertible Subordi-
nated Notes to be redeemed, means the date fixed by the Company for such re-
demption pursuant to this Indenture and the Convertible Subordinated Notes.
"redemption price" when used with respect to any of the Convertible Subordi-
nated Notes to be redeemed, means the price fixed for such redemption pursuant
to this Indenture and the Convertible Subordinated Notes.
"Regular Record Date" means the first or immediately preceding
each interest payment date.
"Representative" means the Bank Agent and each trustee, agent or other rep-
resentative of the holders of any class of Senior Indebtedness (or, with re-
spect to any class of Senior Indebtedness which does not have any such trust-
ee, agent or other representative, any holder of such Senior Indebtedness act-
ing with the consent of the required lenders necessary to bind such class of
Senior Indebtedness) who has been so identified in writing to the Trustee and
the Company provided, however that solely for the purposes of (S) 11.03 here-
of, (i) in the case of the Company's 9.33% Senior Notes, holders, acting as a
group, who represent in writing to the Trustee and the Company that they are
owners of record of at least 66 2/3% in interest of the Company's outstanding
9.33% Senior Notes, or in the case of the 9.35% Senior Notes, holders, acting
as a group, who represent in writing to the Trustee and the Company that they
12
<PAGE>
are the owners of record of at least 66 2/3% in interest of the Company's out-
standing 9.35% Senior Notes.
"Revolving Credit Agreement" means the Credit Agreement dated as of April
26, 1989, among the Company, the lenders party thereto, and the Bank Agent,
and any agreement governing Indebtedness incurred to refund or refinance the
borrowings, letters of credit and commitments then outstanding or permitted to
be outstanding under the Revolving Credit Agreement, in each case together
with the related notes and any other instruments and agreements executed from
time to time in connection therewith, and in each case as amended, modified,
supplemented, extended, renewed, restated, refunded, replaced or refinanced
(in whole or in part, and without limitation as to amount, terms, conditions,
covenants and other provisions) from time to time.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Notes" means the % Senior Notes due 2003 of the Company offered
concurrently with the Convertible Subordinated Notes.
"Senior Note Indenture" means that certain indenture by and between the Com-
pany and IBJ Schroder Bank & Trust Company, as Trustee, governing the Senior
Notes as amended or supplemented from time to time.
"Senior Indebtedness" means all present or future Indebtedness of the Com-
pany described in clauses (a)(i), (a)(ii), (a)(iv) and (c) of the definition
of Indebtedness, created, incurred, assumed or, except to the extent described
below, guaranteed (to the extent of the guarantee) by the Company (and all re-
newals, modifications, extensions or refundings thereof), together with all
other obligations owing in connection therewith, including principal, interest
(including interest accruing on any such indebtedness which is Designated Se-
nior Indebtedness after the filing of a petition by or against the Company un-
der any bankruptcy law, whether or not the claim for such interest is allowed
as a claim after such filing in any proceeding under such bankruptcy law),
premium, if any, fees, costs, expenses and indemnities unless the instrument
under which such Indebtedness is created, incurred, assumed or guaranteed pro-
vides that such Indebtedness is not senior or superior in right of payment to
the Convertible Subordinated Notes. Notwithstanding anything to the contrary
in the foregoing, Senior Indebtedness shall not include (a) any Indebtedness
of the Company owing to any of its subsidiaries, (b) Capitalized Lease Obliga-
tions, (c) Indebtedness or other obligations in respect of the Pool-
13
<PAGE>
ing and Servicing Agreement, (d) the Company's 9.25% Subordinated Debentures
due 2017 and its 7% Convertible Subordinated Debentures due 2012 and (e) any
advances, deposits or partial progress payments, payables, unpaid wages and
related employee obligations, trade accounts and accrued liabilities.
"Stated Maturity" means, with respect to any security or Indebtedness, the
date specified therein as the fixed date on which any principal of such secu-
rity or Indebtedness is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
thereof at the option of the holder thereof).
A "subsidiary" of any Person means (a) a corporation a majority of whose
Voting Stock is at the time, directly or indirectly, owned by such Person, by
one or more subsidiaries of such Person or by such Person and one or more sub-
sidiaries of such Person or (b) any other Person (other than a corporation) in
which such Person, one or more subsidiaries of such Person or such Person and
one or more subsidiaries of such Person, directly or indirectly, at the date
of determination thereof, have (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of the directors or other gov-
erning body of such Person.
"Time of Determination" means the time and date of the earlier of (i) the
record date or determining stockholders entitled to receive their rights, war-
rants or distributions referred to in Section 12.04(b) and (c), or (ii) the
commencement of "ex-dividend" trading on the exchange or market referred to in
the definition of the term "Daily Market Price."
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S) (S) 77aaa-
77-bbbb) as in effect on the date of execution of this Indenture, except as
provided in Section 9.03.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to admin-
ister its corporation trust matters.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock of such Person entitling the holders thereof
14
<PAGE>
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
board of directors or other governing body of such Person.
Section 1.02 Other Definitions.
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
---- ----------
<S> <C>
"Asset Sale Offer"............................................... 4.05
"Asset Sale Offer Amount"........................................ 4.05
"Asset Sale Offer Payment Date".................................. 4.05
"Asset Sale Offer Termination Date".............................. 4.05
"Asset Sale Offer Trigger Date".................................. 4.05
"Bankruptcy Law"................................................. 6.01
"business day"................................................... 10.07
"Change of Control Date"......................................... 4.08
"Change of Control Offer"........................................ 4.08
"Change of Control Offer Payment Date"........................... 4.08
"Change of Control Offer Termination Date"....................... 4.08
"Custodian"...................................................... 6.01
"Event of Default"............................................... 6.01
"Expiration Time"................................................ 12.04
"Legal Holiday".................................................. 10.07
"non-electing share"............................................. 12.09
"Other Subordinated Notes"....................................... 11.02
"Paying Agent"................................................... 2.03
"Purchased Shares"............................................... 12.04
"Registrar"...................................................... 2.03
"United States Government Obligations"........................... 8.01
</TABLE>
Section 1.03 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the Commission;
"indenture securities" means the Convertible Subordinated Notes;
"indenture security holder" means a holder of a Convertible Subordinated
Note;
"indenture to be qualified" means this Indenture;
15
<PAGE>
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Convertible Subordinated Notes means the Company or any
other obligor on the Convertible Subordinated Notes.
All other terms in this Indenture that are defined by the TIA, defined by
TIA reference to another statute or defined by Commission rule under the TIA
have the meanings so assigned to them.
Section 1.04 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular; and
(5) the male, female and neuter genders include one another.
ARTICLE 2
The Convertible Subordinated Notes
Section 2.01 Form and Dating.
The Convertible Subordinated Notes and the Trustee's certificate of authen-
tication relating thereto shall be substantially in the form set forth in Ex-
hibit A, which is part of this Indenture, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture. The Convertible Subordinated Notes may have notations, legends
or endorsements required by law, stock exchange rule or usage. The Company
shall approve the form of the Convertible Subordinated Notes and any notation,
legend or endorsement on them. Each Convertible Subordinated Note shall be
dated the date of its authentication.
The terms and provisions contained in the Convertible Subordinated Notes
shall constitute, and are hereby expressly made, a part of this Indenture and,
to the extent applicable, the Company and the Trustee, by their execution
16
<PAGE>
and delivery of this Indenture, expressly agree to such terms and provisions
and to be bound thereby.
Section 2.02 Execution and Authentication.
Two Officers shall sign the Convertible Subordinated Notes for the Company
by manual or facsimile signature. The Company's seal shall be reproduced on
the Convertible Subordinated Notes.
If an Officer whose signature is on a Convertible Subordinated Note no
longer holds that office at the time the Convertible Subordinated Note is au-
thenticated, the Convertible Subordinated Note shall nevertheless be valid.
A Convertible Subordinated Note shall not be valid until authenticated by
the manual signature of the Trustee. The signature shall be conclusive evi-
dence that the Convertible Subordinated Note has been authenticated under this
Indenture.
Upon a written order of the Company signed by an Officer of the Company, the
Trustee shall authenticate Convertible Subordinated Notes for original issue
up to the aggregate principal amount stated in paragraph 4 of the Convertible
Subordinated Notes. The aggregate principal amount of Convertible Subordinated
Notes outstanding at any time may not exceed that amount except as provided in
Section 2.07.
The Convertible Subordinated Notes shall be issuable only in registered form
without coupons and only in denominations of $1,000 or any integral multiple
thereof.
The Trustee may appoint an authenticating agent acceptable to the Company to
authenticate Convertible Subordinated Notes. An authenticating agent may au-
thenticate Convertible Subordinated Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes authen-
tication by such agent. An authenticating agent has the same right as an Agent
to deal with the Company or an Affiliate of the Company.
Section 2.03 Registrar and Paying Agent.
The Company shall maintain or cause to be maintained in the Borough of Man-
hattan, New York, New York (the "New York Office"), and in such other loca-
tions as it shall determine, an office or agency: (i) where securities
17
<PAGE>
may be presented for registration of transfer or for exchange ("Registrar");
(ii) where Convertible Subordinated Notes may be presented for payment ("Pay-
ing Agent"); and (iii) where notices and demand to or upon the Company in re-
spect of Convertible Subordinated Notes and this Indenture may be served by
the holders of the Convertible Subordinated Notes. The Registrar shall keep a
register of the Convertible Subordinated Notes and of their transfer and ex-
change. The Company may appoint one or more co-registrars and one or more ad-
ditional paying agents. The term "Paying Agent" includes any additional paying
agent. The Company may change any Paying Agent, Registrar or co-registrar
without prior notice. The Company shall notify the Trustee of the name and ad-
dress of any Agent not a party to this Indenture and shall enter into an ap-
propriate agency agreement with any Registrar, Paying Agent or co-registrar
not a party to this Indenture. The agreement shall implement the provisions of
this Indenture that relate to such Agent. The Company or any of its subsidiar-
ies may act as Paying Agent, Registrar or co-registrar, except that for pur-
poses of Articles 3 and 8 and Sections 4.05 and 4.08, neither the Company nor
any of its subsidiaries shall act as Paying Agent. If the Company fails to ap-
point or maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such, and the Trustee shall initially act as such. The Trustee
shall cause the New York Office to be maintained as long as it acts as Regis-
trar or Paying Agent.
Section 2.04 Paying Agent To Hold Money in Trust.
The Company shall require each Paying Agent (other than the Trustee, who
hereby so agrees), to agree in writing that the Paying Agent will hold in
trust for the benefit of holders of the Convertible Subordinated Notes or the
Trustee all money held by the Paying Agent for the payment of principal or in-
terest on the Convertible Subordinated Notes, and will notify the Trustee of
any default by the Company in respect of making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay all
money held by it to the Trustee. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee. Upon payment over to the
Trustee, the Paying Agent (if other than the Company or a subsidiary of the
Company) shall have no further liability for the money. If the Company or a
subsidiary of the Company acts as Paying Agent, it shall segregate and hold in
a separate trust fund for the benefit of the holders of the Convertible Subor-
dinated Notes all money held by it as Paying Agent.
18
<PAGE>
Section 2.05 Holder Lists.
The Trustee shall preserve in as current a form as is reasonably practicable
the most recent list available to it of the names and addresses of holders of
Convertible Subordinated Notes. If the Trustee is not the Registrar, the Com-
pany shall furnish to the Trustee at least seven days before each interest
payment date and at such other times as the Trustee may request in writing a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of holders of Convertible Subordinated Notes.
Section 2.06 Transfer and Exchange.
Where Convertible Subordinated Notes are presented to the Registrar or a co-
registrar with a request to register a transfer or to exchange them for an
equal principal amount of Convertible Subordinated Notes for other denomina-
tions, the Registrar shall register the transfer or make the exchange if its
requirements for such transactions are met. To permit registrations of trans-
fers and exchanges, the Company shall issue and the Trustee shall authenticate
Convertible Subordinated Notes at the Registrar's request. No service charge
shall be made for any registration of transfer or exchange (except as other-
wise expressly permitted herein), but the Company may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable
upon exchanges pursuant to Sections 2.10, 3.06 or 9.05.
The Company shall not be required (i) to issue, register the transfer of or
exchange Convertible Subordinated Notes during a period beginning at the open-
ing of business 15 days before the day of any selection of Convertible Subor-
dinated Notes for redemption under Section 3.02 and ending at the close of
business on the day of selection, or (ii) to register the transfer or exchange
of any Convertible Subordinated Note so selected for redemption in whole or in
part, except the unredeemed portion of any Convertible Subordinated Note being
redeemed in part.
Section 2.07 Replacement Convertible Subordinated Notes.
If the holder of a Convertible Subordinated Note claims that the Convertible
Subordinated Note has been lost, destroyed or wrongfully taken, the Company
shall issue and the Trustee shall authenticate a replacement Convertible Sub-
ordinated Note if the Trustee's requirements are met. If required by the
Trustee or the Company as a condition of receiving a replacement Convertible
19
<PAGE>
Subordinated Note, the holder of a Convertible Subordinated Note must provide
an indemnity bond sufficient, in the judgment of both the Company and the
Trustee, to fully protect the Company, the Trustee, any Agent and any authen-
ticating agent from any loss which any of them may suffer if the Convertible
Subordinated Note is replaced. The Company and the Trustee may charge the rel-
evant holder for their expenses in replacing any Convertible Subordinated
Note.
Every replacement Convertible Subordinated Note is an additional obligation
of the Company.
Section 2.08 Outstanding Convertible Subordinated Notes.
The Convertible Subordinated Notes outstanding at any time are all the Con-
vertible Subordinated Notes properly authenticated by the Trustee except for
those cancelled by the Trustee, those delivered to it for cancellation, and
those described in this Section as not outstanding.
If a Convertible Subordinated Note is replaced pursuant to Section 2.07, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Convertible Subordinated Note is held by a bona fide pur-
chaser.
If Convertible Subordinated Notes are considered paid under Section 4.01,
they cease to be outstanding and interest on them ceases to accrue.
A Convertible Subordinated Note does not cease to be outstanding because the
Company or an Affiliate of the Company holds the Convertible Subordinated
Note.
Section 2.09 When Treasury Convertible Subordinated Notes Disregarded.
In determining whether the holders of the required principal amount of Con-
vertible Subordinated Notes have concurred in any direction, waiver or con-
sent, Convertible Subordinated Notes owned by the Company or an Affiliate of
the Company shall be considered as though they are not outstanding except that
for the purposes of determining whether the Trustee shall be protected in re-
lying on any such direction, waiver or consent, only Convertible Subordinated
Notes which the Trustee knows are so owned shall be so disregarded.
20
<PAGE>
Section 2.10 Temporary Convertible Subordinated Notes.
Until definitive Convertible Subordinated Notes are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Convertible
Subordinated Notes. Temporary Convertible Subordinated Notes shall be substan-
tially in the form of definitive Convertible Subordinated Notes but may have
variations that the Company considers appropriate for temporary Convertible
Subordinated Notes. If temporary Convertible Subordinated Notes are issued,
the Company will cause definitive Convertible Subordinated Notes to be pre-
pared without unreasonable delay. After the preparation of definitive Convert-
ible Subordinated Notes, the temporary Convertible Subordinated Notes shall be
exchangeable for definitive Convertible Subordinated Notes upon surrender of
the temporary Convertible Subordinated Notes at any office or agency of the
Company designated pursuant to Section 2.03 without charge to the holder of
the Convertible Subordinated Note. Upon surrender for cancellation of any one
or more temporary Convertible Subordinated Notes the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like princi-
pal amount of definitive Convertible Subordinated Notes of authorized denomi-
nations. Until so exchanged, the temporary Convertible Subordinated Notes
shall in all respects be entitled to the same benefits under this Indenture as
definitive Convertible Subordinated Notes.
Section 2.11 Cancellation.
The Company at any time may deliver Convertible Subordinated Notes to the
Trustee for cancellation. The Registrar and Paying Agent shall forward to the
Trustee any Convertible Subordinated Notes surrendered to them for registra-
tion of transfer, exchange or payment. The Trustee and no one else shall can-
cel Convertible Subordinated Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation and shall dispose of cancelled
Convertible Subordinated Notes as the Company directs, provided that the
Trustee shall not be required to destroy such Convertible Subordinated Notes.
The Company may not issue new Convertible Subordinated Notes to replace Con-
vertible Subordinated Notes that it has paid or that have been delivered to
the Trustee for cancellation.
Section 2.12 Defaulted Interest.
If the Company fails to make a payment of interest on the Convertible Subor-
dinated Notes, it shall pay such defaulted interest plus, to the extent
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lawful, any interest payable on the defaulted interest. It may pay such de-
faulted interest, plus any such interest payable on it, to the persons who are
holders of Convertible Subordinated Notes on a subsequent special record date.
The Company shall fix any such record date and payment date. At least 15 days
before any such record date, the Company shall mail to holders of the Convert-
ible Subordinated Notes a notice that states the record date, payment date and
amount of such interest to be paid.
Section 2.13 CUSIP Number.
The Company in issuing the Convertible Subordinated Notes may use a "CUSIP"
number, and if so, such CUSIP number shall be included in notices of redemp-
tion or exchange as a convenience to holders of Convertible Subordinated
Notes; provided, however, that any such notice may state that no representa-
tion is made as to the correctness or accuracy of the CUSIP number printed in
the notice or on the Convertible Subordinated Notes and that reliance may be
placed only on the other identification numbers printed on the Convertible
Subordinated Notes. The Company will promptly notify the Trustee of any change
in the CUSIP number.
ARTICLE 3
Redemption
Section 3.01 Notices to Trustee.
If the Company elects to redeem Convertible Subordinated Notes pursuant to
the optional redemption provisions of paragraph 5 of the Convertible Subordi-
nated Notes, it shall notify the Trustee of the redemption date and the prin-
cipal amount of Convertible Subordinated Notes to be redeemed. The redemption
price shall be the amount determined pursuant to paragraph 5 of the Convert-
ible Subordinated Notes.
The Company shall give each notice provided for in this Section at least 50
days before the redemption date (unless a shorter notice period shall be sat-
isfactory to the Trustee).
Section 3.02 Selection of Convertible Subordinated Notes To Be Redeemed.
If less than all the Convertible Subordinated Notes are to be redeemed, the
Trustee shall select the Convertible Subordinated Notes to be redeemed by
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lot or pro rata or by a method that complies with the requirements of any ex-
change on which the Convertible Subordinated Notes are listed that the Trustee
considers fair and appropriate. The Trustee shall make the selection not more
than 75 days and not less than 30 days before the redemption date from Con-
vertible Subordinated Notes outstanding not previously called for redemption.
The Trustee may select for redemption portions of the principal of Convertible
Subordinated Notes that have a denomination larger than $1,000. Convertible
Subordinated Notes and portions thereof will be redeemed in the amount of
$1,000 or integral multiples of $1,000. Provisions of this Indenture that ap-
ply to Convertible Subordinated Notes called for redemption also apply to por-
tions of Convertible Subordinated Notes called for redemption. The Trustee
will make the selection of Convertible Subordinated Notes outstanding and not
previously called for redemption. The Trustee shall notify the Company
promptly of the Convertible Subordinated Notes or portions of Convertible Sub-
ordinated Notes to be called for redemption.
Section 3.03 Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail a notice of redemption to each holder whose Convertible
Subordinated Notes are to be redeemed.
The notice shall identify the Convertible Subordinated Notes to be redeemed
and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Convertible Subordinated Note is being redeemed in part, the
portion of the principal amount of such Convertible Subordinated Note to
be redeemed and that, after the redemption date, upon surrender of such
Convertible Subordinated Note, a new Convertible Subordinated Note or Con-
vertible Subordinated Notes in principal amount equal to the unredeemed
portion will be issued;
(4) that Convertible Subordinated Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(5) that interest on Convertible Subordinated Notes called for redemp-
tion and for which funds have been set apart for payment, ceases to accrue
on and after the redemption date (unless the Company defaults in the pay-
ment of the redemption price);
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(6) the paragraph of the Convertible Subordinated Notes pursuant to
which the Convertible Subordinated Notes are being redeemed;
(7) the aggregate principal amount of Convertible Subordinated Notes
that are being redeemed;
(8) the CUSIP number of the Convertible Subordinated Notes (provided
that the disclaimer permitted by Section 2.13 may be made);
(9) the name and address of the Paying Agent; and
(10) that Convertible Subordinated Notes called for redemption may be
converted at any time prior to the close of business on the redemption
date and if not converted prior to the close of business on such date, the
right of conversion will be lost.
At the Company's request, the Trustee shall give notice of redemption in the
Company's name and at its expense.
Section 3.04 Effect of Notice of Redemption.
Once notice of redemption is mailed, Convertible Subordinated Notes called
for redemption become due and payable on the redemption date at the price set
forth in the Convertible Subordinated Note.
Section 3.05 Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit with the Trustee
or with the Paying Agent money in immediately available funds sufficient to
pay the redemption price of and accrued interest on all Convertible Subordi-
nated Notes to be redeemed on that date. The Trustee or the Paying Agent shall
return to the Company any money not required for that purpose.
Section 3.06 Convertible Subordinated Notes Redeemed in Part.
Upon surrender of a Convertible Subordinated Note that is redeemed in part,
the Company shall issue and the Trustee shall authenticate for the holder of a
Convertible Subordinated Note at the expense of the Company a new Convertible
Subordinated Note equal in principal amount to the unredeemed portion of the
Convertible Subordinated Note surrendered.
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ARTICLE 4
Covenants
Section 4.01 Payment of Convertible Subordinated Notes.
The Company shall pay the principal of and interest on the Convertible Sub-
ordinated Notes on the dates and in the manner provided in the Convertible
Subordinated Notes. Principal and interest shall be considered paid on the
date due if the Trustee or Paying Agent (other than the Company or a subsidi-
ary of the Company) holds as of 1:00 P.M. Eastern Time on that date immedi-
ately available funds designated for and sufficient to pay all principal and
interest then due, provided, however, that money held by the Agent for the
benefit of holders of Senior Indebtedness pursuant to the provisions of Arti-
cle 11 hereof or the payment of which to the holders of the Convertible Subor-
dinated Notes is prohibited by Article 11 shall not be considered to be desig-
nated for the payment of any principle of or interest on the Convertible Sub-
ordinated Notes within the meaning of this Section 4.01.
To the extent lawful, the Company shall pay interest (including post-peti-
tion interest in any proceeding under any Bankruptcy Law) on (i) overdue prin-
cipal, at the rate borne by Convertible Subordinated Notes, compounded
semiannually; and (ii) overdue installments of interest (without regard to any
applicable grace period) at the same rate, compounded semiannually.
Section 4.02 Commission Reports.
So long as any Convertible Subordinated Note is outstanding, the Company
shall file with the Commission and, within 15 days after it files them with
the Commission, file with the Trustee and thereafter mail promptly or cause
the Trustee to mail promptly to the holders of Convertible Subordinated Notes
at their addresses as set forth in the register of the Convertible Subordi-
nated Notes copies of the annual reports and of the information, documents and
other reports which the Company is required to file with the Commission pursu-
ant to Section 13 or 15(d) of the Exchange Act or which the Company would be
required to file with the Commission if the Company then had a class of secu-
rities registered under the Exchange Act. In addition, the Company shall cause
its annual report to stockholders and any quarterly or other financial reports
furnished to its stockholders generally to be filed with the Trustee, no later
than the date such materials are mailed or made available to the Company's
stockholders, and thereafter mailed promptly to the holders of
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Convertible Subordinated Notes at their addresses as set forth in the register
of Convertible Subordinated Notes.
Section 4.03 Compliance Certificate.
The Company shall deliver to the Trustee, within 60 days after the end of
the first three fiscal quarters and within 120 days after the end of each fis-
cal year of the Company, an Officers' Certificate stating that a review of the
activities of the Company and its subsidiaries during the preceding fiscal pe-
riod has been made under the supervision of the signing Officers with a view
to determining whether the Company has fully performed its obligations under
this Indenture and further stating, as to each such Officer signing such cer-
tificate, that to the best of his or her knowledge the Company has kept, ob-
served, performed and fulfilled each and every covenant contained in this In-
denture and is not in default in the performance or observance of any of the
terms and conditions hereof (or, if any Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of
the principal of or interest on the Convertible Subordinated Notes are prohib-
ited.
The Company shall, so long as any of the Convertible Subordinated Notes are
outstanding, deliver to the Trustee, forthwith upon becoming aware of any De-
fault, Event of Default or default in the performance of any term or condition
in this Indenture, without regard to any period of grace or requirement of no-
tice provided hereunder, an Officers' Certificate specifying such Default,
Event of Default or default.
Section 4.04 Maintenance of Office or Agency.
The Company shall maintain or cause to be maintained the office or agency
required under Section 2.03. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency not maintained by the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Convertible Subordinated Notes may be presented or sur-
rendered for any or all such purposes and may from time to time rescind such
designation; provided, however, that no such designation or rescission
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shall in any manner relieve the Company of its obligation to maintain or cause
to be maintained an office or agency in the City of New York for such purpose.
Section 4.05 Limitation on Sale of Assets.
The Company will not, and will not permit any of its subsidiaries to, con-
summate any Asset Sale unless such Asset Sale is for at least Fair Market
Value and at least 80% of the consideration therefrom received by the Company
or such subsidiary is in the form of cash or Cash Equivalents.
Following any Asset Sale, an amount equal to the Net Cash Proceeds of such
Asset Sale shall be applied by the Company or such subsidiary within 365 days
of the date of the Asset Sale, at its election, to either: (a) the payment of
Senior Indebtedness; provided, however, any Net Cash Proceeds which are ap-
plied to reduce Indebtedness under the Revolving Credit Agreement shall result
in a permanent reduction of the borrowing availability thereunder; (b) make
any Permitted Program Investment or any other investment in capital assets us-
able in the Company's or its subsidiaries' lines of business or in an asset or
business in the same line of business as the Company; or (c) a combination of
payment and investment permitted by the foregoing clauses (a) and (b). On the
earlier of (A) the 366th day after the date of an Asset Sale or (B) such date
as the Board of Directors of the Company or of such subsidiary determines (as
evidenced by a written resolution of said Board of Directors) not to apply an
amount equal to the Net Cash Proceeds relating to such Asset Sale as set forth
in the immediately preceding sentence (each of (A) and (B), an "Asset Sale Of-
fer Trigger Date"), the Company or such subsidiary shall be obligated to apply
an amount equal to aggregate amount of Net Cash Proceeds which have not been
applied on or before such Asset Sale Offer Trigger Date as permitted by the
foregoing clauses (a), (b) and (c) of the immediately preceding sentence (each
an "Asset Sale Offer Amount") to make an offer to purchase for cash (the "As-
set Sale Offer") from all holders of Convertible Subordinated Notes on a pro
rata basis that amount of Convertible Subordinated Notes equal to the Asset
Sale Offer Amount at a price equal to 100% of the principal amount of the Con-
vertible Subordinated Notes to be repurchased, plus accrued and unpaid inter-
est thereon to the date of repurchase. Notwithstanding the foregoing, if an
Asset Sale Offer Amount is less than $10 million, the application of such As-
set Sale Offer Amount to an Asset Sale Offer may be deferred until such time
as such Asset Sale Offer Amount plus the aggregate amount of all Asset Sale
Offer Amounts arising subsequent to such
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Asset Sale Offer Trigger Date from all Asset Sales by the Company and its sub-
sidiaries aggregates at least $10 million, at which time the Company or such
subsidiary shall apply all Asset Sale Offer Amounts that have been so deferred
to make an Asset Sale Offer (the first date the aggregate of all such deferred
Asset Sale Offer Amounts is equal to $10 million or more shall be deemed to be
an "Asset Sale Offer Trigger Date").
In the event of the transfer of substantially all (but not all) of the prop-
erty and assets of the Company as an entirety to a Person in a transaction
permitted under Section 5.01, the successor corporation shall be deemed to
have sold the properties and assets of the Company not so transferred for pur-
poses of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale.
Each Asset Sale Offer shall be mailed to the holders of the Convertible Sub-
ordinated Notes at the addresses shown on the register of holders maintained
by the Registrar with a copy to the Trustee and the Paying Agent, within 10
days following the applicable Asset Sale Offer Trigger Date, and shall comply
with each of the procedures for notice set forth below. Each Asset Sale Offer
shall remain open until a specified date (the "Asset Sale Offer Termination
Date") which is at least 20 business days from the date such Asset Sale Offer
is mailed. During the period specified in the Asset Sale Offer, holders of
Convertible Subordinated Notes may elect to tender their Convertible Subordi-
nated Notes in whole or in part in integral multiples of $1,000 in exchange
for cash. Payment shall be made by the Company (or applicable subsidiary) in
respect of Convertible Subordinated Notes properly tendered pursuant to this
Section on a specified business day (the "Asset Sale Offer Payment Date")
which shall be no earlier than three business days after the Asset Sale Offer
Termination Date and no later then 60 days after such applicable Asset Sale
Offer Trigger Date. To the extent holders of Convertible Subordinated Notes
properly tender Convertible Subordinated Notes in an amount exceeding the As-
set Sale Offer Amount, Convertible Subordinated Notes of tendering holders
will be repurchased on a pro rata basis (based on amounts tendered).
The notice, which shall govern the terms of the Asset Sale Offer, shall in-
clude such disclosures as are required by law and shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
4.05;
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(b) the purchase price (including the amount of the accrued interest, if
any) for each Convertible Subordinated Note, the Asset Sale Offer Termina-
tion Date and the Asset Sale Offer Payment Date;
(c) that any Convertible Subordinated Note not tendered or accepted for
payment will continue to accrue interest in accordance with the terms
thereof;
(d) that, unless the Company defaults on making the payment, any Con-
vertible Subordinated Note accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest after the Asset Sale Offer Payment
Date;
(e) that holders electing to have Convertible Subordinated Notes pur-
chased pursuant to an Asset Sale Offer will be required to surrender their
Convertible Subordinated Notes to the Paying Agent at the address speci-
fied in the notice prior to 5:00 p.m., New York City time, on the Asset
Sale Offer Termination Date and must complete any form letter of transmit-
tal proposed by the Company and acceptable to the Trustee and the Paying
Agent;
(f) that holders of Convertible Subordinated Notes will be entitled to
withdraw their election if the Paying Agent receives, not later than 5:00
p.m., New York City time, on the Asset Sale Offer Termination Date, a
tested telex, facsimile transmission or letter setting forth the name of
the holder, the principal amount of Convertible Subordinated Notes the
holder delivered for purchase, the Convertible Subordinated Note certifi-
cate number (if any) and a statement that such holder is withdrawing his
election to have such Convertible Subordinated Notes purchased;
(g) that if Convertible Subordinated Notes in a principal amount in ex-
cess of the Asset Sale Offer Amount are tendered pursuant to the Asset
Sale Offer, the Company shall purchase Convertible Subordinated Notes on a
pro rata basis among the Convertible Subordinated Notes tendered (with
such adjustments as may be deemed appropriate by the Company so that only
Convertible Subordinated Notes in denominations of $1,000 or integral mul-
tiples of $1,000 shall be acquired);
(h) that holders whose Convertible Subordinated Notes are purchased only
in part will be issued new Convertible Subordinated Notes equal in princi-
pal amount to the unpurchased portion of the Convertible Subordinated
Notes surrendered; and
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(i) the instructions that holders must follow in order to tender their
Convertible Subordinated Notes.
On the Asset Sale Offer Termination Date, the Company shall (i) accept for
payment Convertible Subordinated Notes or portions thereof tendered pursuant
to the Asset Sale Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Convertible Subordinated Notes or portions
thereof so tendered and accepted and (iii) deliver to the Trustee the Convert-
ible Subordinated Notes so accepted together with an Officers' Certificate
setting forth the Convertible Subordinated Notes or portions thereof tendered
to and accepted for payment by the Company. On the Asset Sale Offer Payment
Date, the Paying Agent shall mail or deliver to the holders of Convertible
Subordinated Notes so accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and mail or deliver to such
holders a new Convertible Subordinated Note equal in principal amount to any
unpurchased portion of the Convertible Subordinated Note surrendered. Any Con-
vertible Subordinated Notes not so accepted shall be promptly mailed or deliv-
ered by the Company to the holder thereof.
If an offer is made to repurchase the Convertible Subordinated Notes pursu-
ant to an Asset Sale Offer, the Company will and will cause its subsidiaries
to comply with all tender offer rules under state and Federal securities laws,
including, but not limited to, Section 14(e) under the Exchange Act and Rule
14e-1 thereunder, to the extent applicable to such offer. To the extent that
the provisions of any securities laws or regulations conflict with provisions
of this Section 4.05, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under this Section 4.05 by virtue thereof.
Section 4.06 Continued Existence.
Subject to Article 5, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate exist-
ence.
Section 4.07 Taxes.
The Company shall pay prior to delinquency all taxes, assessments and gov-
ernmental levies, except as contested in good faith and by appropriate pro-
ceedings or where the failure to do so (together with all other such failures)
would not have a material adverse effect on the financial condition or results
of operations of the Company and its subsidiaries, taken as a whole.
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Section 4.08 Change of Control.
Following a Change of Control (the date of each such occurrence being the
"Change of Control Date"), the Company shall notify the holders of Convertible
Subordinated Notes in writing of such occurrence and shall make an offer (the
"Change of Control Offer") to purchase all Convertible Subordinated Notes then
outstanding at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the "Change of Control Offer Pay-
ment Date" (as defined below).
Notice of a Change of Control shall be mailed by or at the direction of the
Company to the holders of Convertible Subordinated Notes as shown on the reg-
ister of such holders maintained by the Registrar not less than 15 days nor
more than 30 days after the applicable Change of Control Date at the addresses
as shown on the register of holders maintained by the Registrar, with a copy
to the Trustee and the Paying Agent. The Change of Control Offer shall remain
open until a specified date (the "Change of Control Offer Termination Date")
which is at least 20 business days from the date such notice is mailed. During
the period specified in such notice, holders of Convertible Subordinated Notes
may elect to tender their Convertible Subordinated Notes in whole or in part
in integral multiples of $1,000 in exchange for cash. Payment shall be made by
the Company in respect of Convertible Subordinated Notes properly tendered
pursuant to this Section on a specified business day (the "Change of Control
Offer Payment Date") which shall be no earlier than 3 business days after the
applicable Change of Control Offer Termination Date and no later than 60 days
after the applicable Change of Control Date.
The notice, which shall govern the terms of the Change of Control Offer, shall
include such disclosures as are required by law and shall state:
(a) that a Change of Control Offer is being made pursuant to this Sec-
tion 4.08 and that all Convertible Subordinated Notes will be accepted for
payment;
(b) the purchase price (including the amount of accrued interest, if
any) for each Convertible Subordinated Note, the Change of Control Offer
Termination Date and the Change of Control Offer Payment Date;
(c) that any Convertible Subordinated Note not accepted for payment will
continue to accrue interest in accordance with the terms thereof;
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(d) that, unless the Company defaults on making the payment, any Con-
vertible Subordinated Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Offer Payment Date;
(e) that holders electing to have Convertible Subordinated Notes pur-
chased pursuant to a Change of Control Offer will be required to surrender
their Convertible Subordinated Notes to the Paying Agent at the address
specified in the notice prior to 5:00 p.m., New York City time, on the
Change of Control Offer Termination Date and must complete any form letter
of transmittal proposed by the Company and acceptable to the Trustee and
the Paying Agent;
(f) that holders of Convertible Subordinated Notes will be entitled to
withdraw their election if the Paying Agent receives, not later than 5:00
p.m., New York City time, on the Change of Control Offer Termination Date,
a tested telex, facsimile transmission or letter setting forth the name of
the holder, the principal amount of Convertible Subordinated Notes the
holder delivered for purchase, the Convertible Subordinated Note certifi-
cate number (if any) and a statement that such holder is withdrawing his
election to have such Convertible Subordinated Notes purchased;
(g) that holders whose Convertible Subordinated Notes are purchased only
in part will be issued Convertible Subordinated Notes equal in principal
amount to the unpurchased portion of the Convertible Subordinated Notes
surrendered;
(h) the instructions that holders must follow in order to tender their
Convertible Subordinated Notes; and
(i) the circumstances and relevant facts regarding such Change of Con-
trol (including, but not limited to, information with respect to pro forma
historical financial information after giving effect to such Change of
Control, information regarding the Persons acquiring control and such Per-
sons' business plans going forward).
On the Change of Control Offer Termination the Company shall (i) accept for
payment Convertible Subordinated Notes or portions thereof tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent money suf-
ficient to pay the purchase price of all Convertible Subordi-
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<PAGE>
nated Notes or portions thereof so tendered and accepted and (iii) deliver to
the Trustee the Convertible Subordinated Notes so accepted together with an
Officers' Certificate setting forth the Convertible Subordinated Notes or por-
tions thereof tendered to and accepted for payment by the Company. On the
Change of Control Payment Date, the Paying Agent shall mail or deliver to the
holders of Convertible Subordinated Notes so accepted payment in an amount
equal to the purchase price, and the Trustee shall promptly authenticate and
mail or deliver to such holders a new Convertible Subordinated Note equal in
principal amount to any unpurchased portion of the Convertible Subordinated
Note surrendered. Any Convertible Subordinated Notes not so accepted shall be
promptly mailed or delivered by the Company to the holder thereof.
In addition, in the event of any Change of Control, the Company shall not,
and shall not permit any of its subsidiaries to, purchase, redeem or otherwise
acquire any Indebtedness subordinated or junior to the Convertible Subordi-
nated Notes pursuant to any analogous provision relating to such Indebtedness
on or prior to the payment in full in cash or Cash Equivalents of all Convert-
ible Subordinated Notes, together with accrued and unpaid interest thereon
with respect to which the Change of Control Offer was accepted.
If an offer is made to redeem Convertible Subordinated Notes as a result of
a Change of Control, the Company will be required to comply with all tender
offer rules under state and Federal securities laws, including, but not lim-
ited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to
the extent applicable to such offer.
Section 4.09 Appointments to Fill Vacancies in Trustee's Office.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 7.08, a Trustee, so
that there shall at all times be a Trustee hereunder.
Section 4.10 Further Instruments and Acts.
Upon request of the Trustee, the Company will execute and deliver such fur-
ther instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
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Section 4.11 Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter enforced, that may affect the Company's
obligation to pay the Convertible Subordinated Notes; and the Company (to the
extent that it may lawfully do so) hereby expressly waives all benefit or ad-
vantage of any such law insofar as such law applies to the Convertible Subor-
dinated Notes, and covenants that it shall not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as
though no such law has been enacted.
Section 4.12 Investment Company Act.
The Company, as of the Issue Date, is not and shall not become an investment
company subject to registration under the Investment Company Act of 1940, as
amended.
ARTICLE 5
Successors
Section 5.01 When the Company May Merge, Etc.
The Company will not, in a single transaction or series of related transac-
tions, consolidate or merge with or into, or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets to, any
Person or adopt a Plan of Liquidation unless:
(a) either (i) the Company shall be the surviving or continuing corpora-
tion or (ii) the Person (if other than the Company) formed by such consol-
idation or into which the Company is merged or the Person which acquires
by conveyance, transfer or lease the properties and assets of the Company
substantially as an entirety or in the case of a Plan of Liquidation, the
Person to which all or substantially all of the assets of the Company have
been transferred (1) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District
of Columbia and (2) shall expressly assume, by supplemental indenture, ex-
ecuted and delivered to the Trustee, the due and punctual
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payment of the principal of, and premium, if any, and interest on all of
the Convertible Subordinated Notes and the performance of every covenant
of the Convertible Subordinated Notes and this Indenture on the part of
the Company to be performed or observed;
(b) immediately after giving effect to such transaction and any assump-
tion contemplated by clause (a)(ii)(2) above (including giving effect to
any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Com-
pany (in the case of clause (i) of the foregoing clause (a)) or such Per-
son (in the case of clause (ii) thereof) shall have a Consolidated Net
Worth (immediately after the transaction but prior to any purchase ac-
counting adjustments relating to such transaction) equal to or greater
than the Consolidated Net Worth of the Company immediately prior to such
transaction;
(c) immediately before and after giving effect to such transaction and
any assumption contemplated by clause (a)(ii)(2) above (including giving
effect to any Indebtedness and Acquired Indebtedness incurred in connec-
tion with or in respect of the transaction) no Default and no Event of De-
fault shall have occurred and be continuing; and
(d) the Company or such Person shall have delivered to the Trustee (i)
an Officers' Certificate and an Opinion of Counsel (which counsel may be
in-house counsel of the Company), each stating that such consolidation,
merger, conveyance, transfer or lease or Plan of Liquidation and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture, comply with this provision of this Indenture
and that all conditions precedent in this Indenture relating to such
transaction have been satisfied and (ii) a certificate from the Company's
independent certified public accountants stating that the Company has made
the calculations required by clause (b) above in accordance with the terms
of this Indenture.
For purposes of this Section 5.01, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more subsidiaries of
the Company, the Capital Stock of which constitutes all or substantially all
of the properties and assets of the Company, shall be deemed to be the trans-
fer of all or substantially all of the properties and assets of the Company.
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Section 5.02 Successor Corporation Substituted.
Upon any such consolidation, merger, conveyance, lease or transfer in accor-
dance with Section 5.01, the successor Person formed by such consolidation or
into which the Company is merged or to which such conveyance, lease or trans-
fer is made will succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the same effect as
if such successor had been named as the Company therein, and thereafter (ex-
cept in the case of a sale, assignment, transfer, lease, conveyance or other
disposition) the predecessor corporation will be relieved of all further obli-
gations and covenants under this Indenture and the Convertible Subordinated
Notes.
Section 5.03 Purchase Option on Change of Control.
This Article 5 does not affect the obligations of the Company (including
without limitation any successor to the Company) under Section 4.08.
ARTICLE 6
Defaults and Remedies
Section 6.01 Events of Default.
An "Event of Default" with respect to any Convertible Subordinated Notes oc-
curs if:
(a) the Company defaults in the payment of principal of, or premium, if
any, on the Convertible Subordinated Notes when due at maturity, upon re-
purchase, upon acceleration or otherwise, including, without limitation,
failure of the Company to repurchase the Convertible Subordinated Notes on
the date required pursuant to Section 4.05 or following a Change of Con-
trol or failure to make any optional redemption payment when due; or
(b) the Company defaults in the payment of any installment of interest
on the Convertible Subordinated Notes when due (including any interest
payable in connection with any optional redemption payment) and continu-
ance of such default for more than 30 days; or
(c) the Company fails to observe, perform or comply with any of the pro-
visions described in Sections 4.05, 4.08 and 5.01, and the failure to
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remedy such failure prior to the receipt of written notice from the
trustee or the holders of at least 25% in aggregate principal amount of
the then outstanding Convertible Subordinated Notes; or
(d) the Company defaults (other than a default set forth in clauses (a),
(b) and (c) above) in the performance of, or breach of, any other covenant
or warranty of the Company set forth in this Indenture or the Convertible
Subordinated Notes and fails to remedy such default or breach within a pe-
riod of 60 days after the receipt of written notice from the Trustee or
the holders of at least 25% in aggregate principal amount of the then out-
standing Convertible Subordinated Notes; or
(e) any Indebtedness (other than the Convertible Subordinated Notes) of
the Company or of any subsidiary, whether such Indebtedness exists on the
Issue Date or shall be incurred thereafter, having, individually or in the
aggregate, an outstanding principal amount of $15 million or more, either
(i) is declared due and payable prior to its stated maturity or (ii) is
not paid upon the final maturity of such Indebtedness; or
(f) a court of competent jurisdiction enters one or more judgments or
orders against the Company or any subsidiary of the Company or any of
their respective property or assets in an aggregate amount in excess of
$15 million and they are not covered by insurance written by third par-
ties, which judgments or orders have not been vacated, discharged, satis-
fied or stayed pending appeal within 60 days from the entry thereof; or
(g) the Company or any Material Subsidiary, pursuant to or within the
meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property, or
(iv) makes a general assignment for the benefit of its creditors; or
(h) a court of competent jurisdiction enters a judgment, order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any Material Subsidiary in
an involuntary case,
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(ii) appoints a Custodian of the Company or any Material Subsidiary
for all or substantially all of its property, or
(iii) orders the liquidation of the Company or any Material Subsidi-
ary, and the order or decree remains unstayed and in effect for 60
days.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal
or state law for the relief of debtors. The term "Custodian" means any receiv-
er, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
Section 6.02 Acceleration.
If an Event of Default (other than an Event of Default specified in clauses
(g) and (h) of Section 6.01) occurs and is continuing, then and in every such
case the Trustee, by written notice to the Company (with a copy to the Bank
Agent, each of the holders of the Company's 9.33% Senior Notes and its 9.35%
Senior Notes and any other Representatives of Designated Senior Indebtedness),
or the holders of at least 25% in aggregate principal amount of the then out-
standing Convertible Subordinated Notes, by written notice to the Company and
the Trustee (with a copy to the Bank Agent, each of the holders of the
Company's 9.33% Senior Notes and its 9.35% Senior Notes and any other Repre-
sentatives of Designated Senior Indebtedness), may declare the unpaid princi-
pal of and accrued interest on all the Convertible Subordinated Notes to be
due and payable, provided, however that failure to provide a copy of such no-
tice to any party other than the Company and the Trustee shall have no effect
on any such declaration. Upon such declaration such principal amount, premium,
if any, and accrued and unpaid interest shall become immediately due and pay-
able, notwithstanding anything contained in this Indenture or the Convertible
Subordinated Notes to the contrary but subject to the provisions of Article 11
hereof; and provided further, that so long as any Designated Senior Indebted-
ness is outstanding, any such declaration shall not be effective until the
earlier of (a) five business days after the delivery of such notice to the
Company or (b) the acceleration of any Designated Senior Indebtedness. If any
Event of Default with respect to the Company specified in clauses (g) or (h)
of Section 6.01 occurs, all unpaid principal of and premium, if any, and ac-
crued and unpaid interest on the Convertible Subordinated Notes then outstand-
ing shall become automatically due and payable subject to the provisions of
Article 11 hereof, without any declaration or other act on the part of the
Trustee or any holder of Convertible Subordinated Notes.
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The holders of a majority in principal amount of the then outstanding Con-
vertible Subordinated Notes by notice to the Trustee may rescind an accelera-
tion of the Convertible Subordinated Notes and its consequences if all exist-
ing Events of Default (other than nonpayment of principal of or premium, if
any, and interest on the Convertible Subordinated Notes which has become due
solely by virtue of such acceleration) have been cured or waived and if the
rescission would not conflict with any judgment or decree of any court of com-
petent jurisdiction. No such rescission shall affect any subsequent Default or
Event of Default or impair any right consequent thereto.
Section 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of or interest on the Convertible Subordinated Notes or to enforce
the performance of any provision of the Convertible Subordinated Notes or this
Indenture. The Trustee may maintain a proceeding even if it does not possess
any of the Convertible Subordinated Notes or does not produce any of them in
the proceeding. A delay or omission by the Trustee or any holder of a Convert-
ible Subordinated Note in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or constitute a waiver
of or acquiescence in the Event of Default. All remedies are cumulative to the
extent permitted by law.
Section 6.04 Waiver of Past Defaults.
The holders of a majority in aggregate principal amount of the Convertible
Subordinated Notes then outstanding may, on behalf of the holders of all the
Convertible Subordinated Notes waive an existing Default or Event of Default
and its consequences, except a Default or Event of Default in the payment of
the principal of or interest on the Convertible Subordinated Notes (other than
the non-payment of principle of and premium, if any, and interest on the Con-
vertible Subordinated Notes which has become due solely by virtue of an accel-
eration which has been duly rescinded as provided above), or in respect of a
covenant or provision of this Indenture which cannot be modified or amended
without the consent of all holders of convertible Subordinated Notes. When a
Default is waived, it is cured and stops continuing. No waiver shall extend to
any subsequent or other Default or impair any right consequent thereon.
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Section 6.05 Control by Majority.
The holders of a majority in principal amount of the then outstanding Con-
vertible Subordinated Notes may direct the time, method and place of con-
ducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture, that the Trustee de-
termines may be unduly prejudicial to the rights of other holders of Convert-
ible Subordinated Notes or that may involve the Trustee in personal liability;
provided, that the Trustee may take any other action the Trustee deems proper
that is not inconsistent with such directions.
Section 6.06 Limitation on Suits.
A holder of a Convertible Subordinated Note may not pursue any remedy with re-
spect to this Indenture or the Convertible Subordinated Notes unless:
(1) the holder gives to the Trustee notice of a continuing Event of De-
fault;
(2) the holders of at least 25% in principal amount of the then out-
standing Convertible Subordinated Notes make a request to the Trustee to
pursue the remedy;
(3) such holder or holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(5) during such 60-day period the holders of a majority in principal
amount of the then outstanding Convertible Subordinated Notes do not give
the Trustee a direction inconsistent with the request.
A holder of a Convertible Subordinated Note may not use this Indenture to
prejudice the rights of another holder or to obtain a preference or priority
over another holder.
Section 6.07 Rights of Holders To Receive Payment.
Subject to the provisions of Article 11 hereof, notwithstanding any other
provision of this Indenture, the right of any holder of a Convertible Subordi-
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nated Note to receive payment of principal and interest on the Convertible
Subordinated Note, on or after the respective due dates expressed in the Con-
vertible Subordinated Note, or to bring suit for the enforcement of any such
payment on or after such respective dates, and such rights shall not be im-
paired or affected without the consent of the holder of a Convertible Subordi-
nated Note.
Section 6.08 Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company for the whole amount of principal and in-
terest remaining unpaid on the Convertible Subordinated Notes and interest on
overdue principal and interest and such further amount as shall be sufficient
to cover the costs and, to the extent lawful, expenses of collection, includ-
ing the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
Section 6.09 Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee and
the holders of Convertible Subordinated Notes allowed in any judicial proceed-
ings relative to the Company, its creditors or its property. Nothing contained
herein shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any holder of a Convertible Subordinated Note any
plan of reorganization, arrangement, adjustment or composition affecting the
Convertible Subordinated Notes or the rights of any holder thereof, or to au-
thorize the Trustee to vote in respect of the claim of any holder in any such
proceeding.
Section 6.10 Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay out
the money in the following order:
First: to the Trustee for amounts due under Section 7.07, including pay-
ment of all compensation, expenses and liabilities incurred, and all ad-
vances made, by the Trustee, and the costs and expenses of collection;
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Second: to holders of Senior Indebtedness to the extent required by Ar-
ticle 11;
Third: to holders of Convertible Subordinated Notes for amounts due and
unpaid on the Convertible Subordinated Notes for principal and interest,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Convertible Subordinated Notes for princi-
pal and interest, respectively; and
Fourth: to the Company.
Except as otherwise provided in Section 2.12, the Trustee may fix a record
date and payment date for any payment to holders of Convertible Subordinated
Notes.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party liti-
gant in the suit, other than the Trustee, of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs, in-
cluding reasonable attorneys fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made
by the party litigant. This Section does not apply to a suit by the Trustee, a
suit by a holder pursuant to Section 6.07 or a suit by holders of more than
10% in principal amount of the then outstanding Convertible Subordinated
Notes.
ARTICLE 7
The Trustee
The Trustee hereby accepts the trust imposed upon it by this Indenture and
covenants and agrees to perform the same, as herein expressed. Whether or not
herein expressly so provided, every provision of this Indenture relating to
the conduct or affecting the liability of or affording protection to the
Trustee shall be subject to the provisions of this Article 7.
Section 7.01 Duties of the Trustee.
(a) If an Event of Default known to the Trustee has occurred and is continu-
ing, the Trustee shall exercise such of the rights and powers vested in
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it by this Indenture and use the same degree of care and skill in their exer-
cise as a prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs.
(b) Except during the continuance of an Event of Default known to the Trust-
ee:
(1) The duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those du-
ties that are specifically set forth in this Indenture and no others and
no implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) In the absence of bad faith on its part, the Trustee may conclu-
sively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether
or not they conform to the form required by this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent ac-
tion, its own negligent failure to act or its own willful misconduct, except
that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section;
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action it takes
or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that is in any way related to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability in the performance of any of its du-
ties or the exercise of any of its rights and powers hereunder. The Trustee
may refuse to perform any duty or exercise any right or power unless it re-
ceives indemnity satisfactory to it against any loss, liability or expense.
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(f) The Trustee shall not be liable for interest on any money received by it
except as the Trustee may agree with the Company. Money held in trust by the
Trustee need not be segregated from other funds except to the extent required
by law.
Section 7.02 Rights of the Trustee.
(a) The Trustee may rely on and shall be protected in acting or refraining
from acting upon any resolution, Officers' Certificate, or any other certifi-
cate, statement, instrument, opinion, report, notice, request, consent, order,
security or other document believed by it to be genuine and to have been
signed or presented by the proper person. The Trustee need not investigate any
fact or matter contained therein.
(b) Any request, direction, order or demand of the Company mentioned herein
shall be sufficiently evidenced by an Officers' Certificate (unless other evi-
dence in respect thereof is herein specifically prescribed). In addition, be-
fore the Trustee acts or refrains from acting, it may require an Officers'
Certificate, an Opinion of Counsel or both. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such Of-
ficers' Certificate or Opinion of Counsel. The Trustee may consult with coun-
sel and the written advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in re-
liance thereon.
(c) The Trustee may execute any of the trusts or powers hereunder or perform
any duties hereunder either directly or by or through its attorneys and agents
and other Persons not regularly in its employ and shall not be responsible for
the misconduct or negligence of any attorney or agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take
in good faith which it believes to be authorized or within its discretion,
rights or powers.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
Officers of the Company.
(f) The Trustee shall not be required to give any bond or surety in respect
of the performance of its powers and duties hereunder.
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(g) The Trustee shall be under no obligation to exercise any of the trusts
or powers vested in it by this Indenture at the request, order or discretion
of any of the holders of Convertible Subordinated Notes pursuant to the provi-
sions of this Indenture, unless such holders have offered to the Trustee rea-
sonable security or indemnity against the costs, expenses and liabilities
which might be incurred therein or thereby.
(h) The Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument, opin-
ion, report, notice, request, consent, order, security or other document un-
less requested in writing to do so by the holders of not less than a majority
in aggregate principal amount of the Convertible Subordinated Notes then out-
standing, provided that, if the Trustee determines in its sole and absolute
discretion to make any such investigation, then it shall be entitled, upon
reasonable prior notice and during normal business hours, to examine the books
and records and the premises of the Company, personally or by agent or attor-
ney, and the reasonable expenses of every such examination shall be paid by
the Company or, if paid by the Trustee or any predecessor Trustee, shall be
reimbursed by the Company upon demand.
Section 7.03 Individual Rights of the Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Convertible Subordinated Notes with the same rights it would have
if it were not the Trustee and may otherwise deal with the Company or an Af-
filiate and receive, collect, hold and retain collections from the Company
with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights. However, the Trustee is subject to Sections 7.10
and 7.11.
Section 7.04 Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Convertible Subordinated
Notes. It shall not be accountable for the Company's use of the proceeds from
the Convertible Subordinated Notes or any money paid to the Company or upon
the Company's direction under any provision of this Indenture. It shall not be
responsible for the use or application of any money received by any Paying
Agent other than the Trustee, and it shall not be responsible for any state-
ment or recital herein or any statement in the Convertible Subordinated
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Notes or any other document in connection with the sale of the Convertible
Subordinated Notes or pursuant to this Indenture other than its certificate of
authentication.
Section 7.05 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is known
to the Trustee, the Trustee shall mail to each holder of a Convertible Subor-
dinated Note a notice of the Default or Event of Default within 45 days after
it occurs. A Default or an Event of Default shall not be considered known to
the Trustee unless it is a Default or Event of Default in the payment of prin-
cipal or interest when due under Section 6.01(a) or (b) or the Trustee shall
have received notice thereof, in accordance with this Indenture, from the Com-
pany or from the holders of a majority in principal amount of the outstanding
Convertible Subordinated Notes. Except in the case of a Default or Event of
Default in payment of principal or interest on any Convertible Subordinated
Note, the Trustee may withhold the notice if and so long as a committee of its
Trust Officers in good faith determines that withholding the notice is in the
interest of the holders of the Convertible Subordinated Notes.
Section 7.06 Reports by the Trustee to Holders.
Within 60 days after the reporting date stated in Section 10.10, the Trustee
shall mail to holders of Convertible Subordinated Notes a brief report dated
as of such reporting date that complies with TIA ((S)) 313(a) (but if no event
described in TIA ((S)) 313(a) has occurred within twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA ((S)) 313(b)(2). The Trustee shall also transmit by mail all reports
as required by TIA ((S)) 313(c).
A copy of each report at the time of its mailing to holders of Convertible
Subordinated Notes shall be filed, at the expense of the Company, by the
Trustee with the Commission and each stock exchange, if any, on which the Con-
vertible Subordinated Notes are listed. The Company shall timely notify the
Trustee when the Convertible Subordinated Notes are listed on any stock ex-
change.
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Section 7.07 Compensation and Indemnity.
The Company shall pay to the Trustee from time to time and the Trustee shall
be entitled to reasonable compensation for its acceptance of this Indenture
and its services hereunder. The Trustee's compensation shall not be limited by
any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee promptly upon request for all reasonable disbursements,
advances and expenses incurred or made by or on behalf of it in addition to
the compensation for its services. Such expenses may include the reasonable
compensation, disbursements and expenses of the Trustee's agents, counsel and
other Persons not regularly in its employ.
The Company shall indemnify the Trustee against any loss, liability or ex-
pense incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture and the trusts hereunder,
including the costs and expenses of defending itself against or investigating
any claim of liability in the premises, except as set forth in the next para-
graph. The Trustee shall notify the Company promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim with counsel designated by the Company, who may be outside counsel to
the Company but shall in all events be reasonably satisfactory to the Trustee,
and the Trustee shall cooperate in the defense. In addition, the Trustee may
retain one separate counsel and, if deemed advisable by such counsel, local
counsel, and the Company shall pay the reasonable fees and expenses of such
separate counsel and local counsel. The indemnification herein extends to any
settlement, provided that the Company will not be liable for any settlement
made without its consent, provided, further, that such consent will not be un-
reasonably withheld.
The Company need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through its own negligence or bad faith.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Convertible Subordinated Notes on all
money or property held or collected by the Trustee, except that held in trust
to pay principal and interest on Convertible Subordinated Notes. Such Liens
and the Company's obligations under this Section shall survive the satisfac-
tion and discharge of this Indenture.
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When the Trustee incurs expenses or renders services after an Event of De-
fault specified in Section 6.01(g) or (h) occurs, the expenses and the compen-
sation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any Bank-
ruptcy Law.
Section 7.08 Replacement of the Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign at any time and be discharged from the trust hereby
created by so notifying the Company. The holders of a majority in principal
amount of the then outstanding Convertible Subordinated Notes may remove the
Trustee by so notifying the Trustee and the Company in writing and may appoint
a successor Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason, the Company shall promptly appoint a successor Trust-
ee. Within one year after the successor Trustee takes office, the holders of a
majority in principal amount of the then outstanding Convertible Subordinated
Notes may appoint a successor Trustee to replace the successor Trustee ap-
pointed by the Company.
If a successor Trustee does not take office within 60 days after the retir-
ing Trustee resigns or is removed, the retiring Trustee, the Company or the
holders of at least 10% in principal amount of the then outstanding Convert-
ible Subordinated Notes may petition any court of competent jurisdiction for
the appointment of a successor Trustee.
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If the Trustee after written request by any holder of a Convertible Subordi-
nated Note who has been a holder for at least six months fails to comply with
Section 7.10, such holder may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to
the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee
shall have all the rights, powers and duties of the Trustee under this Inden-
ture. The successor Trustee shall mail a notice of its succession to holders
of Convertible Subordinated Notes. The retiring Trustee shall promptly trans-
fer all property held by it as Trustee to the successor Trustee, provided that
all sums owing to the retiring Trustee hereunder have been paid and subject to
the lien provided for in Section 7.07. Notwithstanding the replacement of the
Trustee pursuant to this Section 7.08, the Company's obligations under Section
7.07 shall continue for the benefit of the retiring Trustee.
Upon request of any such successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in the
preceding paragraph.
Section 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation
or national banking association, the resulting, surviving or transferee corpo-
ration or national banking association without any further act shall be the
successor Trustee with the same effect as if the successor Trustee had been
named as the Trustee herein.
Section 7.10 Eligibility, Disqualification.
This Indenture shall always have a Trustee who satisfies the requirements of
TIA ((S)) 310(a)(1). The Trustee shall always have a combined capital and sur-
plus as stated in Section 10.10. The Trustee is subject to TIA ((S)) 310(b)
regarding the disqualification of a trustee upon acquiring a conflicting in-
terest.
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Section 7.11 Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA ((S)) 311(a), excluding any creditor rela-
tionship set forth in TIA ((S)) 311(b). A Trustee who has resigned or been re-
moved shall be subject to TIA ((S)) 311(a) to the extent indicated therein.
ARTICLE 8
Satisfaction and Discharge of Indenture
Section 8.01 Termination of Company's Obligations.
(i) This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.07 and 8.03 shall survive) when all
outstanding Convertible Subordinated Notes theretofore authenticated and
issued have been delivered (other than destroyed, lost or stolen Convert-
ible Subordinated Notes that have been replaced or paid) to the Trustee
for cancellation and the Company has paid all sums payable hereunder. In
addition, the Company may terminate its obligations under this Indenture
(except the Company's obligations under Sections 7.07 and 8.03) if, under
terms satisfactory to the Trustee: (a) the Convertible Subordinated Notes
have either become due and payable or are by their terms due and payable
within one year or scheduled for redemption within one year; and (b) the
Company irrevocably deposits in trust with the Trustee money or United
States Government Obligations (defined below in this Section 8.01), or a
combination thereof, sufficient, without consideration of the reinvestment
of interest in the opinion of the chief financial officer of the Company
expressed in a written certificate delivered to the Trustee, to pay prin-
cipal and interest on the Convertible Subordinated Notes to maturity or
upon redemption, as the case may be. The Company may make the deposit only
if Article 11 permits it.
However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07,
4.01, 4.04, 7.07, 7.08, 8.03 and 8.04 shall survive until the Convertible Sub-
ordinated Notes are no longer outstanding. Thereafter, only the Company's ob-
ligations in Sections 7.07 and 8.03 shall survive.
After a deposit made pursuant to this Section 8.01, the Trustee upon request
of the Company shall acknowledge in writing the discharge of the
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Company's obligations under this Indenture except for those surviving obliga-
tions specified above.
In addition, the Company may elect to have either clause (ii) or clause
(iii) below be applied to the outstanding Convertible Subordinated Notes upon
compliance with the conditions set forth in clause (iv) below.
(ii) Upon the Company's exercise under the last sentence of paragraph (i)
above of the option applicable to this paragraph (ii), the Company shall be
deemed to have been released and discharged from its obligations with respect
to the outstanding Convertible Subordinated Notes on the date the conditions
set forth below are satisfied ("legal defeasance"). For this purpose, legal
defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Convertible Subordi-
nated Notes, which shall thereafter be deemed to be "outstanding" only for the
purpose of the Sections of and matters under this Indenture referred to in
subclauses (A), (B), (C) and (D) of this clause (ii), and to have satisfied
all its other obligations under such Convertible Subordinated Notes and this
Indenture insofar as such Convertible Subordinated Notes are concerned (and
the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following, which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of holders of
outstanding Convertible Subordinated Notes to receive solely from the trust
fund described in clause (iv) below and as more fully set forth in such
clause, payments in respect of the principal of premium, if any, and interest
on such Convertible Subordinated Notes when such payments are due, (B) the
Company's obligations with respect to such Convertible Subordinated Notes when
such payments are due, (C) the Company's obligations with respect to such Con-
vertible Subordinated Notes under Sections 2.03, 2.05, 2.06, 2.07 and 4.04,
and, with respect to the Trustee, under Section 7.07, (D) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (E) this Section
8.01 and Sections 8.03 and 8.04. Subject to compliance with this Section 8.01,
the Company may exercise its option under this clause (ii) notwithstanding the
prior exercise of its option under paragraph (iii) below with respect to the
Convertible Subordinated Notes.
(iii) Upon the Company's exercise under the last sentence of clause (i) of
the option applicable to this clause (iii), the Company shall be released and
discharged from its obligations under any covenant contained in Article 4
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(except for Sections 4.01 and 4.04) and Article 5 with respect to the out-
standing Convertible Subordinated Notes on and after the date the conditions
set forth below are satisfied ("covenant defeasance"), and the Convertible
Subordinated Notes shall thereafter be deemed to be not "outstanding" for the
purpose of any direction, waiver, consent or declaration or act of holders of
Convertible Subordinated Notes (and the consequences of any thereof) in con-
nection with such covenants, but shall continue to be deemed "outstanding" for
all other purposes hereunder. For this purpose, such covenant defeasance means
that, with respect to the outstanding Convertible Subordinated Notes, the Com-
pany may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such cove-
nant or by reason of any reference in any such covenant to any other provision
herein or in any other document and such omission to comply shall not consti-
tute a Default or an Event of Default under Section 6.01 but, except as speci-
fied above, the remainder of this Indenture (including without limitation ob-
ligations set forth in Sections 8.03 and 8.04 hereof) and such Convertible
Subordinated Notes shall be unaffected thereby.
(iv) The following shall be the conditions to the application of either
clause (ii) or (iii) above to the outstanding Convertible Subordinated Notes:
(a) the Company has irrevocably deposited in trust with the Trustee or,
at the option of the Trustee, with a trustee, satisfactory to the Trustee
and the Company, under terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee, cash in U.S. dollars, United States
Government Obligations, or a combination thereof, in such amounts as will
be sufficient, in the opinion of the Chief Financial Officer of the Com-
pany expressed in a written certificate delivered to the Trustee, to pay
the principal of, premium, if any, and interest on the outstanding Con-
vertible Subordinated Notes on the stated maturity or on the applicable
redemption date, as the case may be, of such principal or installment of
principal of, premium, if any, or interest on the outstanding Convertible
Subordinated Notes; provided that (i) the trustee of the irrevocable trust
shall have been irrevocably instructed to pay such money or the proceeds
of such United States Government Obligations to the Trustee, (ii) the
Trustee shall have been irrevocably instructed to apply such money or the
proceeds of such United States Government Obligations to
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the payment of said principal and interest with respect to the Convertible
Subordinated Notes, and (iii) such deposit does not violate Article 11
hereto;
(b) in the case of an election under clause (ii) above, the Company
shall have delivered to the Trustee an Opinion of Counsel from nationally
recognized counsel reasonably acceptable to the Trustee stating that(x)
the Company has received from, or there has been published by, the Inter-
nal Revenue Service a ruling or (y) since the date of this Indenture,
there has been a change in the applicable federal income tax law, in ei-
ther case to the effect that the holders of the outstanding Convertible
Subordinated Notes will not recognize income, gain or loss for federal in-
come tax purposes as a result of such legal defeasance and will be subject
to federal income tax on the same amount and in the same manner and at the
same time as would have been the case if such legal defeasance had not oc-
curred;
(c) in the case of an election under clause (iii) above, the Company
shall have delivered to the Trustee an Opinion of Counsel from nationally
recognized counsel reasonably acceptable to the Trustee (i) to the effect
that the holders of the outstanding Convertible Subordinated Notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such covenant defeasance and will be subject to federal income
tax on the same amount and in the same manner and at the same time as
would have been the case if such covenant defeasance had not occurred or
(ii) that the Company has received from, or there has been published by,
the Internal Revenue Service a ruling to the foregoing effect;
(d) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit;
(e) such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default or Event of Default under,
any material agreement or instrument (including any agreement or instru-
ment governing or evidencing Designated Senior Indebtedness) to which the
Company or any of its subsidiaries is bound;
(f) The Company shall deliver to the Trustee an Opinion of Counsel to
the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolven-
cy, reorganization or similar laws affecting creditors' rights generally;
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(g) the Company shall have delivered to the Trustee an Officers' Certif-
icate stating that the deposit was not made by the Company with the intent
of preferring the holders of Convertible Subordinated Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others; and
(h) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel stating that all conditions precedent provided
for relating to the legal defeasance under clause (ii) above or the cove-
nant defeasance under clause (iii) above, as the case may be, have been
complied with.
After such irrevocable deposit made pursuant to this Section 8.01 (and sat-
isfaction of the other conditions set forth herein), the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified above.
As used herein, "United States Government Obligations" means obligations for
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
Section 8.02 Application of Trust Money.
The Trustee shall hold in trust money or United States Government Obliga-
tions deposited with it pursuant to Section 8.01. It shall apply the deposited
money and the money from United States Government Obligations through the Pay-
ing Agent and in accordance with this Indenture to the payment of principal
and interest on the Convertible Subordinated Notes. Money and securities so
held in trust are not subject to Article 11.
Section 8.03 Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon re-
quest any excess money or securities held by them at any time.
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The Trustee and the Paying Agent shall pay to the Company upon request any
money held by them for the payment of principal or interest that remains un-
claimed for two years after the date upon which such payment shall have become
due; provided, however, that the Company shall have first caused notice of
such payment to the Company to be mailed to each holder of a Convertible Sub-
ordinated Note entitled thereto no less than 30 days prior to such payment.
After payment to the Company, holders entitled to the money must look to the
Company for payment as general creditors unless an applicable abandoned prop-
erty law designates another person and all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
Section 8.04 Reinstatement.
If the Trustee or Paying Agent is unable to apply any money in accordance
with Section 8.02 by reason of any order or judgment of any court or govern-
mental authority enjoining, restraining or otherwise prohibiting such applica-
tion, the Company's obligations under this Indenture and the Convertible Sub-
ordinated Notes shall be revived and reinstated as though no deposit had oc-
curred pursuant to Section 8.01 until such time as the Trustee or Paying Agent
is permitted to apply all such money in accordance with Section 8.02; provid-
ed, however, that if the Company makes any payment of interest on or principal
of any Convertible Subordinated Note following the reinstatement of its obli-
gations, the Company shall be subrogated to the rights of the holders of such
Convertible Subordinated Notes to receive such payment from the money held by
the Trustee or Paying Agent.
ARTICLE 9
Amendments
Section 9.01 Without the Consent of Holders.
The Company and the Trustee may amend this Indenture or the Convertible Sub-
ordinated Notes without notice to or the consent of any holder of a Convert-
ible Subordinated Note for the purposes of:
(a) adding to the covenants of the Company for the benefit of the hold-
ers of Convertible Subordinated Notes;
(b) surrendering any right or power herein conferred upon the Company;
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(c) providing for conversion rights of holders of Convertible Subordi-
nated Notes in the event of consolidation, merger or sale of all or sub-
stantially all of the assets of the Company and to otherwise comply with
Section 5.01;
(d) evidencing the succession of another Person to the Company and the
assumption by such successor of the covenants and obligations of the Com-
pany thereunder and in the Convertible Subordinated Notes as permitted
herein;
(e) reducing the Conversion Price, provided that such reduction will not
adversely affect the interests of holders of Convertible Subordinated
Notes in any material respect; or
(f) curing any ambiguity or correcting or supplementing any defective
provision contained in this Indenture, or making any other changes in the
provisions of this Indenture which the Company and the Trustee may deem
necessary or desirable and which will not adversely affect the interest of
the holders of Convertible Subordinated Notes in any material respect.
Section 9.02 With the Consent of Holders.
Subject to Section 6.07, the Company and the Trustee may amend this Inden-
ture or the Convertible Subordinated Notes with the written consent of the
holders of at least a majority in principal amount of the then outstanding
Convertible Subordinated Notes.
Subject to Sections 6.04 and 6.07, the holders of a majority in principal
amount of the Convertible Subordinated Notes then outstanding may also waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Convertible Subordinated Notes.
However, without the consent of each holder of a Convertible Subordinated
Note affected, an amendment or waiver under this Section may not:
(a) reduce the amount of Convertible Subordinated Notes whose holders
must consent to an amendment or waiver;
(b) reduce the rate of, or extend the time for payment of, interest, in-
cluding defaulted interest, on any Convertible Subordinated Note;
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(c) reduce the principal of or premium on or change the fixed maturity
of any Convertible Subordinated Note or alter redemption provisions with
respect thereto;
(d) make the principal of, or premium, if any, or interest on, any Con-
vertible Subordinated Note payable in money other than as provided for
herein and in the Convertible Subordinated Notes;
(e) waive continuing default in the payment of the principal of or pre-
mium, if any, or interest on, redemption or repurchase payment with re-
spect to, any Convertible Subordinated Notes, including without limitation
a continuing failure to make payment when required upon a Change of Con-
trol or after an Asset Sale Offer Trigger Date;
(f) after the Company's obligation to purchase the Convertible Subordi-
nated Notes arises hereunder, to then amend, modify or change the obliga-
tion of the Company to make or consummate a Change of Control Offer in the
event of a Change of Control or an Asset Sale Offer in the event of an As-
set Sale Offer Trigger Date or waive any default in the performance
thereof or modify any of the provisions or definitions with respect to
such offers;
(g) modify the provision contained herein relating to conversion of or
subordination of the Convertible Subordinated Notes in a manner adverse to
the holders thereof; or
(h) make any change in provisions relating to waivers of defaults, the
abilities of holders of Convertible Subordinated Notes to enforce their
rights hereunder or the provisions of clauses (a) through (h) of this Sec-
tion 9.02.
To secure a consent of the holders of Convertible Subordinated Notes under
this Section, it shall not be necessary for such holders to approve the par-
ticular form of any proposed amendment or waiver, but it shall be sufficient
if such consent approves the substance thereof.
After an amendment or waiver under this Section becomes effective, the Com-
pany shall mail to holders of Convertible Subordinated Notes a notice briefly
describing the amendment or waiver.
The Company agrees that no amendment, supplement or waiver under this Arti-
cle 9 may make any change that adversely affects the rights under Article 11
of any holders of any Designated Senior Indebtedness unless the
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percentage of holders necessary to amend or waive terms of such Designated Se-
nior Indebtedness consent to such change.
Section 9.03 Compliance with the Trust Indenture Act.
Every amendment to this Indenture or the Convertible Subordinated Notes
shall be set forth in a supplemental indenture that complies with the TIA as
then in effect.
Section 9.04 Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a holder
of a Convertible Subordinated Note is a continuing consent by the holder and
every subsequent holder of a Convertible Subordinated Note or portion of a
Convertible Subordinated Note that evidences the same debt as the consenting
holder's Convertible Subordinated Note, even if notation of the consent is not
made on any Convertible Subordinated Note. However, any such holder or subse-
quent holder may revoke the consent as to his or her Convertible Subordinated
Note or portion of a Convertible Subordinated Note if the Trustee receives the
notice of revocation before the date on which the Trustee receives an Offi-
cers' Certificate certifying that the holders of the requisite principal
amount of Convertible Subordinated Notes have consented to the amendment or
waiver.
The Company may, but shall not obligated to, fix a record date for the pur-
pose of determining the holders of Convertible Subordinated Notes entitled to
consent to any amendment or waiver. If a record date is fixed, then notwith-
standing the provisions of the immediately preceding paragraph, those persons
who were holders of Convertible Subordinated Notes at such record date (or
their duly designated proxies), and only those persons, shall be entitled to
consent to such amendment or waiver or to revoke any consent previously given,
whether or not such persons continue to be holders after such record date. No
consent shall be valid or effective for more than 90 days after such record
date unless consents from holders of the principal amount of Convertible Sub-
ordinated Notes required hereunder for such amendment or waiver to be effec-
tive shall have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every holder of
a Convertible Subordinated Note, unless it is of the type described in any of
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clauses (1) through (9) of Section 9.02. In such case, the amendment or waiver
shall bind each holder of a Convertible Subordinated Note who has consented to
it.
Section 9.05 Notation on or Exchange of Convertible Subordinated Notes.
Convertible Subordinated Notes authenticated and delivered after the execu-
tion of any supplemental indenture pursuant to this Article 9 may, and shall
if required by the Trustee, bear a notation in the form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Convertible Subordinated Notes so modified as
to conform, in the opinion of the Company and the Trustee, to any such supple-
mental indenture may be prepared and executed by the Company and authenticated
and delivered by the Trustee in exchange for outstanding Convertible Subordi-
nated Notes.
Section 9.06 Trustee Protected.
The Trustee shall sign any amendment or supplemental indenture authorized
pursuant to this Article 9 if such amendment or supplemental indenture does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may, but need not, sign it. In signing such
amendment or supplemental indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that such amendment or supplemental
indenture is authorized or permitted by this Indenture, that it is not incon-
sistent herewith, and that it will be valid and binding upon the Company in
accordance with its terms.
ARTICLE 10
General Provisions
Section 10.01 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA ((S)) 318(c), the imposed duties shall control.
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Section 10.02 Notices.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in person or mailed by first-class
mail, with postage prepaid (registered or certified, return receipt request-
ed), facsimile or overnight air couriers guaranteeing next day delivery, to
the other's address stated in Section 10.10. The Company or the Trustee by no-
tice to the other may designate additional or different addresses for subse-
quent notices or communications.
All notices and communications (other than those sent to holders of Convert-
ible Subordinated Notes) shall be deemed to have been duly given at the time
delivered by hand, if personally delivered; five business days after being de-
posited in the mail, postage prepaid, if mailed; when transmission confirmed,
if transmitted by facsimile; and the next business day after timely delivery
to the courier, if sent by overnight air courier guaranteeing next day deliv-
ery.
Any notice or communication to a holder of a Convertible Subordinated Note
shall be mailed by first-class mail, with postage prepaid, to his or her ad-
dress shown on the register kept by the Registrar. Failure to mail a notice or
communication to a holder or any defect in it shall not affect its sufficiency
with respect to other holders.
If a notice or communication is sent in the manner provided above within the
time prescribed, it is duly given, whether or not the addressee receives it.
If the Company sends a notice or communication to holders of Convertible
Subordinated Notes, it shall send a copy to the Trustee and each Agent at the
same time.
All other notices or communications shall be in writing.
Section 10.03 Communication by Holders With Other Holders.
Holders may communicate pursuant to TIA ((S)) 312(b) with other holders with
respect to their rights under this Indenture or the Convertible Subordinated
Notes. The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA ((S)) 312(c).
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Section 10.04 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably satisfac-
tory to the Trustee (which shall include the statements set forth in Sec-
tion 10.05) stating that, in the opinion of such person, all conditions
precedent and covenants, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section
10.05) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been complied with.
Section 10.05 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA ((S)) 314(a)(4)) shall include:
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such cer-
tificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she has made
such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condi-
tion has been complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
Any Officers' Certificate may be based, insofar as it relates to legal mat-
ters, upon an Opinion of Counsel, unless such Officer knows that the opinion
with respect to the matters upon which his certificate may be based as afore-
said is erroneous. Any Opinion of Counsel may be based, insofar as it relates
to factual matters, upon certificates, statements or opinions of, or represen-
tations by an officer or officers of the Company, or other persons or firms
deemed
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appropriate by such counsel, unless such counsel knows that the certificates,
statements or opinions or representations with respect to the matters upon
which his certificate, statement or opinion may be based as aforesaid are er-
roneous.
Any Officers' Certificate, statement or Opinion of Counsel may be based, in-
sofar as it relates to accounting matters, upon a certificate or opinion of or
representation by an accountant (who may be an employee of the Company), or
firm of accountants, unless such Officer or counsel, as the case may be, knows
that the certificate or opinion or representation with respect to the account-
ing matters upon which his certificate, statement or opinion may be based as
aforesaid is erroneous.
Section 10.06 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of holders
of Convertible Subordinated Notes. The Registrar or Paying Agent may make rea-
sonable rules and set reasonable requirements for its functions.
Section 10.07 Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institu-
tions in the City of New York are not required to be open, and a business day
is any day that is not a Legal Holiday. If a payment date is a Legal Holiday
at a place of payment, payment may be made at that place on the next suc-
ceeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
Section 10.08 No Recourse Against Others.
No director, officer, employee or stockholder, as such, of the Company from
time to time shall have any liability for any obligations of the Company under
the Convertible Subordinated Notes or this Indenture or for any claim based
on, in respect of, or by reason of such obligations or their creation. Each
holder by accepting a Convertible Subordinated Note waives and releases all
such liability. This waiver and release are part of the consideration for the
Convertible Subordinated Notes. Each of such directors, officers, employees
and stockholders is a third party beneficiary of this Section 10.08.
Section 10.09 Counterparts.
This Indenture may be executed in any number of counterparts and by the par-
ties hereto in separate counterparts, each of which when so executed
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shall be deemed to be an original and all of which taken together shall con-
stitute one and the same agreement.
Section 10.10 Other Provisions.
The Company initially appoints the Trustee as Paying Agent, Registrar and
authenticating agent.
The first certificate pursuant to Section 4.03 shall be for the first full
fiscal quarter of the Company following the issuance of Convertible Subordi-
nated Notes hereunder.
The reporting date for Section 7.06 is April 15 of each year. The first re-
porting date is the first April 15 following the issuance of Convertible Sub-
ordinated Notes hereunder.
The Trustee shall always have, or shall be a subsidiary of a bank or bank
holding company which has, a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of condi-
tion.
The Company's address is:
Rohr, Inc.
850 Lagoon Drive
Chula Vista, CA 91910
Attention: General Counsel
Facsimile: (619) 691-4222
Telephone: (619) 691-2025
The Trustee's address is:
The Bank of New York
101 Barclay Street, 21st Floor West
New York, New York 10286
Attention: Corporate Trust Administration
Facsimile: (212) 815-5915
Telephone: (212) 815-5736
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The Bank Agent's address is:
Citicorp USA, Inc.
c/o Citicorp North America, Inc.
725 South Figueroa Street
Los Angeles, CA 90017
Attention: Airline and Aerospace Group
Facsimile: (213) 623-3592
Section 10.11 Governing Law.
The internal laws of the State of New York shall govern this Indenture and
the Convertible Subordinated Notes, without regard to the conflict of laws
provisions thereof.
Section 10.12 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a subsidiary. Any such other indenture, loan or
debt agreement may not be used to interpret this Indenture.
Section 10.13 Successors.
All agreements of the Company in this Indenture and the Convertible Subordi-
nated Notes shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
Section 10.14 Severability.
In case any provision in this Indenture or in the Convertible Subordinated
Notes shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 10.15 Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof and shall in no way modify or re-
strict any of the terms or provisions hereof.
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ARTICLE 11
Subordination
Section 11.01 Agreement To Subordinate.
The Company agrees, and each holder by accepting a Convertible Subordinated
Note agrees, that the indebtedness evidenced by the Convertible Subordinated
Notes is subordinated and junior in right of payment, to the extent and in the
manner provided in this Article, to the prior payment in full in cash [or Cash
Equivalents] of all Senior Indebtedness and that the subordination is for the
benefit of the holders of Senior Indebtedness from time to time.
Section 11.02 Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation, reorga-
nization or dissolution of the Company (in each case whether total or partial)
or in a bankruptcy, reorganization, insolvency, receivership or similar pro-
ceeding or upon assignment for the benefit of creditors relating to the Com-
pany or its property, or a marshalling of assets or liabilities of the Company
(in each case whether voluntary or involuntary);
(1) holders of Senior Indebtedness shall first be entitled to be paid
all obligations owing thereon or in respect thereof in full in cash or
Cash Equivalents before any payment or distribution may be made on or in
respect of the Convertible Subordinated Notes, except to the extent that
holders receive securities that are subordinated to Senior Indebtedness to
at least the same extent as the Convertible Subordinated Notes (the "Other
Subordinated Securities"); and
(2) holders of Convertible Subordinated Notes (or the Trustee on their
behalf) will be required to pay over their share of such distribution di-
rectly to any Representative of the holders of Senior Indebtedness for
payment thereto or, if such holders have no Representative, directly to
such holders of Senior Indebtedness, until such Senior Indebtedness is
paid in full in cash or Cash Equivalents except to the extent that holders
of Convertible Subordinated Notes receive Other Subordinated Securities.
For purposes of this Article 11, a distribution may consist of cash, securi-
ties or other property, by payment, transfer, set-off or otherwise.
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Section 11.03 Default on Designated Senior Indebtedness.
The Company may not make any direct or indirect payment on or in respect of
any obligations on the Convertible Subordinated Notes and may not acquire or
defease any Convertible Subordinated Notes from the Trustee or any holder of
Convertible Subordinated Notes for cash or property (other than Other Subordi-
nated Securities) if:
(a) a default in the payment of any principal or other obligation in re-
spect of Designated Senior Indebtedness occurs and is continuing beyond
any applicable grace period; or
(b) a default, other than a default referred to in clause (a) above, on
any Designated Senior Indebtedness occurs and is continuing that then per-
mits holders of such Designated Senior Indebtedness to accelerate its ma-
turity and the Trustee receives a notice of the default from the Bank
Agent or other Representative on behalf of Designated Senior Indebtedness
requesting that payments in respect of the Convertible Subordinated Notes
be prohibited.
So long as payments on the Convertible Subordinated Notes are otherwise per-
mitted, then the Company may and shall resume payments on the Convertible Sub-
ordinated Notes and may acquire them upon the earlier of:
(x) the date upon which such default is cured or waived, or
(y) in the case of a default and notice referred to in (b) above, the
passage of 179 days after such notice is received by the Trustee (the
"Payment Blockage Period").
Only one Payment Blockage Period may be commenced within any consecutive
365-day period with respect to the Convertible Subordinated Notes.
Section 11.04 Acceleration of Convertible Subordinated Notes.
If payment of the Convertible Subordinated Notes is accelerated because of
an Event of Default, the Company and the Trustee each shall promptly notify
holders of Senior Indebtedness of the acceleration.
Section 11.05 When Distributions Must Be Paid Over.
In the event that any payment or distribution of assets of the Company,
whether in cash, property or securities (other than Other Subordinated Secu-
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rities) shall be received by the Trustee on account of the principal or inter-
est on or other obligations in respect of the Convertible Subordinated Notes
at a time when the Trustee shall have received notice in accordance with Sec-
tion 11.11 that such payment is prohibited by Section 11.02 or 11.03, such
payment or distribution shall be segregated and held by the Trustee in trust
for the benefit of, and shall forthwith be paid over and delivered to any Rep-
resentative of the holders of Senior Indebtedness for payments thereto, or, if
such holders have no Representative, directly to such holders of Senior In-
debtedness (pro rata as to each of such holders on the basis of the respective
amounts of Senior Indebtedness held by them), as their respective interests
may appear, for application to the payment of all Senior Indebtedness remain-
ing unpaid to the extent necessary to pay all Senior Indebtedness in full in
cash or Cash Equivalents in accordance with its terms, after giving effect to
any concurrent payment or distribution to or for the holders of Senior Indebt-
edness. Any distribution to the holders of the Senior Indebtedness or their
Representatives of assets other than cash or Cash Equivalents may be held by
such holders or Representatives as collateral securing the payment of such Se-
nior Indebtedness without any duty to liquidate or otherwise realize on such
assets or to apply such assets to any Senior Indebtedness.
If a payment or distribution is made to holders of Convertible Subordinated
Notes that because of this Article 11 should not have been made to them, the
holders of Convertible Subordinated Notes who receive the payment or distribu-
tion shall hold it segregated from other assets and hold it in trust for hold-
ers of Senior Indebtedness and pay it over to them as their interests may ap-
pear for application to the payment of all Senior Indebtedness remaining un-
paid to the extent necessary to pay all Senior Indebtedness in full in cash or
Cash Equivalents in accordance with its terms, after giving effect to any con-
current payment or distribution to or for the holders of Senior Indebtedness.
Section 11.06 Notice by the Company.
The Company shall promptly notify the Trustee and the Paying Agent of any
facts known to the Company that would cause a payment of principal of or in-
terest on the Convertible Subordinated Notes to violate this Article, but
failure to give such notice shall not affect the subordination of the Convert-
ible Subordinated Notes to the Senior Indebtedness provided in this Article.
Nothing in this Article shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 7.07.
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Section 11.07 Subrogation.
After all Senior Indebtedness is paid in full in cash or Cash Equivalents
and all letters of credit under the Revolving Credit Agreement have expired or
been terminated or the reimbursement obligations of the Company in respect of
such letters of credit then outstanding have been fully secured by cash or
Cash Equivalents and until the Convertible Subordinated Notes are paid in
full, holders of Convertible Subordinated Notes shall be subrogated to the
rights of holders of Senior Indebtedness to receive distributions applicable
to Senior Indebtedness to the extent that distributions otherwise payable to
the holders of Convertible Subordinated Notes have been applied to the payment
of Senior Indebtedness. A distribution made under this Article to holders of
Senior Indebtedness which otherwise would have been made to holders of Con-
vertible Subordinated Notes is not, as between the Company and such holders, a
payment by the Company on Senior Indebtedness.
Section 11.08 Relative Rights.
This Article defines the relative rights of holders of Convertible Subordi-
nated Notes and holders of Senior Indebtedness. Nothing in this Indenture
shall:
(1) impair, as between the Company and holders of Convertible Subordi-
nated Notes, the obligation of the Company, which is absolute and uncondi-
tional, to pay principal of and interest on the Convertible Subordinated
Notes in accordance with their terms;
(2) affect the relative rights of holders of Convertible Subordinated
Notes and creditors of the Company, other than their rights in relation to
holders of Senior Indebtedness; or
(3) prevent the Trustee or any holder of a Convertible Subordinated Note
from exercising its available remedies upon a Default or Event of Default,
subject to the rights of holders of Senior Indebtedness to receive pay-
ments and distributions otherwise payable to holders of Convertible Subor-
dinated Notes.
If the Company fails because of this Article to pay principal of or interest
on a Convertible Subordinated Note on the due date, the failure is still a De-
fault or Event of Default.
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Section 11.09 Subordination May Not Be Impaired by the Company.
No right of any holder of Senior Indebtedness to enforce the subordination
of the indebtedness evidenced by the Convertible Subordinated Notes shall be
impaired by any act or failure to act by the Company or by its failure to com-
ply with this Indenture (regardless of any knowledge thereof that such holder
may have or otherwise be charged with), or by any act or failure to act by
such holder.
If at any time any payment of any obligations with respect to any Senior In-
debtedness is rescinded or must otherwise be returned upon the insolvency,
bankruptcy, reorganization or liquidation of the Company or otherwise, the
provisions of this Article 11 shall continue to be effective or reinstated, as
the case may be, to the same extent as though such payment had not been made.
Section 11.10 Distribution of Notice to the Representative.
Whenever a distribution is to be made or a notice given to holders of Senior
Indebtedness, the distribution may be made and the notice given to their Rep-
resentative, if any. Whenever a distribution is to be made or notice is to be
given to holders of the Company's outstanding 9.33% Senior Notes or its 9.35%
Senior Notes, such distribution shall be made and such notice shall be given
to each holder of record of such notes at the address specified in the regis-
ter of holders of such notes maintained by the Company.
Upon any payment or distribution of assets of the Company referred to in
this Article 11, the Trustee and the holders of Convertible Subordinated Notes
shall be entitled to rely conclusively upon any order or decree made by any
court of competent jurisdiction or upon any certificate of any Representative
(as to the Senior Debt for which it is the Representative) or of any liquidat-
ing trustee or agent or an Officers' Certificate (as to any Senior Debt for
which there is no Representative) for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Senior In-
debtedness and other indebtedness of the Company, the amount thereof or pay-
able thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 11.
Section 11.11 Rights of the Trustee and Paying Agent.
Notwithstanding any provision of this Article 11 or any other provision of
this Indenture, the Trustee and the Paying Agent shall not at any time be
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charged with knowledge of the existence of any facts which would prohibit the
making of any payment or distribution to or by the trustee or a Paying Agent
or the taking of any other action (pursuant to this Article 11) by the Trustee
or a Paying Agent unless and until the Trustee or such Paying Agent, as the
case may be, shall have received at its office specified in Section 10.10
written notice thereof from the Company, a Representative or a holder of Se-
nior Indebtedness entitled to give such notice and, prior to the receipt of
any such written notice, the Trustee and such paying Agent shall be entitled
in all respects conclusively to assume that no such fact exists. The Trustee
or the Paying Agent may continue to make payments on the Convertible Subordi-
nated Notes unless it receives such a notice at least one business day prior
to the date upon which payment is due.
The Trustee shall be entitled to rely in good faith on the delivery to it of
a written notice by a Person representing himself, herself or itself to be a
Representative on behalf of a holder of Senior Indebtedness to establish that
such notice has been given by a Representative or a holder of such Senior In-
debtedness. Only the Company, a Representative or a holder of Senior Indebted-
ness that has no Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior Indebt-
edness with the same rights it would have if it were not the Trustee. Any
Agent may do the same with like rights.
Section 11.12 No Fiduciary Duty to Holders of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article 11, and no implied covenants or obliga-
tions with respect to the holders of Senior Indebtedness shall be read into
this Indenture against the Trustee or the Paying Agent. Neither the Trustee
nor the Paying Agent shall be deemed to owe any fiduciary duty to the holders
of such Senior Indebtedness, and the Trustee shall not be liable to any holder
of such Senior Indebtedness if it shall, in the absence of bad faith, pay over
or deliver to holders of Convertible Subordinated Notes, the Company or any
other person monies or assets to which any holder of such Senior Indebtedness
shall be entitled by virtue of this Article 11 or otherwise.
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Section 11.13 Authorization to Effect Subordination.
Each holder of a Convertible Subordinated Note by its or his acceptance
thereof authorizes and expressly directs the Trustee on its or his behalf to
take such action as may be necessary or appropriate to effect the subordina-
tion provisions contained in this Article 11, and appoints the Trustee its or
his attorney-in-fact for such purpose, including, in the event of any liquida-
tion, reorganization or dissolution of the Company, whether in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding or otherwise,
the immediate filing of a claim for the unpaid balance of its or his Convert-
ible Subordinated Notes in the form required in such proceeding, and to cause
such claim to be approved. If the Trustee does not file a proper claim or
proof of debt in the form required in such proceeding prior to 30 days before
the expiration of the time to file such claim or claims, then the holders of
any Senior Indebtedness or their Representatives are hereby authorized to file
an appropriate claim for and on behalf of the holders of the Convertible Sub-
ordinated Notes.
ARTICLE 12
Conversion of Convertible Subordinated Notes
Section 12.01 Conversion Privilege.
Subject to and upon compliance with the provisions of this Article 12, the
holder of any Convertible Subordinated Note shall have the right, at his op-
tion, at any time on or prior to the close of business on , 2004
(or, if such Note or portion thereof is called for redemption prior to
, 2004, then in respect of such Convertible Subordinated Note or
portion thereof, on or prior to the close of business on the date fixed for
redemption, unless the Company shall default in payment due upon redemption
thereof in which case such conversion right will terminate at the close of
business on the date such default is cured), to convert the principal amount
of any such Convertible Subordinated Note, or any portion of such principal
amount which is $1,000 or an integral multiple thereof, into that number of
fully paid and nonassessable whole shares of Common Stock obtained by dividing
the principal amount of the Convertible Subordinated Note or portion thereof
to be converted by the Conversion Price in effect at such time and by surren-
der of the Convertible Subordinated Note so to be converted in whole or in
part, such surrender to be made in the manner provided in Section 12.02.
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Section 12.02 Manner of Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the holder of any Convertible
Subordinated Note to be converted in whole or in part shall surrender such
Convertible Subordinated Note, duly endorsed or assigned to the Company or in
blank, at any of the offices or agencies to be maintained for such purpose by
the Company pursuant to Section 4.04, accompanied by the funds, if any, re-
quired by the last paragraph of this Section, and shall give irrevocable writ-
ten notice of conversion in the form provided on the Convertible Subordinated
Notes (or such other notice as is acceptable to the Company) to the Company (a
"Conversion Notice") at such office or agency that the holder elects to con-
vert such Convertible Subordinated Note or the portion thereof specified in
said notice. Such Conversion Notice shall also state the name or names, to-
gether with the address or addresses, in which the certificate or certificates
for shares of Common Stock which shall be issuable in such conversion shall be
issued. Each Convertible Subordinated Note surrendered for conversion shall,
unless the shares issuable on conversion are to be issued in the same name as
the name in which such Convertible Subordinated Note is registered, be accom-
panied by instruments of transfer, in form satisfactory to the Company, duly
executed by the holder or his duly authorized attorney and in amount suffi-
cient to pay any transfer or similar tax. As promptly as practicable after the
surrender of such Convertible Subordinated Note and the receipt of such Con-
version Notice, instruments of transfer and funds, if any, as aforesaid, the
Company shall issue and shall deliver at such office or agency to such holder,
or on his written order, a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of such Convertible Subor-
dinated Note or portion thereof in accordance with the provisions of this Ar-
ticle 12 and a check or cash in respect of any fractional interest in a share
of Common Stock arising upon such conversion, as provided in Section 12.03. In
case any Convertible Subordinated Note of a denomination greater than $1,000
shall be surrendered for partial conversion, the Company shall execute and the
Trustee shall register or cause to be registered and shall authenticate and
deliver to or upon the order of the holder of the Convertible Subordinated
Note so surrendered at the expense of the Company, a new Note or Convertible
Subordinated Notes in authorized denominations in an aggregate principal
amount equal to the unconverted portion of the surrendered Note.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which such Convertible Subordinated
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Note shall have been surrendered and such Conversion Notice (and any applica-
ble instruments of transfer and any required funds) received by the Company as
aforesaid, and the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby at such time on such date and such conversion shall be at
the Conversion Price in effect at such time on such date, unless the stock
transfer books of the Company shall be closed on that date, in which event
such Person or Persons shall be deemed to have become such holder or holders
of record at the close of business on the next succeeding day on which such
stock transfer books are open, but such conversion shall be at the Conversion
Price in effect on the date upon which such Convertible Subordinated Note
shall have been surrendered and such Conversion Notice received by the Compa-
ny.
Any Convertible Subordinated Note or portion thereof surrendered for conver-
sion after the close of business on a Regular Record Date for payment of in-
terest and before the close of business on the next succeeding Interest Pay-
ment Date (unless such Convertible Subordinated Note or portion thereof being
converted is called for redemption on a redemption date in that period) shall
be accompanied by payment, in funds acceptable to the Company, of an amount
equal to the interest thereon that is to be paid on such Interest Payment Date
on the principal amount being converted; provided, however, that no such pay-
ment need be made if there shall exist at the time of conversion a default in
the payment of interest on the Convertible Subordinated Notes. An amount equal
to such payment shall be paid by the Company on such Interest Payment Date to
the holder of such Convertible Subordinated Notes at the close of business on
such Regular Record Date; provided, however, that, if the Company shall de-
fault in the payment of interest on such Interest Payment Date, such amount
shall be paid to the Person who made such required payment. Except as provided
for above in this Section, no payments or adjustments shall be made upon con-
version on account of accrued interest on the Convertible Subordinated Notes
or for any dividends or distributions on any shares of Common Stock delivered
upon the conversion of such Convertible Subordinated Notes as provided in this
Article.
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Section 12.03 Cash Payments in Lieu of Fractional Shares.
No fractional shares or scrip representing fractions of shares of Common
Stock shall be issued upon conversion of the Convertible Subordinated Notes.
If more than one Convertible Subordinated Note shall be surrendered for con-
version at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Convertible Subordinated Notes, or specified
portions thereof to be converted, so surrendered. Instead of any fractional
interest in a share of Common Stock which would otherwise be deliverable upon
the conversion of any Convertible Subordinated Note or Convertible Subordi-
nated Notes, the Company shall pay to the holder of such Convertible Subordi-
nated Note an amount in cash (computed to the nearest cent) equal to the Daily
Market Price thereof at the close of business on the business day next preced-
ing the day of conversion multiplied by the fractional interest (expressed as
a percentage) that otherwise would have been deliverable to such holder upon
such conversion of the Convertible Subordinated Notes.
Section 12.04 Adjustment of Conversion Price.
The Conversion Price shall be as specified in the form of Convertible Subor-
dinated Note set forth in Article 17 thereof subject to adjustment as provided
below. The Conversion Price shall be adjusted from time to time by the Company
as follows:
(a) In case the Company, after the date of this Indenture, shall (i) pay
a dividend or make a distribution on its Common Stock in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares, or (iv) issue by reclassification
of its Common Stock any shares of Capital Stock of the Company, the Con-
version Price in effect immediately prior to such action shall be adjusted
so that the holder of any Convertible Subordinated Note thereafter surren-
dered for conversion shall be entitled to receive the number of shares of
Common Stock or other Capital Stock of the Company that it would have
owned or been entitled to receive immediately following such action had
such Convertible Subordinated Note been converted immediately prior to the
occurrence of such event. An adjustment made pursuant to this subsection
(a) shall become effective immediately after the record date, in the case
of a dividend or distribution, or immediately after the
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effective date, in the case of a subdivision, combination or reclassifica-
tion. If, as a result of an adjustment made pursuant to this subsection
(a), the holder of any Convertible Subordinated Note thereafter surren-
dered for conversion shall become entitled to receive shares of two or
more classes of Capital Stock or shares of Common Stock and other Capital
Stock of the Company, the Board of Directors (whose determination shall be
conclusive and shall be described in a statement filed by the Company with
the Trustee and with any Conversion Agent as soon as practicable) shall
determine the allocation of the adjusted Conversion Price between or among
shares of such classes of Capital Stock or shares of Common Stock and
other Capital Stock.
(b) In case the Company, after the date of this Indenture, shall issue
rights, warrants or options to all holders of its outstanding shares of
Common Stock entitling them to subscribe for or purchase shares of Common
Stock (or securities convertible into Common Stock) at a price per share
less than the current market price per share (as determined pursuant to
subsection (h) of this Section 12.04) of the Common Stock, the Conversion
Price in effect immediately prior thereto shall be adjusted so that it
shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the date of issuance of such rights, warrants
or options by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such rights,
warrants or options (immediately prior to such issuance), plus the number
of shares of Common Stock which the aggregate offering price of the total
number of shares of Common Stock so offered for subscription or purchase
(or the aggregate conversion price of the convertible securities so of-
fered for subscription or purchase) would purchase at such current market
price, and of which the denominator shall be the number of shares of Com-
mon Stock outstanding on the date of issuance of such rights, warrants or
options (immediately prior to such issuance) plus the number of additional
shares of Common Stock so offered for subscription or purchase (or into
which the convertible securities so offered for subscription or purchase
are convertible). Such adjustment shall be made successively whenever any
such rights, warrants or options are issued, and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such rights, warrants or options. In determining
whether any rights, warrants or options entitle the holders to subscribe
for or purchase shares of Common Stock (or
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securities convertible into Common Stock) at less than such current market
price, and in determining the aggregate offering price of such shares of
Common Stock (or conversion price of such convertible securities), there
shall be taken into account any consideration received by the Company for
such rights, warrants or options (and for such convertible securities),
the value of such consideration, if other than cash, to be determined by
the Board of Directors (whose determination shall be conclusive and shall
be described in a certificate filed with the Trustee and with any Conver-
sion Agent by the Company as soon as practicable). If at the end of the
period during which such warrants, rights or options are exercisable not
all such warrants, rights or options shall have been exercised, the ad-
justed Conversion Price shall be immediately readjusted to what it would
have been based on the number of additional shares of Common Stock actu-
ally issued (or the number of shares of Common Stock issuable upon conver-
sion of convertible securities actually issued).
(c) In case the Company, after the date of this Indenture, shall dis-
tribute to all or substantially all holders of its outstanding Common
Stock any shares of Capital Stock (other than Common Stock), evidences of
its indebtedness or assets (including securities and cash, but excluding
any cash dividend paid out of current or retained earnings of the Company
and dividends or distributions payable in stock for which adjustment is
required pursuant to subsection (a) of this Section 12.04) or rights, war-
rants or options to subscribe for or purchase securities of the Company
(excluding those referred to in subsection (b) of this Section 12.04),
then in each such case the Conversion Price shall be adjusted so that the
same shall equal the price determined by multiplying the Conversion Price
in effect immediately prior to the record date of such distribution by a
fraction of which the numerator shall be the current market price per
share (as determined pursuant to subsection (h) of this Section 12.04) of
the Common Stock less the fair market value on such record date (as deter-
mined by the Board of Directors, whose determination shall be conclusive
and shall be described in a certificate filed with the Trustee and with
any Conversion Agent by the Company as soon as practicable) of the portion
of the Capital Stock or the evidences of indebtedness or the assets so
distributed to the holder of one share of Common Stock or of such sub-
scription rights, warrants or options applicable to one share of Common
Stock and of which the denominator shall be such current market price per
share of Common Stock. Such adjustment shall become effective im-
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mediately after the record date for the determination of stockholders en-
titled to receive such distribution. In the event of a distribution to all
or substantially all holders of Common Stock of rights to subscribe for
additional shares of the Company's Capital Stock (other than those re-
ferred to in subsection (b) of this Section 12.04), the Company may, in-
stead of making an adjustment in the Conversion Price, make proper provi-
sion so that each holder of a Convertible Subordinate Note who converts
such Convertible Subordinated Note after the record date for such distri-
bution and prior to the expiration or redemption of such rights shall be
entitled to receive upon such conversion, in addition to shares of Common
Stock, an appropriate number of such rights. If at the end of the period
during which warrants, rights or options described in this subsection (c)
are exercisable not all such warrants, rights or options shall have been
exercised, the adjusted Conversion Price shall be immediately readjusted
to what it would have been based on the number of warrants, rights or op-
tions actually exercised.
(d) Notwithstanding anything in subsection (b) or (c) of this Section
12.04 to the contrary, with respect to any rights, warrants or options
covered by subsection (b) or (c) of this Section 12.04, if such rights,
warrants or options are only exercisable upon the occurrence of certain
triggering events, then for purposes of this Section 12.04 such rights,
warrants or options shall not be deemed issued or distributed, and any ad-
justment to the Conversion Price required by subsection (b) or (c) of this
Section 12.04 shall not be made until such triggering events occur and
such rights, warrants or options become exercisable.
(e) In case the Company, after the date of this Indenture, shall issue
to an Affiliate shares of its Common Stock (excluding those rights, war-
rants, options, shares of Capital Stock or evidences of its indebtedness
or assets referred to in subsection (b) or (c) to this Section 12.04) at a
net price per share less than the current market price per share (as de-
termined pursuant to subsection (h) of this Section 12.04) on the date the
Company fixes the offering price of such additional shares, the Conversion
Price shall be reduced immediately thereafter so that it shall equal the
price determined by multiplying such Conversion Price in effect immedi-
ately prior thereto by a fraction of which the numerator shall be the num-
ber of shares of Common Stock outstanding immediately prior to the issu-
ance of such additional shares plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Com-
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mon Stock so offered would purchase at the current market price and the
denominator shall be the number of shares of Common Stock that would be
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made.
This subsection (e) shall not apply to Common Stock issued to any Affili-
ate under a bona fide employee or director benefit plan or agreement
adopted by the Company or any subsidiary thereof and approved by either
the stockholders of the Company or a majority of the Company's outside di-
rectors.
(f) In case the Company, after the date of this Indenture, shall, by
dividend or otherwise, at any time distribute to all holders of its Common
Stock cash (including any cash that is distributed as part of a distribu-
tion referred to in subsection (c) of this Section) in an aggregate amount
that, together with (i) the aggregate amount of any other distributions to
all holders of its Common Stock made exclusively in cash within the 12
months preceding the date fixed for determining the stockholders entitled
to such distribution and in respect of which no Conversion Price adjust-
ment pursuant to this subsection (f) has been made and (ii) the aggregate
of any cash plus the fair market value (as determined by the Board of Di-
rectors, whose determination shall be conclusive and described in a Board
Resolution), as of such date of determination, of consideration payable in
respect of any tender offer by the Company or a subsidiary for all or any
portion of the Common Stock consummated within 12 months preceding the
date fixed for determining the stockholders entitled to such distribution
and in respect of which no Conversion Price adjustment pursuant to subsec-
tion (g) of this Section has been made, exceeds 15% of the product of the
current market price per share (determined as provided in subsection (h)
of this Section) on the date fixed for the determination of stockholders
entitled to receive such distribution times the number of shares of Common
Stock outstanding on such date, the Conversion Price shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator
shall be the current market price per share (determined as provided in
subsection (h) of this Section) on the date fixed for such determination
less the amount of cash so distributed at such time applicable to one
share of Common Stock and the denominator shall be such current market
price, such reduction to become effective immediately prior to the opening
of business on the date after the date fixed for such determination.
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(g) In case a tender offer made by the Company or any subsidiary, after
the date of this Indenture, for all or any portion of the Common Stock
shall be consummated and such tender offer shall involve an aggregate con-
sideration having a fair market value (as determined by the Board of Di-
rectors, whose determination shall be conclusive and described in a Board
Resolution) as of the last time (the "Expiration Time") that tenders may
be made pursuant to such tender offer (as it may be amended) that, to-
gether with (i) aggregate of the cash plus the fair market value (as de-
termined by the Board of Directors, whose determination shall be conclu-
sive and described in a Board Resolution), as of the consummation of such
tender offer, of other consideration paid or payable in respect of any
tender offer by the Company or a subsidiary for all or any portion of the
Common Stock consummated within the 12 months preceding the consummation
of such tender offer and in respect of which no Conversion Price adjust-
ment pursuant to this subsection (g) has been made and (ii) the aggregate
amount of any distributions to all holders of Common Stock made exclu-
sively in cash within the 12 months preceding the consummation of such
tender offer and in respect of which no Conversion Price adjustment pursu-
ant to subsection (f) of this Section has been made, exceeds 15% of the
product of the current market price per share (determined as provided in
subsection (h) of this Section) immediately prior to the Expiration Time
times the number of shares of Common Stock outstanding (including any ten-
dered shares) at the Expiration Time, the Conversion Price shall be re-
duced by multiplying the Conversion Price in effect immediately prior to
the Expiration Time by a fraction of which the numerator shall be (i) the
product of the current market price per share (determined as provided in
subsection (h) of this Section) immediately prior to the Expiration Time
times the number of shares of Common Stock outstanding (including any ten-
dered shares) at the Expiration Time minus (ii) the fair market value (de-
termined as aforesaid) of the aggregate consideration payable to stock-
holders upon consummation of such tender offer (the shares accepted for
payment in the tender offer being referred to as the "Purchased Shares")
and the denominator shall be the product of (x) such current market price
per share times (y) such number of outstanding shares at the Expiration
Time minus the number of Purchased Shares, such reduction to become effec-
tive immediately prior to the opening of business on the day following the
Expiration Time; provided that, if the number of Purchased Shares or the
aggregate considera-
79
<PAGE>
tion payable therefor have not been finally determined by such opening of
business, the adjustment required by this subsection (g) shall, pending
such final determination, be made based upon the preliminary announced re-
sults of such tender offer, and, after such final determination shall have
been made, the adjustment required by this subsection (g) shall be made
based upon the number of Purchased Shares and the aggregate consideration
payable therefor as so finally determined.
(h) For the purpose of any computation under subsections (b) through (g) of
this Section 12.04, the current market price per share of Common Stock on any
date shall be deemed to be the average of the Daily Market Prices for the
shorter of (i) 30 consecutive business days ending on the last full trading
day on the exchange or market referred to in determining such Daily Market
Prices prior to the Time of Determination or (ii) the period commencing on the
date next succeeding the first public announcement of the issuance of such
rights or warrants or such distribution through such last full trading day
prior to the Time of Determination.
(i) In any case in which this Section 12.04 shall require that an adjustment
be made immediately following a record date or an effective date, the Company
may elect to defer (but only until five business days following the filing by
the Company with the Trustee and any Conversion Agent of the certificate re-
quired by subsection (k) of this Section 12.04) issuing to the holder of any
Convertible Subordinated Note converted after such record date or effective
date the shares of Common Stock issuable upon such conversion over and above
the shares of Common Stock issuable upon such conversion on the basis of the
Conversion Price prior to adjustment, and paying to such holder any amount of
cash in lieu of a fractional share.
(j) No adjustment in the Conversion Price shall be required to be made un-
less such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this
subsection (j) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
12.04 shall be made to the nearest cent or to the nearest 1/100th of a share,
as the case may be. No adjustment to the Conversion Price need be made if only
the par value of the Common Stock is changed (including any change to no par
value Common Stock). To the extent that the Notes become convertible into
cash, no adjustment need be made thereafter as to such cash and interest
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<PAGE>
will not accrue on such cash. Anything in this Section 12.04 to the contrary
notwithstanding, the Company shall be entitled to make such reduction in the
Conversion Price, in addition to those required by this Section 12.04, as it
in its discretion shall determine to be advisable in order that any stock div-
idend, subdivision of shares, distribution of rights to purchase stock or se-
curities, or distribution of securities convertible into or exchangeable for
stock hereafter made by the Company to its stockholders shall not be taxable
to the recipients.
(k) Whenever the Conversion Price is adjusted as herein provided, (i) the
Company shall promptly file with the Trustee and any Conversion Agent other
than the Trustee a certificate signed by the President, any Vice President or
the Treasurer of the Company setting forth the Conversion Price after such ad-
justment and setting forth a brief statement of the facts requiring such ad-
justment and the manner of computing the same, which certificate shall be con-
clusive evidence of the correctness of such adjustment, and (ii) a notice
stating that the Conversion Price has been adjusted and setting forth the ad-
justed Conversion Price shall forthwith be given by the Company to the holders
of Convertible Subordinated Notes in the manner provided in Section 10.02. The
Company may correct any previous certificate and notice given pursuant to this
subsection (k) by (i) promptly filing with the Trustee and any Conversion
Agent other than the Trustee a new certificate in the form required by this
subsection (k) and (ii) giving a new notice to the holders of Convertible Sub-
ordinated Notes in the form and manner required by this subsection (k). Such
new certificate and notice shall state that such certificate and notice are
being provided to correct the previous certificate and notice. Except as oth-
erwise provided in Section 7.01, neither the Trustee nor any Conversion Agent
shall be under any duty or responsibility with respect to the certificate re-
quired by this subsection (k) except to exhibit the same to any holder of Con-
vertible Subordinated Notes who requests to inspect it. The certificate re-
quired by this subsection (k) shall be filed at each office or agency main-
tained for the purposes of conversion of Notes pursuant to Section 2.03.
(l) In the event that at any time, as a result of an adjustment made pursu-
ant to subsection (a) of this Section 12.04, the holder of any Convertible
Subordinated Note thereafter surrendered for conversion shall become entitled
to receive any shares of the Company other than shares of Common Stock, there-
after the Conversion Price of such other shares so receivable upon conversion
of any Note shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with
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<PAGE>
respect to Common Stock contained in this Article 12 and the other provisions
of this Article 12 applicable to Common Stock shall apply to such other
shares.
Section 12.05 Notice to Holders Prior to Certain Corporate Actions.
In case:
(a) the Company shall take any action that would require an adjustment
in the Conversion Price pursuant to Section 12.04(c); or
(b) the Company shall authorize the granting to the holders of its Com-
mon Stock generally of rights, warrants or options to subscribe for or
purchase any shares of stock of any class or of any other rights (other
than employee or director stock options); or
(c) there shall be any reorganization or reclassification of the Common
Stock (other than a subdivision or combination of the outstanding Common
Stock and other than a change in the par value of the Common Stock), or
any consolidation or merger to which the Company is a party, or any con-
veyance, transfer, sale or lease of the Company's properties and assets
as, or substantially as, an entirety; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then the Company shall cause to be filed with the Trustee and any Conversion
Agent, and shall cause to be given to the holders of Convertible Subordinated
Notes, in the manner provided in Section 10.02, as promptly as possible, but
in any event at least 10 days prior to the applicable date hereinafter speci-
fied, a notice stating (i) the date on which a record is to be taken for the
purpose of such dividend, or distribution or rights or warrants, or, if a rec-
ord is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such distribution or rights are to be determined, or
(ii) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding
up is expected to become effective or occur, and, if applicable, the date as
of which it is expected that holders of Common Stock of record shall be enti-
tled to exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reorganization, reclassification, consolida-
tion, merger, conveyance, transfer, sale, lease, liquidation or winding up.
Failure to give such notice or any defect therein shall not affect the legal-
ity or validity of the proceedings described in subsection (a), (b), (c) or
(d) of this Section 12.05.
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<PAGE>
Section 12.06 Reservation of Shares of Common Stock.
The Company shall at all times reserve and keep available, free from preemp-
tive rights, out of the aggregate of its authorized but unissued shares of
Common Stock or its issued shares of Common Stock held in its treasury, or
both, for the purpose of effecting conversions of Convertible Subordinated
Notes, the full number of shares of Common Stock deliverable upon the conver-
sion of all outstanding Notes not theretofore converted.
Before taking any action that would cause an adjustment reducing the Conver-
sion Price below the then par value (if any) of the shares of Common Stock de-
liverable upon conversion of the Convertible Subordinated Notes, the Company
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion Price.
Section 12.07 Taxes upon Conversion.
The Company shall pay any and all documentary, stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of shares of Common
Stock on conversions of Notes pursuant hereto; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue or delivery of shares of Common Stock in
a name other than that of the holder of the Convertible Subordinated Note or
Convertible Subordinated Notes to be converted and no such issue or delivery
shall be made unless and until the Person requesting such issue or delivery
has paid to the Company the amount of any such tax or has established to the
satisfaction of the Company that such tax has been paid.
Section 12.08 Covenants as to Common Stock.
The Company covenants that all shares of Common Stock which may be delivered
upon conversions of Convertible Subordinated Notes will upon delivery be duly
and validly issued and fully paid and nonassessable, free of all Liens and
charges and not subject to any preemptive rights.
The Company further covenants that, for so long as the Common Stock shall be
listed on the New York Stock Exchange or any other national securities ex-
change, the Company will, if permitted by the rules of such exchange,
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<PAGE>
list and keep listed all Common Stock issuable upon conversion of the Convert-
ible Subordinated Notes.
Section 12.09 Consolidation or Merger or Sale of Assets.
Notwithstanding any other provision herein to the contrary, in case of any
consolidation or merger to which the Company is a party (other than a merger
or consolidation which does not result in any reclassification, conversion,
exchange or cancellation of the outstanding shares of Common Stock of the Com-
pany), or in case of any conveyance, transfer, sale or lease to another corpo-
ration of the properties and assets of the Company as, or substantially as, an
entirety, the corporation formed by such consolidation, or the corporation
whose securities, cash or other property will immediately after the merger or
consolidation be owned, by virtue of the merger or consolidation, by the hold-
ers of Common Stock of the Company immediately prior to the merger or the cor-
poration which shall have acquired such properties and assets of the Company,
as the case may be, shall promptly execute and deliver to the Trustee a sup-
plemental indenture providing that the holder of each Convertible Subordinated
Note then outstanding shall have the right thereafter to convert such Note,
during the period such Note is convertible as specified in this Article 12,
into the kind and amount of securities, cash or other property receivable upon
such consolidation, merger, conveyance, transfer, sale or lease by a holder of
the number of shares of Common Stock into which such Note might have been con-
verted immediately prior to such consolidation, merger, conveyance, transfer,
sale or lease, assuming such holder of Common Stock (i) is not a Person with
which the Company consolidated or into which the Company merged or was merged
or to which such conveyance, transfer, sale or lease was made or an Affiliate
of such Person and (ii) did not exercise statutory rights of election, if any,
as to the kind or amount of securities, cash or other property receivable upon
such consolidation, merger, conveyance, transfer, sale or lease (provided
that, if the kind or amount of securities, cash or other property receivable
upon such consolidation, merger, conveyance, transfer, sale or lease is not
the same for each share of Common Stock in respect of which such rights of
election shall not have been exercised ("non-electing share"), then for the
purposes of this Section 12.09 the kind and amount of securities, cash or
other property receivable upon such consolidation, merger, conveyance, trans-
fer, sale or lease for each non-electing share shall be deemed to be the kind
and amount so receivable per share by the holders of a plurality of the non-
electing shares). Such supplemental indenture
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shall provide for adjustments which, for events subsequent to the effective
date of such supplemental indenture, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 12 in relation to
any shares of stock or other securities or property thereafter deliverable on
the conversion of the Notes.
The above provisions of this Section 12.09 shall similarly apply to succes-
sive consolidations, mergers, conveyances, transfers, sales or leases.
The Company shall give notice of the execution of such a supplemental inden-
ture to the holders of Convertible Subordinated Notes in the manner provided
in Section 10.02 within 30 days after the execution thereof; provided, howev-
er, that such notice need not be given if such information has been provided
prospectively in the notice given pursuant to Section 12.05. Failure to give
such notice, or any defects therein, shall not affect the legality or validity
of any such supplemental indenture or any transaction contemplated in this
Section 12.09.
Section 12.10 Disclaimer of Responsibility for Certain Matters.
Neither the Trustee nor any Conversion Agent shall at any time be under any
duty or responsibility to any holder of Convertible Subordinated Notes to de-
termine whether any facts exist which may require any adjustment of the Con-
version Price, or with respect to the nature or extent of any such adjustment
when made, or with respect to the method employed, or herein or in any supple-
mental indenture provided to be employed, in making the same. Neither the
Trustee nor any Conversion Agent shall be accountable with respect to the
listing or registration referred to in Section 12.08 or the validity or value
(or the kind or amount) of any shares of Common Stock, or of any securities,
cash or other property, which may at any time be issued or delivered upon the
conversion of any Note; and neither the Trustee nor any Conversion Agent makes
any representation with respect thereto. Neither the Trustee nor any Conver-
sion Agent shall be responsible for any failure of the Company to issue,
transfer or deliver any shares of Common Stock or stock certificates or other
securities or property or to make any cash payment upon the surrender of any
Note for the purpose of conversion or, subject to the provisions of Section
7.01, to comply with any of the covenants of the Company contained in this Ar-
ticle 12.
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<PAGE>
Section 12.11 Cancellation of Converted Notes.
All Notes delivered for conversion shall be delivered to the Trustee to be
cancelled by or at the direction of the Trustee, which shall dispose of the
same as provided in Section 2.11.
Section 12.12 Voluntary Reduction.
The Company from time to time may reduce the Conversion Price by any amount
for any period of time if the period is at least 20 days or such longer period
as may be required by law and if the reduction is irrevocable during such pe-
riod.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly exe-
cuted and attested, all as of the date first above written, signifying their
agreements contained in this Indenture.
ROHR, INC.
By _________________________________________
Name:
Title:
Attest:
- -------------------------
THE BANK OF NEW YORK
By _________________________________________
Name:
Title:
Attest:
- -------------------------
S-1
<PAGE>
EXHIBIT A
(Face of Security)
No. $
CUSIP
ROHR, INC.
% CONVERTIBLE SUBORDINATED NOTE DUE 2004
promises to pay to
or registered assigns,
the principal sum of Dollars on , 2004
Interest Payment Dates: and
Regular Record Dates: and
Certificate of Authentication
This is one of the Convertible Subordinated Notes
described in the within-mentioned Indenture.
THE BANK OF NEW YORK, ROHR, INC.
as Trustee
By______________________________ By___________________________________________
Authorized Signatory President and Chief Executive Officer
Dated: By___________________________________________
Secretary
(SEAL)
<PAGE>
EXHIBIT A
(Back of Security)
ROHR, INC.
% CONVERTIBLE SUBORDINATED NOTE DUE 2004
1. INTEREST. Rohr, Inc., a Delaware corporation (the "Company"), promises to
pay interest on the principal amount of this Convertible Subordinated Note at
the rate per annum shown above. The Company will pay interest semiannually on
May 15 and November 15 of each year. Interest on the Convertible Subordinated
Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from , 1994. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. Interest on
overdue principal and (to the extent permitted by law) on overdue installments
of interest will accrue at a rate of % per annum.
2. METHOD OF PAYMENT. The Company will pay interest on the Convertible Sub-
ordinated Notes (except defaulted interest) to the person in whose name each
Convertible Subordinated Note is registered at the close of business on the
May 1 or November 1 immediately preceding the relevant interest payment date
(each a "Regular Record Date") even though Convertible Subordinated Notes are
cancelled after the record date and on or before the interest payment date.
Holders must surrender Convertible Subordinated Notes to a Paying Agent to
collect principal payments. The Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal
and interest by check payable in such money, and may mail such check to the
holder's registered address.
3. PAYING AGENT AND REGISTRAR. The Bank of New York, a New York State bank-
ing corporation (together with any successor Trustee under the Indenture re-
ferred to below, the "Trustee"), will act as Paying Agent and Registrar. The
Company may change the Paying Agent, Registrar or co-registrar without prior
notice. Subject to certain limitations in the Indenture, the Company or any of
its subsidiaries may act in any such capacity.
A-2
<PAGE>
4. INDENTURE. The Company issued the Convertible Subordinated Notes under an
Indenture dated as of May 15, 1994 (the "Indenture") between the Company and
the Trustee. The terms of the Convertible Subordinated Notes include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939 (15 U.S. Code ((S))((S)) 77aaa-77bbbb) as in
effect on the date of the Indenture. The Convertible Subordinated Notes are
subject to, and qualified by, all such terms, certain of which are summarized
hereon, and holders are referred to the Indenture and such Act for a statement
of such terms. The Convertible Subordinated Notes are unsecured general obli-
gations of the Company limited to $50,000,000 in aggregate principal amount.
Capitalized terms not defined below have the same meaning as is given to them
in the Indenture.
5. OPTIONAL REDEMPTION. The Company may redeem the Convertible Subordinated
Notes, in whole or in part, prior to maturity at any time on or after
, 1998 at the following redemption prices (expressed as per-
centages of the principal amount), plus accrued and unpaid interest to the
date fixed for redemption, if redeemed during the twelve-month period begin-
ning of each year indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1998.......................................................... %
1999.......................................................... %
2000.......................................................... %
2001.......................................................... %
2002.......................................................... %
2003.......................................................... %
2004.......................................................... 100.00%
</TABLE>
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the date fixed for redemption to each
holder of Convertible Subordinated Notes to be redeemed at his or her regis-
tered address. Convertible Subordinated Notes in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. In the
event of a redemption of less than all of the Convertible Subordinated Notes,
the Convertible Subordinated Notes will be chosen for redemption by the
Trustee by lot or pro rata or, if required, in compliance with the require-
ments of the principal national securities exchange, if any, on which the Con-
vertible Subordinated Notes are listed. On and after the redemption date in-
A-3
<PAGE>
terest ceases to accrue on Convertible Subordinated Notes or portions of them
called for redemption (unless the Company defaults in the payment of the re-
demption price). If this Convertible Subordinated Note is redeemed subsequent
to a record date with respect to any interest payment date specified above and
on or prior to such interest payment date, then any accrued interest will be
paid to the person in whose name this Convertible Subordinated Note is regis-
tered at the close of business on such record date.
7. CHANGE OF CONTROL. Upon a Change of Control, the Company shall make a
Change of Control Offer to purchase all outstanding securities at a price
equal to 101% of the aggregate principal amount of the Convertible Subordi-
nated Notes, plus accrued and unpaid interest to the date of purchase, such
offer to be made as provided in the Indenture. To accept the Change of Control
Offer, the holder hereof must comply with the terms thereof, including surren-
dering this Convertible Subordinated Note, with the "Option of Holder to Elect
Purchase" portion hereof completed, to the Company, a depositary, if appointed
by the Company, or a Paying Agent, at the address specified in the notice of
the Change of Control Offer mailed to holders as provided in the Indenture,
prior to termination of the Change of Control Offer.
8. SUBORDINATION. To the extent set forth in Article 11 of the Indenture the
Convertible Subordinated Notes are subordinated to Senior Indebtedness. Senior
Indebtedness shall not include (i) any indebtedness of the Company to any of
its subsidiaries, (ii) Capitalized Lease Obligations, (iii) indebtedness in
respect of the Pooling and Services Agreement, (iv) the Company's 9.25% Subor-
dinated Debentures due 2017 and its 7% Convertible Subordinated Debentures due
2012, and (v) any advances, deposits or partial progress payments, payables,
unpaid wages and related employee obligations, trade accounts and accrued lia-
bilities. To the extent provided in the Indenture, Senior Indebtedness must be
paid before the Convertible Subordinated Notes may be paid. The Company
agrees, and each holder by accepting a Convertible Subordinated Note agrees,
to the subordination and authorizes the Trustee to give it effect.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Convertible Subordinated Notes are
in registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Convertible Subor-
A-4
<PAGE>
dinated Notes may be registered and Convertible Subordinated Notes may be ex-
changed as provided in the Indenture. As a condition of transfer, the Regis-
trar may require a holder, among other things, to furnish appropriate endorse-
ments and transfer documents and the Company may require a holder to pay any
taxes and fees required by law or permitted by the Indenture. The Registrar
need not exchange or register the transfer of any Convertible Subordinated
Note or portion of a Convertible Subordinated Note selected for redemption.
Also, it need not exchange or register the transfer of any Convertible Subor-
dinated Note for a period of 15 days before a selection of Convertible Subor-
dinated Notes to be redeemed.
10. PERSONS DEEMED OWNERS. The registered holder of a Convertible Subordi-
nated Note may be treated as its owner for all purposes.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture or
the Convertible Subordinated Notes may be amended with the consent of the
holders of at least a majority in principal amount of the then outstanding
Convertible Subordinated Notes and any existing default may be waived with the
consent of the holders of a majority in principal amount of the then outstand-
ing Convertible Subordinated Notes. Without the consent of any holder, the In-
denture or the Convertible Subordinated Notes may be amended to: add to the
covenants of the Company for the benefit of the holders of Convertible Subor-
dinated Notes; surrender any right or power conferred upon the Company; pro-
vide for conversion rights of holders of Convertible Subordinated Notes in the
event of consolidation, merger or sale of all or substantially all of the as-
sets of the Company; evidence the succession of another person to the Company
and the assumption by such successor of the covenants and obligations of the
Company thereunder and in the Convertible Subordinated Notes as permitted by
the Indenture; reduce the Conversion Price, provided that such reduction will
not adversely affect the interest of holders of Convertible Subordinated Notes
in any material respect; cure any ambiguity or correct or supplement any de-
fective provision contained in the Indenture, or make any other change in the
provisions of the Indenture in which the Company and the Trustee may deem nec-
essary or desirable and which will not adversely affect the interest of the
holders of Convertible Subordinated Notes in any material respect.
12. DEFAULTS AND REMEDIES. An Event of Default is: default for 30 days in
payment of interest on the Convertible Subordinated Notes; default
A-5
<PAGE>
in payment of principal of or premium, if any, on the Convertible Subordinated
Notes; failure by the Company to comply with certain covenants of the Inden-
ture upon the receipt of written notice of such default as set forth in the
Indenture; failure by the Company for 60 days after notice to it to comply
with any of its other agreements in the Indenture or the Convertible Subordi-
nated Notes; certain defaults under and accelerations prior to maturity of
certain indebtedness; certain final judgments which remain undischarged; and
certain events of bankruptcy or insolvency. If an Event of Default occurs and
is continuing, the Trustee or the holders of at least 25% in principal amount
of the then outstanding Convertible Subordinated Notes may declare all the
Convertible Subordinated Notes to be due and payable immediately, except that
in the case of an Event of Default arising from certain events of bankruptcy
or insolvency, all outstanding Convertible Subordinated Notes become due and
payable without further action or notice. Holders may not enforce the Inden-
ture or the Convertible Subordinated Notes except as provided in the Inden-
ture. The Trustee may require an indemnity satisfactory to it before it en-
forces the Indenture or the Convertible Subordinated Notes. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Convertible Subordinated Notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from holders notice of any continuing
default (except a default in payment of principal or interest) if it deter-
mines that withholding notice is in their interests. The Company must furnish
quarterly compliance certificates to the Trustee.
13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee or any of its Affiliates,
in their individual or any other capacities, may make or continue loans to or
guaranteed by, accept deposits from and perform services for the Company or
its Affiliates and may otherwise deal with the Company or its Affiliates as if
it were not Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee or stockhold-
er, as such, of the Company shall have any liability for any obligations of
the Company under the Convertible Subordinated Notes or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each holder by accepting a Convertible Subordinated Note waives and
releases all such liability. The waiver and release are part of the considera-
tion for the Convertible Subordinated Notes.
A-6
<PAGE>
15. AUTHENTICATION. This Convertible Subordinated Note shall not be valid
until authenticated by the manual signature of the Trustee or an authenticat-
ing agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
holder or an assignee, such as: TEN CO = tenants in common, TEN ENT = tenants
by the entireties, JT TEN = joint tenants with right of survivorship and not
as tenants in common, CUST = Custodian and U/G/M/A = Uniform Gifts to Minors
Act.
17. CONVERSIONS. Subject to and upon compliance with the provisions of the
Indenture, the registered holder of this Note has the right, at his option, at
any time or prior to the close of business on , 2004 (or in case this Con-
vertible Subordinated Note or any portion hereof shall be called for redemp-
tion prior to such date, then on or prior to the close of business on the
fifth business day immediately preceding the date fixed for redemption), to
convert the principal amount hereof, or any portion of such principal amount
which is $1,000 or an integral multiple thereof, into that number of fully
paid and nonassessable whole shares of common stock of the Company ("Common
Stock") obtained by dividing the principal amount of the Convertible Subordi-
nated Note or portion thereof to be converted by the conversion price of
$ per share, or the conversion price as adjusted from time to time as
provided in the Indenture, upon surrender of this Convertible Subordinated
Note to the Company at the office or agency maintained for such purpose in New
York, New York (and at such other offices or agencies designated for such pur-
pose by the Company), accompanied by written notice of conversion duly exe-
cuted and (if the shares of Common Stock to be issued on conversion are to be
issued in any name other than that of the registered holder of this Convert-
ible Subordinated Note) by instruments of transfer, in form satisfactory to
the Company, duly executed by the registered holder or his duly authorized at-
torney and, in case such surrender shall be made during the period starting
after the close of business on the Regular Record Date immediate preceding any
Interest Payment Date through the close of business on such Interest Payment
Date (unless this Note or the portion thereof being converted is subject to
redemption on a redemption date in that period), also accompanied by payment
in funds acceptable to the Company of an amount equal to the interest other-
wise payable on such Interest Payment Date on the principal amount of this
Note then being converted. Subject to the aforesaid requirement for a payment
in the event of conversion after the close of business
A-7
<PAGE>
on a Regular Record Date immediately preceding an Interest Payment Date, no
payment or adjustment shall be mae on conversion for interest accrued hereon or
for dividends on Common Stock delivered on conversion. The right to convert
this Note is subject to the provisions of the Indenture relating to conversion
rights in the case of certain consolidations, mergers, or sales or transfers of
substantially all the Company's assets.
The Company shall not issue fractional shares or scrip representing fractions
of shares of Common Stock upon any such conversion, but shall make an adjust-
ment therefor in cash on the basis of the then current market value of such
fractional interest as provided in the Indenture.
The Company will furnish to any holder upon written request and without
charge a copy of the Indenture. Requests may be made to: General Counsel, Rohr,
Inc., 850 Lagoon Drive, Chula Vista, California 91910.
A-8
<PAGE>
FORM OF CONVERSION NOTICE
To: ROHR, INC.
The undersigned registered owner of the Convertible Subordinated Note hereby
irrevocably exercises the option to convert this Convertible Subordinated
Note, or portion hereof (which is $1,000 or an integral multiple thereof) be-
low designated, into shares of Common Stock of Rohr, Inc. in accordance with
the terms of the Indenture referred to in this Convertible Subordinated Note,
and directs that the shares issuable and deliverable upon the conversion, to-
gether with any check in payment for fractional shares and Convertible Subor-
dinated Notes representing any unconverted principal amount hereof, be issued
and delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Convertible Subordinated
Note not converted are to be issued in the name of a person other than the un-
dersigned, the undersigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of in-
terest and taxes accompanies this Convertible Subordinated Note.
Dated: ____________________________________________
____________________________________________
Signature(s)
Principal amount to be converted (if less
Fill in for registration of than all):
shares if to be delivered, $ ,000
and Notes if to be issued,
other than to and in the name
of the registered holder
(Please Print):
____________________________________________
Social Security or other Taxpayer
Identification Number
______________________________
(Name)
______________________________
(Street Address) Signature Guarantee:
______________________________ ____________________________________________
(City, State and zip code)
______________________________
Social Security or other Tax-
payer Identification Number
A-9
<PAGE>
ASSIGNMENT FORM
If you the holder want to asssign this Convertible Subordinated Note, fill
in the form below and have your signature guaranteed:
I or we assign and transfer this Convertible Subordinated Note to ____ _____.
(Insert assignee's social security or tax ID number) ______ _______ ______.
(Print or type assignee's name, address and zip code) and irrevocably appoint
_____ agent to transfer this Convertible Subordinated Note on the books of the
Company. The agent may substitute another to act for him.
Date: ________________________
Your signature: _______________________________________________________________
(Sign exactly as your name appears on the other side of this
Convertible Subordinated Note)
Signature Guarantee: __________________________________________________________
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Convertible Subordinated Note purchased by the Com-
pany pursuant to Sections 4.05 or 4.08 of the Indenture, check the Box: [_]
If you wish to have a portion of this Convertible Subordinated Note pur-
chased by the Company pursuant to Section 4.05 of the Indenture, state the
amount (in multiples of $1,000):
$_____________
Date: __________
Your signature: _______________________________________________________________
(Sign exactly as your name appears on the other side of this
Convertible Subordinated Note)
Signature Guarantee: __________________________________________________________
A-11
<PAGE>
[LETTERHEAD FOR GIBSON, DUNN & CRUTCHER]
(619) 544-8000 C 77023-01260
Rohr, Inc.
850 Lagoon Drive
Chula Vista, California 91910
Re: Public Offering of Notes
------------------------
Gentlemen:
Acting as counsel for Rohr, Inc., a Delaware corporation (the
"Company"), in connection with its proposed offering of $100,000,000 principal
amount of Senior Notes due 2003 (the "Senior Notes") and up to $57,500,000
principal amount of Convertible Subordinated Notes due 2004 (the "Convertible
Subordinated Notes," and together with the Senior Notes, the "Securities"), we
have examined, among other things, the Registration Statement on the Form S-3
to which this letter is an exhibit. We have also examined the proceedings and
other actions taken by the Company in connection with the authorization,
issuance and sale of the Securities and the authorization and reservation of the
shares of the Company's Common Stock, $1.00 par value, issuable upon conversion
of the Convertible Subordinated Notes.
Based upon the foregoing, and in reliance thereon, and subject to
receipt from the Commission of an order declaring the Registration Statement
effective, we are of the opinion that:
Exhibit 5
<PAGE>
[LETTERHEAD FOR GIBSON, DUNN & CRUTCHER]
Rohr, Inc.
May 11, 1994
Page 2
1. The Senior Notes, when issued and delivered and paid for in the
manner described in the Registration Statement, and when executed and
authenticated as specified in the Indenture relating thereto dated as of May 15,
1994 between the Company and IBJ Schroder Bank & Trust Company, as Trustee, and
the Convertible Subordinated Notes, when issued and delivered and paid for in
the manner described in the Registration Statement, and when executed and
authenticated as specified in the Indenture relating thereto dated as of May 15,
1994 between the Company and The Bank of New York, as Trustee, will be duly
issued and delivered and will constitute valid and binding obligations of the
Company, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and by the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
2. The shares of Common Stock issuable upon conversion of the
Convertible Subordinated Notes have been duly authorized and reserved, and when
issued upon conversion in accordance with the terms of the Indenture relating
thereto, will be duly and validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Securities, and we further consent to the
use of our name under the caption "Legal Matters" in each Prospectus forming a
part of said Registration Statement.
Very truly yours,
GIBSON, DUNN & CRUTCHER
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305 (b) (2)__
--------------------
IBJ SCHRODER BANK & TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-5375195
(State of Incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Barbara McCluskey, Assistant Vice President
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
ROHR, INC.
(Exact name of obligor as specified in its charter)
Delaware 95-1607455
(State or jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
850 Lagoon Drive
Chula Vista, California 91910
(Address of principal executive office) (zip code)
--------------------
____ % SENIOR NOTES DUE 2003
(Title of Indenture Securities)
- --------------------------------------------------------------------------------
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, Two Rector Street,
New York, New York
Federal Deposit Insurance Corporation Washington, D.C.
Federal Reserve Bank of New York Second District,
33 Liberty Street, New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 3. Voting securities of the trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of May 9, 1994
Col. A Col. B
Title of class Amount Outstanding
-------------- ------------------
Not Applicable
- 2 -
<PAGE>
Item 4. Trusteeships under other indentures.
If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in
any other securities, of the obligor are outstanding, furnish the
following information:
(a) Title of the securities outstanding under each such other indenture
Not Applicable
(b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310 (b)
(1) of the Act arises as a result of the trusteeship under any such
other indenture, including a statement as to how the indenture
securities will rank as compared with the securities issued under
such other indenture.
Not Applicable
Item 5. Interlocking directorates and similar relationships with the
obligor or underwriters.
If the trustee or any of the directors or executive officers of the
trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor,
identify each such person having any such connection and state the
nature of each such connection.
Not Applicable
Item 6. Voting securities of the trustee owned by the obligor or its
officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director,
partner, and executive officer of the obligor:
As of May 9, 1994
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially securities repre-
sented by
amount given
in Col. C
- --------------- --------------- ------------- ------------------
Not Applicable
- 3 -
<PAGE>
Item 7. Voting securities of the trustee owned by underwriters or their
officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and
each director, partner and executive officer of each such
underwriter:
As of May 9, 1994
Col A Col. B Col. C Col. D
Name of Owner Title of class Amount owned Percent of voting
beneficially securities repre-
sented by
amount given
in Col. C
- ------------- --------------- ------------ -----------------
Not Applicable
Item 8. Securities of the obligor owned or held by the trustee
Furnish the following information as to securities of
the obligor owned beneficially or held as collateral security
for obligations in default by the trustee:
As of May 9, 1994
Col A Col. B Col. C Col. D
Title of Class Whether the secur- Amount owned bene- Percent of class
ities are voting ficially or held represented
or nonvoting as collateral sec- by amount
securities urity for oblig- given in Col. C
ations in default
- --------------- ------------------ ------------------ ----------------
Not Applicable
- 4 -
<PAGE>
Item 9. Securities of underwriters owned or held by the trustee.
If the trustee owns beneficially or holds as collateral security
for obligations in default any securities of an underwriter
for the obligor, furnish the following information as
to each class of securities of such underwriter any of which
are so owned or held by the trustee:
As of May 9, 1994
Col A Col. B Col. C Col. D
Title of Class Whether the secur- Amount owned bene- Percent of class
ities are voting ficially or held represented
or nonvoting as collateral sec- by amount
securities urity for oblig- given in Col. C
ations in default
by trustee
- ---------------- ------------------ ------------------ ----------------
Not Applicable
Item 10. Ownership or holdings by the trustee of voting securities of
certain affiliates or securityholders of the obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the
knowledge of the trustee (1) owns 10 percent or more of the voting
securities of the obligor or (2) is an affiliate, other than a
subsidiary, of the obligor, furnish the following information as to
the voting securities of such person:
As of May 9, 1994
Col A Col. B Col. C Col. D
Title of Class Whether the secur- Amount owned bene- Percent of class
ities are voting ficially or held represented
or nonvoting as collateral sec- by amount
securities urity for oblig- given in Col. C
ations in default
by trustee
- ---------------- ------------------ ------------------ -----------------
Not Applicable
- 5 -
<PAGE>
Item 11. Ownership or holdings by the trustee of any securities of a
person owning 50 percent or more of the voting securities of the
obligor.
If the trustee owns beneficially or holds as collateral security
security for obligations in default any securities of a person who,
to the knowledge of the trustee, owns 50 percent or more of the
voting securities of the obligor, furnish the following information
as to each class of securities of such any of which are so owned or
held by the trustee:
As of May 9, 1994
As of May 9, 1994
Col. A Col. B Col. C
Nature of Amount Date
Indebtedness Outstanding Due
--------------- ----------------- ------
Not Applicable
Item 12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is indebted to
the trustee, furnish the following information:
As of May 9, 1994
Col A Col. B Col. C Col. D
Title of Class Whether the secur- Amount owned bene- Percent of class
ities are voting ficially or held represented
or nonvoting as collateral sec- by amount
securities urity for oblig- given in Col. C
ations in default
by trustee
- --------------- ------------------ ------------------ -----------------
Not Applicable
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect
to the securities under this indenture. Explain the nature of any
such default.
Not Applicable
- 6 -
<PAGE>
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in
any other securities, of the obligor are outstanding, or is trustee
for more than one outstanding series of securities under the
indenture, state whether there has been a default under any such
indenture or series, identify the indenture or series affected, and
explain the nature of any such default.
Not Applicable
Item 14. Affiliations with the Underwriters
If any underwriter is an affiliate of the trustee, describe
each such affiliation.
Not Applicable
Item 15. Foreign Trustees.
Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
Not Applicable
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as
amended to date. (See Exhibit 1A to Form T-1, Securities and
Exchange Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the Trustee to Commence
Business (Included in Exhibit I above).
*3. A copy of the Authorization of the Trustee, as amended to date (See
Exhibit 4 to Form T-1, Securities and Exchange Commission File No.
22-19146).
*4. A copy of the existing By-Laws of the Trustee, as amended to date
(See Exhibit 4 to Form T-1, Securities and Exchange Commission File
No. 22-19146).
- 7 -
<PAGE>
5. A copy of each Indenture referred to in Item 4, if the Obligor is in
default. Not Applicable.
6. The consent of the United States institutional trustee required by
Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
NOTE
----
In answering any item in this Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligor and its directors or officers,
the trustee has relied upon information furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said Item
are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an amendment to
this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and
16 of this form since to the best knowledge of the trustee as indicated in Item
13, the obligor is not in default under any indenture under which the applicant
is trustee.
- 8 -
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, IBJ Schroder Bank & Trust Company, a corporation organized
and existing under the laws of the State of New York, has duly caused this
statement of eligibility & qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, and State
of New York, on the 9th day of May, 1994.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Barbara McCluskey
_______________________________
Assistant Vice President
- 9 -
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the issue by Rohr, Inc. of its
____% Senior Notes due 2003, we hereby consent that reports of examinations by
Federal, State, Territorial, or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Barbara McCluskey
_______________________________
Assistant Vice President
Dated: May 9th 1994
- 10 -
<PAGE>
EXHIBIT II
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY of New York, New York
And Foreign and Domestic Subsidiaries
Report as of December 31, 1993
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN THOUSANDS
--------------
<S> <C>
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin........... $ 35,636
Interest-bearing balances.................................... 185,418
Securities..................................................... 78,890
Federal funds sold and securities purchased under agreements
to resell in domestic offices of the bank................... 1,258,914
Loans and lease financing receivables:
Loan and leases, net of unearned income........... 2,312.323
LESS: Allowance for loan and lease losses......... 53,518
---------
Loans and leases, net of unearned income, allowance, and
reserve..................................................... 2,258,805
Assets held in trading accounts................................ 1,280,907
Premises and fixed assets...................................... 11,812
Other real estate owned........................................ 1,403
Customers' liability to this bank on acceptances outstanding... 644
Intangible assets.............................................. 71,463
Other assets................................................... 891,284
----------
TOTAL ASSETS................................................... $6,075,196
==========
LIABILITIES
Deposits:
In domestic offices......................................... 646,723
Noninterest-bearing............................... 193,754
Interest-bearing.................................. 452,969
In foreign offices, Edge and Agreement subsidiaries,
and IBFs.................................................... 870,804
Noninterest-bearing................................ 14,095
Interest-bearing.................................. 856,709
Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank............... 3,091,600
Demand notes issued to the U.S. Treasury....................... 95,000
Other borrowed money........................................... 891,854
Mortgage indebtedness and obligations under capitalized
leases...................................................... 10,381
Bank's liability on acceptances executed and outstanding....... 664
Other liabilities.............................................. 123,560
----------
TOTAL LIABILITIES.............................................. 5,730,046
----------
EQUITY CAPITAL
Perpetual preferred stock...................................... 50,000
Common Stock................................................... 41,473
Surplus........................................................ 282,945
Undivided profits and capital reserves......................... (29,373)
Plus: Net unrealized gain on marketable equity securities...... 105
----------
TOTAL EQUITY CAPITAL........................................... 345,105
TOTAL LIABILITIES AND EQUITY CAPITAL........................... $6,075,196
==========
</TABLE>
- 11 -
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2) ___
________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, New York 10286
(Address of principal executive offices) (Zip Code)
ROHR, INC.
(Exact name of obligor as specified in its charter)
Delaware 95-1607455
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
850 Lagoon Drive
Chula Vista, CA 91910
(Address of principal executive offices) (Zip Code)
________________
Convertible Subordinated Notes Due 2004
(Title of the indenture securities)
<PAGE>
GENERAL
ITEM 1. General Information.
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Superintendent of Banks 2 Rector Street,
of the State of New York New York, N.Y. 10006
and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza,
New York, N.Y. 10045-001
Federal Deposit Insurance Corporation Washington, D.C. 20549
New York Clearing House Association 100 Broad Street
New York, N.Y. 10004
(b) Whether it is authorized to exercise corporate trust powers:
Yes.
ITEM 2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None. (See Note on page 2.)
____________________
ITEM 16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29
under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the
Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (See Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and
2
<PAGE>
Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (See Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(See Exhibit 6 to Form T-1, Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
NOTE
----
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
__________________
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a
corporation organized and existing under the laws of the State of New York, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, and State
of New York, on the 10th day of May, 1994.
The Bank of New York
By: /s/Robert F. McIntyre
-------------------------
Title: Assistant Vice President
3
<PAGE>
EXHIBIT INDEX
Description Number
----------- ------
Latest report of condition of 99.7
the Trustee published pursuant to
law or to the requirements of its
supervising or examining authority.
4
<PAGE>
EXHIBIT 99.7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the
close of business December 31, 1993, published
in accordance with a call made by the Federal
Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository
institutions:
Noninterest-bearing balances and
currency and coin ........................................ $ 4,393,393
Interest-bearing balances .................................. 652,315
Securities ................................................... 3,809,834
Federal funds sold in domestic offices
of the bank ................................................ 331,075
Loans and lease financing receivables:
Loans and leases, net of unearned income ................... 23,708,678
Less Allowance for loan and lease losses ................... 773,597
Less allocated transfer risk reserve ....................... 28,427
Loans and leases, net of unearned income, allowance,
and reserve .............................................. 22,906,654
Assets held in trading accounts .............................. 851,615
Premises and fixed assets (including capitalized leases) ..... 657,247
Other real estate owned ...................................... 60,806
Investments in unconsolidated subsidiaries and
associated companies ....................................... 170,378
Customers' liability to this bank on acceptances outstanding . 885,751
Intangible assets ............................................ 42,689
Other assets ................................................. 1,326,362
-----------
Total assets ................................................. $36,088,119
===========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits
In domestic offices ......................................... $19,486,153
Noninterest-bearing ......................................... 7,388,636
Interest-bearing ............................................ 12,097,517
In foreign offices, Edge and Agreement subsidiaries,
and IBFs .................................................. 8,230,444
Noninterest-bearing ......................................... 53,571
Interest-bearing ............................................ 8,176,873
Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its
Edge and Agreement subsidiaries, and in IBFs:
Federal funds purchased ..................................... 1,207,881
Securities sold under agreements to repurchase .............. 350,492
Demand notes issued to the U.S. Treasury ...................... 300,000
Other borrowed money .......................................... 530,559
Bank's liability on acceptances executed and outstanding ...... 897,899
Subordinated notes and debentures ............................. 1,064,780
Other liabilities ............................................. 1,139,025
Total liabilities ............................................. 33,207,233
===========
EQUITY CAPITAL
Perpetual preferred stock and related surplus ................. 75,000
Common stock .................................................. 942,284
Surplus ....................................................... 525,666
Undivided profits and capital reserves ........................ 1,342,860
Cumulative foreign currency translation adjustments ........... (4,924)
-----------
Total equity capital .......................................... 2,880,886
-----------
Total liabilities, limited-life preferred stock and
equity capital .............................................. $36,088,119
===========
</TABLE>
6
<PAGE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot )
Alan R. Griffith ) Directors
Samuel F. Chevalier )
7
<PAGE>
SEVENTH AMENDMENT
This SEVENTH AMENDMENT, dated as of May 10, 1994 among ROHR, INC.
(formerly known as Rohr Industries, Inc.) (the "Borrower"), the financial
institutions listed on the signature pages hereof under the heading "Lenders"
(collectively the "Lenders"), BANKERS TRUST COMPANY, as "Assignor" under, and as
defined in, Section 3 hereof, and CITIBANK, N.A. ("Citibank"), as resigning
Agent for such Lenders pursuant to Section 2 below, and CITICORP USA, INC., a
Delaware corporation ("CUSA"), as successor Agent for the Lenders from time to
time pursuant to said Section 2.
PRELIMINARY STATEMENT. The Borrower has entered into a Credit
Agreement dated as of April 26, 1989, as amended by the First Amendment dated as
of July 21, 1989, the Second Amendment dated as of January 25, 1990, the Third
Amendment dated as of April 30, 1990, the Letter Amendment dated as of October
31, 1992, the Fifth Amendment dated as of July 9, 1993, and the Sixth Amendment
dated as of September 24, 1993 (said Credit Agreement, as so amended, being the
"Credit Agreement", the terms defined therein being used herein as therein
defined unless otherwise defined herein), with the Lenders party thereto and the
Agent. The Borrower and the Lenders have agreed to amend and modify the Credit
Agreement as hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendment to Credit Agreement. The Credit Agreement is,
-----------------------------
effective as of the date hereof and subject to the satisfaction of the
conditions set forth in Section 4 below, hereby amended as follows:
(a) Section 1.01 is hereby amended by adding the following definitions
in appropriate alphabetical order:
"'Affiliate' means, as to any Person, any other Person that,
---------
directly or indirectly, controls, is controlled by or is under common
control with such Person."
"'Agent's Account' means the account of the Agent maintained by
---------------
the Agent with Citibank at its office at 399 Park Avenue, New York, New
York 10043, Account No. 36852248, Attention: Rohr, Inc. Account."
"'Agent's Syndication Account' means the account of the Agent
---------------------------
maintained by the Agent with Citibank at its office at 399 Park
Avenue, New York,
<PAGE>
2
New York 10043, Account No. 36852248, Attention: Rohr, Inc. Account."
"'Borrower's Account' means the account of the Borrower maintained
------------------
by the Borrower with Citibank at its offices at 399 Park Avenue, New
York, New York 10043, Account No. 38007777."
"'CUSA' means Citicorp USA, Inc., a Delaware corporation."
----
"'Debt Date' means the date of issuance and sale by the Borrower
---------
of the Senior Notes and the Subordinated Debt."
"'Environmental Action' means any administrative, regulatory or
--------------------
judicial action, suit, demand, demand letter, claim, notice of non-
compliance or violation, investigation, proceeding, consent order or
consent agreement relating in any way to any Environmental Law,
Environmental Permit or Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment
including, without limitation, (a) by any governmental or regulatory
authority for enforcement, cleanup, removal, response, remedial or
other actions or damages and (b) by any governmental or regulatory
authority or any third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief."
"'Environmental Permit' means any permit, approval, identification
--------------------
number, license or other authorization required under any applicable
Environmental Law."
"'Gross Operating Income' means, for any period, sales less costs
---------------------- ----
and expenses attributable to sales (other than amortization and
depreciation), in each case as reflected on the consolidated statements
of operations and cash flows of the Borrower and the Subsidiaries for
such period."
"'Hazardous Materials' means petroleum and petroleum products, by
-------------------
products or breakdown products, radioactive materials, asbestos-
containing materials, radon gas and any other chemicals, materials or
substances designated, classified or regulated as being 'hazardous' or
'toxic', or words of similar import, under any federal, state, local or
foreign statute, law, ordinance, rule,
<PAGE>
3
regulation, code, order, judgment, decree or judicial or agency
interpretation, policy or guidance."
"'Insufficiency' means, with respect to any Plan, the amount, if
-------------
any, of its unfunded benefit liabilities, as defined in Section
4001(a)(18) of ERISA."
"'Material Adverse Effect' means a material adverse effect of (a)
-----------------------
the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Borrower and its
Subsidiaries taken as a whole, (b) the rights and remedies of the Agent
or any Lender under this Agreement or any Note or (c) the ability of
the Borrower to perform its obligations under this Agreement or any
Note."
"'Senior Notes' means promissory notes of the Borrower that are
------------
(i) publicly issued after April 1, 1994 and (ii) subject to such terms
and provisions as shall be (a) acceptable to the Majority Lenders and
the Agent and (b) substantially similar to those terms and provisions
described in the draft prospectus of April 19, 1994 filed by the
Borrower with the Securities and Exchange Commission in connection with
the offering of the Borrower's Senior Notes due 2003."
"'Seventh Amendment' means the Seventh Amendment, dated as of May
-----------------
10, 1994 among the Borrower, the Lenders, Bankers Trust Company (as an
'Assignor' thereunder) and the Agent (including Citibank as resigning
Agent and CUSA as successor Agent)."
(b) The definitions of "Commitment", "Eligible Assignee",
"Environmental Laws", "ERISA Event", "Lenders", "Permitted Liens",
"Repayment Date", "Subordinated Debt", and "Termination Date" in Section
1.01 are hereby amended to read, respectively, as follows:
"'Commitment' means, with respect to any Lender at any time, the
----------
amount set forth opposite such Lender's name on the signature pages of
the Seventh Amendment or, if such Lender has entered into one or more
Assignments and Acceptances after the date of the Seventh Amendment,
set forth for such Lender in the Register maintained by the Agent
pursuant to
<PAGE>
4
Section 8.07(c) as such Lender's 'Commitment', as such amount may be
reduced at or prior to such time pursuant to Section 2.05."
"'Eligible Assignee' means (a) any Affiliate of any Lender, (b)
-----------------
any Federal Reserve Bank (other than with respect to any assignment of
a Commitment) or (c) any Person approved by the Agent and the Borrower,
such approval not to be unreasonably withheld; provided, that in the
--------
case of clauses (a) and (c) of this definition, such Affiliate or
Person is a financial institution or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making,
purchasing or otherwise investing in commercial loans in the ordinary
course of its business; and provided, further, however, that an
-------- ------- -------
Affiliate of the Borrower shall not qualify as an Eligible Assignee
under clause (c) of this definition."
"'Environmental Law' means any federal, state, local or foreign
-----------------
statute, law, ordinance, rule, regulation, code, order, judgment or
decree or written judicial or agency interpretation, policy or guidance
having the force of law relating to the environment, health, safety or
Hazardous Materials."
"'ERISA Event' means (i) the occurrence of a reportable event,
-----------
within the meaning of Section 4043(b) of ERISA (other than an event
described in Section 4043(b)(3)), unless the 30-day notice requirement
with respect thereto was waived by the PBGC as of the date of the
Seventh Amendment, (ii) the provision by the administrator of any Plan
of a notice of intent to terminate such Plan, pursuant to Section
4041(a)(2) of ERISA (including any such notice with respect to a plan
amendment referred to in Section 4041(e) of ERISA), (iii) the cessation
of operations at a facility in the circumstances described in Section
4062(e) of ERISA, (iv) the withdrawal by the Borrower or an ERISA
Affiliate from a Multiple Employer Plan during a plan year for which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA,
(v) the failure by the Borrower or any ERISA Affiliate to make a
payment to a Plan required under Section 302(f)(1) of ERISA, which
Section imposes a lien for failure to make required payments, (vi) the
adoption of an amendment to a Plan requiring the provision of security
to such Plan, pursuant to
<PAGE>
5
Section 307 of ERISA, or (vii) the institution by the PBGC of
proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or
the occurrence of any event or condition which would constitute grounds
under Section 4042(a)(i) and (ii) of ERISA for the termination of, or
the appointment of a trustee to administer, a Plan."
"'Lenders' means (i) the financial institutions listed on the
-------
signature pages of the Seventh Amendment under the heading 'Lenders'
and (ii) each Eligible Assignee that shall become a party hereto
pursuant to Section 8.07."
"'Permitted Liens' means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced (except as permitted below):
[clauses (i) through (viii) remain unchanged]
. . .
"(ix) pledges or deposits of cash or Permitted Investments
to secure obligations in respect of letters of credit issued in
connection with any workers' compensation or self-insurance or
reinsurance program established by the Borrower or any of its
Subsidiaries;"
[clauses (x) and (xi) remain unchanged]
. . .
"(xii) the lien required by paragraph 5I(ii) of the Amended
and Restated Note Agreements relating to the Borrower's 9.33% and
9.35% senior notes, respectively, and satisfying the requirements
of Section 4(d) of the Seventh Amendment."
"'Repayment Date' means the date on which any Debt (other than (i)
--------------
Debt resulting from Advances, (ii) Debt owed to any Subsidiary of the
Borrower, and (iii) Debt described in clause (vi) of the definition of
"Debt" contained in Section 1.01) of the Borrower is prepaid, redeemed,
purchased, defeased or otherwise satisfied prior to the scheduled
repayment date or stated maturity thereof; provided, however, that the
-------- -------
date on which any of the following occurs shall not be a Repayment
Date: (a) the satisfaction
<PAGE>
6
of Debt through its surrender to the Borrower in payment for stock
issuable upon exercise of a warrant issued pursuant to the Warrant
Agreement dated as of July 31, 1993 between the Borrower and the
purchasers identified therein, and (b) prepayments, redemptions,
purchases, defeasances or other satisfactions of Debt (other than Debt
evidenced by the Borrower's 9.35% and 9.33% senior notes due 2000 and
2002, respectively, 9.25% subordinated notes due 2017, 7% convertible
subordinated notes due 2012, Senior Notes and Subordinated Debt)
aggregating not more than $500,000 in any Fiscal Year, and provided,
--------
further, that it is understood and agreed that the scheduled repayment
-------
date or stated maturity of the industrial development bonds (in an
aggregate principal amount up to $16,500,000) related to the Borrower's
San Marcos, Texas facility shall include the date on which such bonds
shall be prepaid, redeemed or purchased in connection with the
expiration of the letter of credit related thereto or upon tender by
the holders thereof in accordance with the terms of the indenture
governing such bonds."
"'Subordinated Debt' means Debt of the Borrower that is (i)
-----------------
publicly issued after April 1, 1994, (ii) convertible into shares of
common stock of the Borrower, and (iii) subject to such other terms and
provisions as shall be (A) acceptable to the Majority Lenders and the
Agent and (B) substantially similar to those terms and provisions
described in the draft prospectus of April 19, 1994 filed by the
Borrower with the Securities and Exchange Commission in connection with
the offering of the Borrower's Convertible Subordinated Notes due
2004."
"'Termination Date' means April 25, 1997 or the earlier date of
----------------
termination in whole of the Commitments pursuant to Section 2.05 or
6.01."
(c) Section 1.01 is hereby further amended by deleting the definitions
of "Consolidated Cash Flow", "Liquidity Fund", "Liquidity Fund Amount", "P
Commitment", "P Commitment Increase Date", "P Commitment Reduction Date", "S
Commitment" and "Subordinated Debt Date".
(d) Section 1.01 is hereby further amended by amending in their
entirety the last sentence of the definition of the term "Adjusted
Consolidated Tangible Net Worth" and the proviso to the definition of the
-------
term "Tangible Net Worth" to read as follows, respectively:
<PAGE>
7
"Notwithstanding the foregoing, (A) net deferred income tax assets recorded
in accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ('SFAS 109') shall be treated as a tangible
asset (and not deducted pursuant to clause (i) or (iv) of this definition)
and shall be calculated without regard to any valuation allowance with
respect to such net deferred tax asset recorded by the Borrower in
accordance with SFAS 109, and (B) any asset established pursuant to
Statement of Financial Accounting Standards No. 87, Employers' Accounting
for Pensions ('SFAS 87') which corresponds to an additional minimum pension
liability recorded pursuant to SFAS 87 and any prepaid pension asset which
arises from amounts funded by the Borrower in accordance with Internal
Revenue Service regulations in excess of amounts expensed in accordance with
SFAS 87 shall be treated as a tangible asset (and not deducted pursuant to
clause (i) or (iv) of this definition)."
"; provided, however, that in calculating Tangible Net Worth (A) a net
-------- -------
deferred tax asset recorded by the Borrower in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ('SFAS
No. 109'), shall be treated as a tangible asset and shall be calculated
without regard to any valuation allowance with respect to such net deferred
tax asset recorded by the Borrower in accordance with SFAS No. 109 and (B)
any asset established pursuant to Statement of Financial Accounting
Standards No. 87, Employers' Accounting for Pensions ('SFAS No. 87'), which
corresponds to an additional minimum pension liability recorded by the
Borrower in accordance with SFAS No. 87 and any prepaid pension asset which
arises from amounts funded by the Borrower in accordance with Internal
Revenue Service regulations in excess of amounts expensed in accordance with
SFAS 87, shall be treated as a tangible asset."
(e) Section 2.01 is hereby amended in its entirety to read as follows:
"SECTION 2.01. The A Advances. Each Lender severally agrees, on
--------------
the terms and conditions hereinafter set forth, to make A Advances to
the Borrower from time to time on any Business Day during the period
from the date hereof until the Termination Date in an aggregate amount
not to exceed at any time outstanding (i) such Lender's Commitment on
such Business Day less (ii) the aggregate amount of such
----
<PAGE>
8
Lender's Participation in the then outstanding aggregate amount of all
Letter of Credit Liability related to all Letters of Credit; provided
--------
that the aggregate amount of the Commitments of the Lenders shall be
deemed used from time to time to the extent of the aggregate amount of
the B Advances then outstanding and such deemed use of the aggregate
amount of the Commitments shall be applied to the Lenders ratably
according to their respective Commitments (such deemed use of the
aggregate amount of the Commitments being a 'B Reduction'). Each A
Borrowing shall be in an aggregate amount of $4,000,000 or an integral
multiple of $1,000,000 in excess thereof and shall, subject to the
provisions of Section 2.02(b), consist of A Advances of the same Type
made on the same day by the Lenders ratably according to their
respective Commitments. Within the limits of each Lender's Commitment
in effect from time to time, the Borrower may borrow under this Section
2.01, repay pursuant to Section 2.06 or prepay pursuant to Section 2.09
and reborrow under this Section 2.01."
(f) Section 2.02(a) is hereby amended by amending:
(i) the first sentence thereof by replacing the time "11:00 A.M.
(New York City time)" with the time "12:00 Noon (New York City time)"
and the words "the third Business Day prior to the date of the proposed
A Borrowing" with the words "the first Business Day prior to the date
of the proposed A Borrowing if it is comprised of Base Rate Advances,
or the third Business Day prior to the date of the proposed A Borrowing
if it is comprised of A Advances of any other Type", and
(ii) the fourth and fifth sentences thereof to read as follows:
"Each Lender shall, before 1:00 P.M. (New York City time) on the
date of such A Borrowing, make available for the account of its
Applicable Lending Office to the Agent at the Agent's Syndication
Account, in same day funds, such Lender's ratable portion of such
A Borrowing. After the Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article III,
the Agent will make such funds available to the Borrower by
crediting the Borrower's Account; provided, however, that the
-------- -------
Agent shall first make a portion of such funds equal to any
drawing
<PAGE>
9
under any Letter of Credit which has remained unreimbursed for at
least two Business Days available to Citibank, as issuing bank of
such Letter of Credit, for reimbursement of such drawing as
contemplated by Section 2.14(c)."
(g) Section 2.03(a)(v) is hereby amended by adding to the end thereof
the following sentence:
"The failure of any Lender to make the B Advance to be made by it, if
any, as part of any B Borrowing shall not relieve any other Lender of
its obligation, if any, hereunder to make the B Advance to be made by
such other Lender, if any, on the date of such B Borrowing, but no
Lender shall be responsible for the failure of any other Lender to make
the B Advance, if any, to be made by such other Lender on the date of
any B Borrowing."
(h) Section 2.05 is hereby amended in its entirety to read as follows:
"SECTION 2.05. Reduction of the Commitments.
----------------------------
(a) Automatic Reduction. The Commitment of each Lender
-------------------
(determined without giving effect to any B Reduction on such day) shall
automatically reduce on October 25, 1995, April 25, 1996 and October
25, 1996 (each such day being an 'Amortization Date'), to the amount
obtained by multiplying the percentage set opposite the applicable
Amortization Date below times the Commitment of such Lender on the date
of the Seventh Amendment (determined after giving effect to any
subsequent Assignment and Acceptance but without giving effect to any B
Reduction on such day):
<TABLE>
<CAPTION>
Amortization Date Percentage
----------------- ----------
<S> <C>
October 25, 1995 90.90909%
April 25, 1996 81.81818%
October 25, 1996 72.72727%
</TABLE>
provided, however, that on the Termination Date the Commitment of each
-------- -------
Lender shall be zero.
(b) Optional Reduction. The Borrower shall have the right, upon
------------------
at least two Business Days'
<PAGE>
10
notice to the Agent, to terminate in whole or reduce ratably in part
the unused portions of the respective Commitments of the Lenders;
provided that each partial reduction shall be in the aggregate amount
--------
of $4,000,000 or an integral multiple of $1,000,000 in excess thereof.
(c) Mandatory Reduction. On each Repayment Date, the Commitment
-------------------
of each Lender shall automatically reduce by such Lender's ratable
share of the Pro Rata Amount in respect of such Repayment Date."
(i) Section 2.10 is hereby amended by deleting subsections (b), (e),
(f) and (g) thereof, and by amending subsection (d) thereof, to read as
follows:
"(d) On the Debt Date, the Borrower shall prepay (ratably, if in
part) the outstanding aggregate principal amount of the Advances in an
amount equal to the lesser of (i) the aggregate principal amount of the
Advances then outstanding and (ii) the net cash proceeds (net of all
related taxes, costs and expenses) of the issuance of the Senior Notes
and the Subordinated Debt, together with (y) accrued interest to the
date of such prepayment on the principal amount prepaid and (z), in the
case of any prepayment of any Adjusted CD Rate Advance or Eurodollar
Rate Advance, any additional amount for which the Borrower shall be
obligated pursuant to Section 8.04(b). The Agent shall immediately
distribute such prepayment in accordance with Section 2.12."
(j) Section 2.12(a) is hereby amended by amending the first sentence
thereof to read as follows:
"The Borrower shall make each payment hereunder and under the Notes,
irrespective of and without condition or deduction for any
counterclaim, defense, recoupment or setoff, not later than 11:00 A.M.
(New York City time) on the day when due in U.S. dollars to the Agent
at the Agent's Account in same day funds."
(k) Section 2.14(a) is hereby amended by (i) increasing the figure
"$8,500,000" contained therein as the Letter of Credit Subfacility to the
figure "$30,000,000" and (ii) replacing the parenthetical "(except itself)"
contained in the third sentence thereof
<PAGE>
11
with the parenthetical "(except itself but including CUSA)".
(l) Section 2.14(b)(i) is hereby amended by amending the second
sentence thereof by adding to the end thereof a new clause (F) to read as
follows:
"and (F) purpose for such Letter of Credit, which purpose may only be
to support the Borrower's or any Subsidiary's industrial revenue or
similar bonds, or the Borrower's or any Subsidiary's obligations in
connection with any workers' compensation or self-insurance or
reinsurance program, or the Borrower's or any Subsidiary's trade
obligations incurred in the ordinary course of its business."
(m) Section 2.14(c) is hereby amended by:
(i) amending the first sentence thereof to add after the words
"which shall be a Base Rate Advance" the parenthetical "(or, if the
Borrower shall request an A Borrowing comprised of A Advances of any
other Type on any day after the second Business Day following such
drawing, on which day any amount of such drawing shall remain
unreimbursed, an Advance of the Type so requested by the Borrower)",
(ii) amending the third and fourth sentences thereof to read as
follows:
"Each such Lender shall, on the first Business Day following such
notification, make an A Advance, which shall be a Base Rate
Advance, in an amount equal to the amount of its Participation in
such drawing for application to reimburse Citibank (but without
any requirement for compliance with the provisions of Sections
2.01 and 2.02 or the conditions set forth in Article III) and
---- ---- ------- ---
shall make available for the account of its Applicable Lending
Office to the Agent for the account of Citibank, by deposit to the
Agent's Account in same day funds, the amount of such A Advance.
If and to the extent that any such Lender shall not have so made
the amount of such A Advance available to the Agent, such Lender
and the Borrower severally agree to pay to the Agent forthwith on
demand such amount together with interest thereon, for each day
from the date of demand by Citibank until the date such amount
<PAGE>
12
is paid to the Agent, at (i) in the case of the Borrower, the Base
Rate (or, if the Borrower shall request an A Borrowing comprised
of A Advances of a Type other than Base Rate Advances on any day
after the second Business Day following the applicable drawing, on
which day any amount of such drawing shall remain unreimbursed,
the Eurodollar Rate or Adjusted CD Rate, as applicable to such A
Advances), and (ii) in the case of such Lender, the Federal Funds
Rate." and
(iii) amending the last sentence thereof to read as follows:
"For purposes of Sections 2.14(a) and 3.03, until any A Advance
made by Citibank under this subsection (c) is repaid from the A
Advances made by the other Lenders under this subsection (c), such
A Advance made by Citibank shall not be considered outstanding as
an A Advance but rather outstanding solely as Letter of Credit
Liability."
(n) Section 2.16 is hereby amended in its entirety to read as follows:
"SECTION 2.16. Use of Proceeds. The proceeds of the Advances
---------------
shall be available (and the Borrower agrees that it shall use such
proceeds) solely to provide working capital for the Borrower (it being
understood that such working capital shall not include funds for
repayment, prepayment, redemption, purchase, defeasance or other
satisfaction of Debt or for providing cash or other collateral to
secure any Debt)."
(o) Section 3.03 is hereby amended in its entirety to read as follows:
"SECTION 3.03. Conditions Precedent to Certain A Borrowings and
------------------------------------------------
each Letter of Credit. The obligation of the Lenders to make that
---------------------
portion of the A Advances on the occasion of any A Borrowing which
would be used to repay any B Advances or would otherwise cause the sum
of the aggregate outstanding amount of A Advances owing to the Lenders
plus the then outstanding aggregate amount of all Letter of Credit
----
Liability related to all Letters of Credit, to increase over the sum of
such aggregate outstanding amount of A Advances plus outstanding
----
<PAGE>
13
aggregate amount of Letter of Credit Liability immediately prior to the
making of such A Advances on the occasion of such A Borrowing, and the
right of the Borrower to request, and the obligation of Citibank in
respect of, the Issuance of each Letter of Credit which Issuance would
cause the sum of the aggregate outstanding amount of all Letter of
Credit Liability related to all Letters of Credit plus the then
----
outstanding aggregate amount of all A Advances owing to the Lenders, to
increase over the sum of such aggregate outstanding amount of Letter of
Credit Liability plus outstanding aggregate amount of A Advances
----
immediately prior to the Issuance of such Letter of Credit, shall in
each such case be subject to the further conditions precedent that on
the date of such A Borrowing or Issuance the following statements shall
be true (and the acceptance by the Borrower of the proceeds of such A
Borrowing, and the Issuance of such Letter of Credit, shall constitute
a representation and warranty made by the Borrower that on the date of
such A Borrowing or Issuance such statements are true): (i) the
representations and warranties contained in subsections (e), (f) and
(j) of Section 4.01 are correct on and as of the date of such A
Borrowing or Issuance, before and after giving effect to such A
Borrowing or Issuance and to the application of the proceeds therefrom,
as though made on and as of such date, and (ii) no event has occurred
and is continuing, or would result from such A Borrowing or Issuance or
from the application of the proceeds therefrom, which would constitute
an Event of Default but for the requirement that notice be given or
time elapse or both."
(p) Article III is hereby amended by renumbering Sections 3.04 and 3.05
as Sections 3.05 and 3.06, respectively, and by adding to Article III a new
Section 3.04 to read as follows:
"SECTION 3.04. Conditions Precedent to certain Letters of Credit.
-------------------------------------------------
The right of the Borrower to request, and the obligation of Citibank in
respect of, the Issuance of each Letter of Credit that supports any
Debt described in clause (i) or (ii) of the definition of 'Debt'
contained in Section 1.01 (subject to the requirements of clause (F) of
Section 2.14(b)(i)) shall be subject to the further conditions
precedent that on the date of such Issuance this Agreement shall have
been amended, and the Agent shall have received such documents, as the
<PAGE>
14
Agent shall reasonably request in order to secure and otherwise protect
the obligations of the Borrower to Citibank and the Lenders in respect
of such Letter of Credit in the same manner as such Debt is secured and
otherwise protected."
(q) Section 4.01(e) is hereby amended in its entirety to read as
follows:
"(e) The Consolidated balance sheet of the Borrower and the
Subsidiaries as at July 31, 1993 and the related Consolidated
statements of operations, shareholders' equity and cash flows of the
Borrower and the Subsidiaries for the Fiscal Year then ended,
accompanied by an opinion of Deloitte & Touche, independent public
accountants, and the Consolidated balance sheet of the Borrower and the
Subsidiaries as at January 30, 1994, and the related Consolidated
statements of operations, shareholders' equity and cash flows of the
Borrower and the Subsidiaries for the six months then ended, duly
certified by the chief financial officer of the Borrower, copies of
which have been furnished to each Lender, fairly present, subject, in
the case of said balance sheet as at January 30, 1994, and said
statements of operations, shareholders' equity and cash flows for the
six months then ended, to year-end audit adjustments, the Consolidated
financial condition of the Borrower and the Subsidiaries as at such
dates and the Consolidated results of the operations and cash flows of
the Borrower and the Subsidiaries for the periods ended on such dates,
all in accordance with generally accepted accounting principles applied
on a consistent basis; and since July 31, 1993, there has been no
material adverse change in the financial condition or operations of the
Borrower and the Subsidiaries taken as a whole. The Lenders agree that
charges in the third Fiscal Quarter of Fiscal Year 1994 to
shareholders' equity in connection with increases in the underfunded
status of the Borrower's pension plans, and to income in connection
with the expensing of unamortized pension benefit past service costs,
each as described in the Borrower's Quarterly Report on Form 10-Q for
the Fiscal Quarter ended January 30, 1994, will not constitute such a
material adverse change."
(r) Section 4.01 is hereby amended by amending subsection (k) to read
as follows:
<PAGE>
15
"(k) Set forth in Schedule V is a complete and accurate list, as
of the date of the Seventh Amendment, of all the outstanding Debt of
the Borrower and its Subsidiaries (other than Debt owed by the Borrower
to any of its Subsidiaries or by any of its Subsidiaries to the
Borrower or any other of its Subsidiaries and Debt described in clause
(vi) of the definition of 'Debt' contained in Section 1.01) and the
instruments and agreements, and amendments, supplements and other
modifications thereto, evidencing such Debt."
and by adding to Section 4.01 a new subsection (l) to read as follows:
"(l) The obligations of the Borrower under this Agreement and the
Notes constitute, and are entitled to the benefits of, 'Senior
Indebtedness' and 'Designated Senior Indebtedness' as defined in, and
under, the indenture related to the Subordinated Debt."
(s) Section 5.01(c) is hereby amended in its entirety to read as
follows:
"(c) Maintenance of Consolidated Tangible Net Worth. Maintain
----------------------------------------------
for each day (or, for any day on which all of the long-term public
senior debt securities of the Borrower are rated at least BBB- by
Standard & Poor's Corporation and Baa3 by Moody's Investors Service,
Inc., for the last day of the Fiscal Quarter in which such day occurs)
a Consolidated Tangible Net Worth of not less than $125,000,000 to and
including July 31, 1994, and thereafter the sum of (i) $125,000,000
plus (ii) 50% of the sum of the positive Consolidated Net Income, if
----
any, during the period from August 1, 1994 to such day (or, for any day
on which all of the long-term public senior debt securities of the
Borrower have such ratings, to the last day of such Fiscal Quarter),
plus (iii) the aggregate amount of all capital contributions
----
(including, without limitation, all amounts attributable to the
conversion of Debt of the Borrower to equity of the Borrower) received
by the Borrower or any Subsidiary (other than such contributions
originally made by the Borrower or any of its Subsidiaries) in cash, in
other property, or by conversion of Debt of the Borrower at any time
after the date of the Seventh Amendment."
<PAGE>
16
(t) Section 5.01(d) is hereby amended in its entirety to read as
follows:
"(d) Maintenance of Ratio of Net Income Available for Fixed
------------------------------------------------------
Charges to Fixed Charges. Maintain for each day (or, for any day on
------------------------
which all of the long-term public senior debt securities of the
Borrower are rated at least BBB- by Standard & Poor's Corporation and
Baa3 by Moody's Investors Service, Inc., for the last day of the Fiscal
Quarter in which such day occurs) a ratio of Consolidated Net Income
Available for Fixed Charges for the period of 365 consecutive days (or
366 consecutive days for any such period that includes February 29)
ending on such day (or, for any day on which all of the long-term
public senior debt securities of the Borrower have such ratings, ending
on the last day of the Fiscal Quarter in which such day occurs), to
Consolidated Fixed Charges for such period of not less than the ratio
set forth opposite the period set forth below in which such day occurs:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From the date of the 1.40 to 1
Seventh Amendment to
July 31, 1994
From August 1, 1994 to 1.55 to 1
July 31, 1995
From August 1, 1995 to 1.90 to 1
July 31, 1996
From August 1, 1996 to 2.00 to 1"
the Termination Date
</TABLE>
(u) Section 5.01 is hereby amended by deleting the existing subsection
(e) thereof and by adding thereto a new subsection (e) to read as follows:
"(e) Compliance with Environmental Laws. Comply, cause each of
----------------------------------
its Subsidiaries to comply and use its best efforts to cause all other
Persons occupying its properties to comply, with all Environmental Laws
and Environmental Permits applicable to its operations and properties;
obtain and renew all Environmental Permits necessary for its operations
and properties; and conduct, and cause each of its Subsidiaries to
conduct, any
<PAGE>
17
investigation, study, sampling and testing, and undertake any cleanup,
removal, remedial or other action necessary to remove and clean up all
Hazardous Materials from any of its properties, in accordance with the
requirements of all applicable Environmental Law; in each case unless
------
the failure to so act would not be reasonably likely to have a Material
Adverse Effect; provided, however, that neither the Borrower nor any of
-------- -------
its Subsidiaries shall be required to undertake any such investigation,
study, sampling and testing, cleanup, removal, remedial or other action
to the extent that its obligations to do so is being contested in good
faith and by proper proceedings and appropriate reserves are being
maintained with respect to such circumstances."
(v) Section 5.02(a) is hereby amended in its entirety to read as
follows:
"(a) Debt Ratio. Permit the Debt Ratio for any day (or, for any
----------
day on which all of the long-term public senior debt securities of the
Borrower are rated at least BBB- by Standard & Poor's Corporation and
Baa3 by Moody's Investors Service, Inc., for the last day of the Fiscal
Quarter in which such day occurs) to be greater than the ratio set
forth opposite the period set forth below in which such day occurs:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From the date of the 5.60 to 1
Seventh Amendment to
July 31, 1994
From August 1, 1994 to 5.00 to 1
July 31, 1995
From August 1, 1995 to 4.10 to 1
July 31, 1996
From August 1, 1996 to 3.20 to 1"
the Termination Date
</TABLE>
(w) Section 5.02(d) is hereby amended by adding to the end thereof a
new clause (iii) to read as follows:
"and (iii) all or substantially all of the assets of Rohr Aero
Services, Inc. and Rohr Aero Services
<PAGE>
18
Europe may be sold (whether in one transaction or in a series of
transactions and, in the case of the assets of Rohr Aero Services
Europe, whether indirectly through the sale of its stock or directly)
if such sales comply with the requirements of Section 5.02(j)."
(x) Section 5.02(e) is hereby amended by deleting in its entirety
paragraph (v) of the except clause thereof, and Section 5.02(h) is hereby
------
amended by deleting in its entirety clause (iii) thereof.
(y) Section 5.02(j) is hereby amended by:
(i) replacing the term "Consolidated Cash Flow" contained in
Section 5.02(j) with the term "Gross Operating Income"; and
(ii) amending Section 5.02(j)(iii) to read as follows:
"(iii) in the good faith opinion of the board of directors
of the Borrower (or a committee of such board to whom such matter
has been properly delegated), the sale, lease, transfer or other
disposition is for fair market value and is in the best interests
of the Borrower; and".
(z) Section 5.02 is hereby amended by adding to the end thereof a new
subsection (k) to read as follows:
"(k) Incurrence of Debt. Incur, or permit any Subsidiary to
------------------
incur, any Debt other than:
(i) Debt incurred from time to time hereunder;
(ii) Debt evidenced by the Senior Notes in an aggregate
principal amount not to exceed $100,000,000, and Subordinated Debt
in an aggregate principal amount not to exceed $57,500,000;
(iii) Debt in an aggregate principal amount not to exceed
$10,000,000 at any time outstanding; provided, however, that no
-------- -------
more than $5,000,000 of such amount may be Debt of Subsidiaries at
any time;
<PAGE>
19
(iv) Debt of Subsidiaries under revolving credit facilities,
so long as the aggregate amount of all such Debt outstanding at
any time shall not exceed $5,000,000;
(v) Debt of any Subsidiary to the Borrower or any of its
other Subsidiaries or of the Borrower to any of its Subsidiaries,
provided that in each case such Debt was incurred in the ordinary
--------
course of business;
(vi) any refinancing, renewal, extension or refunding of
outstanding Debt not resulting in an increase in the principal
amount thereof, provided that such Debt is pari passu in right of
-------- ---- -----
payment to the Debt refinanced, renewed, extended or refunded;
(vii) Debt described in clause (vi) of the definition of
'Debt' contained in Section 1.01;
(viii) Debt in an aggregate principal amount not to exceed
$16,500,000 incurred in connection with the sale or resale of
industrial development bonds relating to the Borrower's San
Marcos, Texas facility, provided, however, that such Debt may be
-------- -------
incurred only if the Borrower previously prepaid, redeemed or
purchased $16,500,000 principal amount of such bonds in connection
with the expiration of the letter of credit related thereto; and
(ix) Debt incurred in connection with the resale of the
industrial development bonds referred to in clause (viii) above
that were prepaid or purchased by the Borrower upon tender by the
holders thereof in accordance with the terms of the indenture
governing such bonds;
provided, that in the case of clauses (ii) through (vii) above the Debt
--------
referred to in such clauses shall be unsecured."
(aa) Section 5.03 is hereby amended by deleting subsection (m) thereof.
(bb) Section 6.01 is hereby amended by amending subsection (g) to read
as follows:
<PAGE>
20
"(g) There shall occur any 'Change of Control' as defined in the
indenture relating to the Senior Notes or the Subordinated Debt; or"
and by adding to Section 6.01 new subsections (h), (i), (j) and (k) to read
as follows:
"(h) any non-monetary judgment or order shall be rendered against
the Borrower or any of its Subsidiaries that is reasonably likely to
have a Material Adverse Effect, and there shall be any period of 45
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in
effect; or
"(i) any ERISA Event shall have occurred with respect to a Plan
of the Borrower or any of its ERISA Affiliates and the sum (determined
as of the date of occurrence of such ERISA Event) of the Insufficiency
of such Plan and the Insufficiency of any and all other Plans of the
the Borrower and its ERISA Affiliates with respect to which an ERISA
Event shall have occurred and then exist (or the liability of the
Borrower and its ERISA Affiliates related to such ERISA Event) exceeds
$5,000,000; or
"(j) the Borrower or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan in an amount that, when
aggregated with all other amounts required to be paid to Multiemployer
Plans by the Borrower and its ERISA Affiliates as Withdrawal Liability
(determined as of the date of such notification, exceeds $5,000,000 or
requires payments exceeding $2,500,000 per annum; or
"(k) the Borrower or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan of the Borrower or any
of its ERISA Affiliates that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV
of ERISA, and as a result of such reorganization or termination the
aggregate annual contributions of the Borrower and its ERISA Affiliates
to all Multiemployer Plans that are then in reorganization or being
terminated have been or will be increased over the amounts contributed
to such Multiemployer Plans for the plan years of such Multiemployer
Plans immediately preceding the plan
<PAGE>
21
year in which such reorganization or termination occurs by an amount
exceeding $5,000,000;".
(cc) Section 8.07 is hereby amended by:
(i) replacing the words "P Commitment and S Commitment" each place
such words appear therein with the term "Commitment";
(ii) amending the proviso to the first sentence of subsection (a)
-------
thereof by adding to the end thereof new clauses (vi) and (vii) thereof
to read as follows:
", (vi) any Lender assigning all of its obligations shall not be
released from its obligations under Section 7.05 to the extent
relating to the period during which it was a Lender and (vii) in
the case of any assignee organized under the laws of a
jurisdiction outside the United States, such assignee shall have
delivered to the Agent the forms prescribed by the Internal
Revenue Service of the United States certifying as to such
assignee's status for purposes of determining exemption from
United States withholding taxes with respect to all payments to be
made to such assignee under this Agreement or such other documents
as are necessary to indicate that all such payments are subject to
such rates at a rate reduced by an applicable tax treaty";
(iii) amending clause (y) of the second sentence of subsection (a)
thereof by adding after the words "an assigning Lender's rights and
obligations" in the parenthetical contained therein the parenthetical
"(other than its obligations under Section 7.05 to the extent relating
to the period during which it was a Lender)"; and
(iv) amending the first sentence of subsection (d) thereof by
adding after the words "representing that it is an Eligible Assignee"
the words ", and, if such assignee is organized under the laws of a
jurisdiction outside the United States, the forms referred to in clause
(vii) of the proviso to Section 8.07(a),".
-------
(dd) Article VIII is hereby amended by adding thereto new Sections 8.10,
8.11 and 8.12 to read as follows:
<PAGE>
22
"SECTION 8.10. Indemnification. (a) The Borrower agrees to
---------------
indemnify and hold harmless the Agent and each Lender and each of their
Affiliates and their officers, directors, employees and agents (each,
an 'Indemnified Party') from and against any and all claims, damages,
-----------------
losses, liabilities and expenses (including, without limitation,
reasonable fees and expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising
out of or in connection with or by reason of, or in connection with the
preparation for a defense of, any investigation, litigation or
proceeding arising out of, related to or in connection with (i) any
credit extended or used under the Notes or this Agreement, any of the
transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances or (ii) the actual or alleged presence of
Hazardous Materials on any property of the Borrower or any of its
Subsidiaries or any Environmental Action relating in any way to the
Borrower or any of its Subsidiaries, in each case whether or not such
investigation, litigation or proceeding is brought by the Borrower or
its directors or shareholders (other than in the case of any litigation
for breach of this Agreement by any Indemnified Party which litigation
results in a final, non-appealable judgment against such Indemnified
Party) or its creditors or an Indemnified Party or any other Person or
any Indemnified Party is otherwise a party thereto and whether or not
the transactions contemplated hereby are consummated; provided,
--------
however, that no Indemnified Party shall be entitled to be indemnified
-------
or held harmless hereunder to the extent such claim, damage, loss,
liability or expense resulted from (x) a dispute solely between or
among the Agent, one or more Lenders, any other Indemnified Party
and/or one or more holders of participations herein, or (y) such
Indemnified Party's gross negligence or willful misconduct.
(b) Without prejudice to the survival of any other agreement of
the Borrower hereunder, the obligations of the Borrower contained in
subsection (a) of this Section 8.10 shall survive the payment in full
of principal, interest and all other amounts payable hereunder and
under the Notes.
"SECTION 8.11. Jurisdiction, Etc. (a) The Borrower hereby
------------------
irrevocably and unconditionally submits to the nonexclusive
jurisdiction of any
<PAGE>
23
New York State court or federal court of the United States of America
sitting in New York City, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to this Agreement
or the Notes, or for recognition or enforcement of any judgment, and
the Borrower hereby irrevocably and unconditionally agrees that all
claims in respect of any such action or proceeding may be heard and
determined in any such New York State court or, to the extent permitted
by law, in such federal court. The Borrower hereby also consents to
the service of copies of the summons and complaint and any other
process which may be served in any such action or proceeding by the
mailing of copies of such summons, complaint and other process to the
Borrower at its address specified in Section 8.02. The Borrower agrees
that a final, non-appealable judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment or in any other manner provided by law. Nothing in
this Agreement shall affect any right that the Borrower, any Lender or
the Agent may otherwise have to bring any action or proceeding relating
to this Agreement or the Notes in the courts of any other jurisdiction.
(b) The Borrower irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any action or
proceeding arising out of or relating to this Agreement or the Notes in
any New York State or federal court. The Borrower hereby irrevocably
waives, to the fullest extent permitted by law, the defense of any
inconvenient forum to the maintenance of such action or proceeding in
any such court.
"SECTION 8.12. Waiver of Jury Trial. Each of the Borrower, the
--------------------
Agent and the Lenders hereby irrevocably waives all right to trail by
jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this
Agreement or the Notes or the actions of the Borrower, the Agent or any
Lender in the negotiation, administration, performance or enforcement
thereof or any amendment thereof."
(ee) The term "P Commitment", used throughout the Credit Agreement in
provisions that have not been amended by the foregoing subsections (a)
through (dd), is hereby amended to read "Commitment".
<PAGE>
24
(ff) Paragraph 3 of Exhibit C to the Credit Agreement is hereby amended
by adding to the end thereof a new clause (vii) to read as follows:
"and (vii) if the Assignee is organized under the laws of a
jurisdiction outside the United States, delivers to the Agent herewith
the forms prescribed by the Internal Revenue Service of the United
States certifying as to the Assignee's status for purposes of
determining exemption from United States withholding taxes with respect
to all payments to be made to the Assignee under the Agreement or such
other documents as are necessary to indicate that all such payments are
subject to such rates at a rate reduced by an applicable tax treaty."
(gg) A new Schedule V is hereby added to the Credit Agreement, to read
in the form of Schedule V attached hereto.
SECTION 2. Successor Agent. Notwithstanding anything to the contrary
---------------
contained in Section 7.06 of the Credit Agreement, effective as of the date
hereof and subject to the satisfaction of the conditions set forth in Section 4
below:
(a) Citibank hereby resigns as Agent under the Credit Agreement.
(b) The Lenders hereby appoint CUSA as successor Agent under the Credit
Agreement as amended by this Seventh Amendment, the Borrower hereby approves
such appointment of CUSA as Agent, and CUSA hereby accepts such appointment
as Agent.
(c) The term "Agent" as used in the Credit Agreement and each Note, in
each case as amended by this Seventh Amendment and by each subsequent
amendment or other modification of the Credit Agreement or such Note, is and
shall be and mean CUSA in its capacity as Agent under such Credit Agreement.
(d) Each reference to "Citibank, N.A." as Agent in (i) each Note, (ii)
the form of B Note attached to the Credit Agreement as Exhibit A-2, (iii)
the form of Notice of A Borrowing attached to the Credit Agreement as
Exhibit B-1, (iv) the form of Notice of B Borrowing attached to the Credit
Agreement as Exhibit B-2, (v) the form of Assignment and Acceptance attached
to the Credit Agreement as Exhibit C, and (vi) the form of Business Status
Report attached to the Credit Agreement as
<PAGE>
25
Exhibit F, is and shall be amended to be a reference to "Citicorp USA, Inc."
in its capacity as Agent under the Credit Agreement as amended hereby and by
each subsequent amendment thereof.
SECTION 3. Assignment. Notwithstanding anything to the contrary
----------
contained in Section 8.07 of the Credit Agreement, effective as of the date
hereof and subject to the satisfaction of the conditions set forth in Section 4
below:
(a) Citibank hereby sells and assigns to CUSA, and Bankers Trust
Company (together with Citibank, the "Assignors") hereby sells and assigns
to each Lender listed as an Assignee on Annex A hereto (each, together with
CUSA, an "Assignee"), and CUSA hereby purchases and assumes from Citibank
one hundred percent of, and each other Assignee hereby purchases and assumes
from Bankers Trust Company the percentage interest specified on Annex A
hereto for such Assignee in and to, all of such Assignor's rights and
obligations under the Credit Agreement as amended by this Seventh Amendment
(without giving effect to the reduction in the Commitment of such Assignor
pursuant to Section 3 of this Seventh Amendment) as of the date hereof
(other than such Assignor's obligations under Section 7.05 thereof to the
extent relating to the period during which it was a Lender and, in the case
of the assignment by Citibank, its rights and obligations under Sections
2.14 and 2.15 thereof and otherwise in connection with any Letter of Credit
or any Issuance thereof), including, without limitation, (i) such Commitment
of such Assignor, (ii) the aggregate outstanding principal amount of A
Advances owing to such Assignor as of the date hereof, and (iii) the A Note
held by such Assignor, so that as a result of such sale, assignment,
purchase and assumption, the Commitment of CUSA is as set forth on the
signature pages hereof and the aggregate outstanding principal amount of A
Advances owing to CUSA is the aggregate outstanding principal amount of A
Advances owing to Citibank immediately prior to giving effect to this
Seventh Amendment, and the Commitment of each such other Assignee is as set
forth on Annex A hereto and the signature pages hereof and the aggregate
outstanding principal amount of A Advances (prior to any payment required
under Section 2.10(d) of the Credit Agreement and Section 4(c) hereof) owing
to such Assignee is as set forth on Annex A hereto.
(b) Each Assignor and each Assignee hereby agrees that the sale and
assignment by such Assignor and to such Assignee, respectively, pursuant
to subsection (a) above,
<PAGE>
26
and the purchase and assumption by such Assignee and from such Assignor,
respectively, pursuant to subsection (a) above, is and shall be made on the
terms set forth in paragraphs 2 and 3 of the form of Assignment and
Acceptance attached to the Credit Agreement as Exhibit C thereto, as amended
by this Seventh Amendment. Without limiting the generality of the
foregoing, each Assignee hereby (i) appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under
the Credit Agreement as amended by this Seventh Amendment as are delegated
to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto, (ii) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement as amended by this Seventh Amendment are required to be
performed by it as a Lender, and (iii) other than in the case of CUSA,
delivers herewith the forms referred to in clause (vii) of such paragraph 3.
(c) Each Assignee specifies as its CD Lending Office, Domestic Lending
Office (and address for notices) and Eurodollar Lending Office the office
set forth next to its name on the Annex A hereto or, in the case of CUSA, on
the signature pages hereof.
(d) This Section 3 and Annex A hereto, and the signature pages hereof,
is and will be referred to as the Assignment and Acceptance pursuant to
which each Assignee became a Lender under, and for purposes of, the Credit
Agreement.
(e) The Borrower hereby approves each Assignee as an "Eligible
Assignee" under the Credit Agreement for purposes of Section 8.07 thereof
and otherwise.
SECTION 4. Conditions of Effectiveness. This Seventh Amendment shall
---------------------------
become effective as of the date hereof when
(a) the Agent shall have received (i) counterparts of this Seventh
Amendment executed by the Borrower and all of the Lenders and the Assignor,
or, as to any of the Lenders or the Assignor, advice satisfactory to the
Agent that such Lenders have, or that the Assignor has, executed
counterparts of this Seventh Amendment, and (ii) for purposes of Section 3
above, in the case of any Assignee other than CUSA, the forms referred to in
clause (iii) of Section 3(b),
<PAGE>
27
(b) the Borrower shall have paid to the Agent (i) for the ratable
account of the Lenders, (A) the amendment fee equal to 1/4 of 1% of the
Lenders' Commitments (as defined in the Credit Agreement in effect
immediately before the effectiveness of the Seventh Amendment) and (B) the
maturity extension fee equal to 3/4 of 1% of such Commitments, (ii) for the
account of each Lender whose new Commitment (as defined in the Credit
Agreement as amended by this Seventh Amendment) exceeds such Lender's old
Commitment (as defined in the Credit Agreement immediately before the
effectiveness of this Seventh Amendment), the increased commitment fee equal
to 2% of the amount by which such new Commitment exceeds such old
Commitment, and (iii) for the account of the Agent (as defined in the Credit
Agreement as modified by Section 2 of this Seventh Amendment) the agency fee
as shall have been agreed upon between the Borrower and the Agent,
(c) the Borrower shall have received at least $100,000,000 in gross
cash proceeds from the issuance and sale of the Senior Notes and at least
$50,000,000 in gross cash proceeds from the issuance and sale of the
Subordinated Debt, and shall have paid to the Agent, pursuant to Section
2.10(d), the amount of such proceeds specified by Section 2.10(d),
(d) the Agent shall have received (i) copies, certified to be true, of
the instruments, agreements, amendments, supplements and modifications
listed in Schedule V of the Credit Agreement as amended hereby, and (ii)
copies, certified to be true, of amendments to that Debt listed in such
Schedule V indicated therein as being amended, which amendments will (A)
permit the transactions contemplated by subsection (c) above, (B) provide
for the elimination of all requirements relating to the Liquidity Fund, and
(C) otherwise be in form and substance satisfactory to the Majority Lenders,
and
(e) the Agent shall have additionally received all of the following
documents, each document (unless otherwise indicated) being dated the date
of receipt thereof by the Agent (which date shall be the same for all such
documents), in form and substance satisfactory to the Agent:
(1) New Notes to the order of the Lenders, respectively, in the
principal amounts of their respective Commitments (in exchange for the
existing Notes cancelled by the Banks),
<PAGE>
28
(2) certified copies of the executed indentures relating to the
Senior Notes and the Subordinated Debt,
(3) certified copies of the resolutions of the Board of Directors
of the Borrower approving this Seventh Amendment and the matters
contemplated thereby,
(4) a certificate of the Secretary or an Assistant Secretary of
the Borrower certifying the names and true signatures of its officers
authorized to sign this Seventh Amendment and the other documents to be
delivered hereunder,
(5) a favorable opinion of Gibson, Dunn & Crutcher, counsel for
the Borrower, in substantially the form of Exhibit A hereto,
(6) a favorable opinion of Richard W. Madsen, Esq., general
counsel for the Borrower, in substantially the form of Exhibit B
hereto,
(7) a favorable opinion of Shearman & Sterling, counsel for the
Agent, in substantially the form of Exhibit C hereto, and
(8) a certificate of a duly authorized officer of the Borrower to
the effect that:
(A) the representations and warranties contained in Section
4.01 of the Credit Agreement as amended by this Seventh Amendment,
and in Section 5 of this Seventh Amendment, are correct on and as
of the date of such certificate as though made on and as of such
date,
(B) no event has occurred and is continuing, or would result
from the issuance and sale of the Senior Notes and the
Subordinated Debt or from the application of the proceeds
therefrom, which would constitute an Event of Default or an event
which with the lapse of time or the giving of notice, or both,
would constitute an Event of Default, and
(C) the Borrower has issued and sold, and received proceeds
from the issuance and sale of, the Senior Notes and the
Subordinated Debt as required by Section 4(c) above.
<PAGE>
29
Each statement made by the Borrower in the certificate delivered pursuant to
clause (8) of Section 4(e) above shall be a representation and warranty made by
the Borrower in connection with the Credit Agreement for purposes of, and within
the meaning of, Section 6.01(b) of the Credit Agreement.
SECTION 5. Representations and Warranties of the Borrower. The
------------------------------------- --------
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and is duly
qualified and in good standing as a foreign corporation in the State of
California.
(b) The execution, delivery and performance by the Borrower of this
Seventh Amendment are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene (i) the
Borrower's charter or by-laws, or (ii) law or any contractual restriction
binding on or affecting the Borrower.
(c) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Borrower of this Seventh
Amendment.
(d) This Seventh Amendment constitutes legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance
with its terms.
SECTION 6. Reference to and Effect on the Credit Agreement. (a) Upon
-----------------------------------------------
the effectiveness of this Seventh Amendment, on and after the date hereof (i)
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Credit Agreement,
and each reference in the Notes to the "Credit Agreement", "thereunder",
"thereof", "therein" or words of like import referring to the Credit Agreement,
shall mean and be a reference to the Credit Agreement as amended or otherwise
modified by this Seventh Amendment and (ii) each reference in each Note to "this
Note", "hereunder", "hereof", "herein" or words of like import referring to such
Note, and each reference in the Credit Agreement to any or all of the Notes,
"thereunder", "thereof", "therein" or words of like import referring to such
Note or Notes, shall mean and be a reference to such Note or Notes as amended by
this Seventh Amendment.
<PAGE>
30
(b) Except as specifically amended above, the Credit Agreement and the
A Notes, and each B Note outstanding on the date hereof, shall remain in full
force and effect and are hereby ratified and confirmed.
(c) Except as the Credit Agreement may expressly be modified hereby,
the execution, delivery and effectiveness of this Seventh Amendment shall not
operate as a waiver of any right, power or remedy of any Lender or the Agent
under the Credit Agreement or any of the Notes nor constitute a waiver of any of
the provisions contained therein.
SECTION 7. Costs and Expenses. The Borrower agrees to pay on demand
------------------
all costs and expenses of the Agent in connection with the preparation,
execution and delivery of this Seventh Amendment, including, without limitation,
the reasonable fees and out-of-pocket expenses of counsel for the Agent with
respect hereto and with respect to advising the Agent as to its rights and
responsibilities hereunder.
SECTION 8. Execution in Counterparts. This Seventh Amendment may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. Delivery of an executed counterpart of a signature
page to this Seventh Amendment, or of any document required to be delivered
hereunder, by telecopier shall be effective as delivery of a manually executed
counterpart of this Seventh Amendment or such document.
SECTION 9. Governing Law. This Seventh Amendment shall be governed
-------------
by, and construed in accordance with, the laws of the State of New York.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
31
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
ROHR, INC.
By:____________________________
Title:
CITIBANK, N.A.,
as resigning Agent
By:____________________________
Vice President
CITICORP USA, INC.,
as successor Agent
By:____________________________
Vice President
Lenders
-------
Commitment
- ----------
$ 0 CITIBANK, N.A.
By:____________________________
Vice President
$ 30,000,000 CITICORP USA, INC.
By:____________________________
Vice President
399 Park Avenue
New York, New York 10043
c/o Citicorp USA, Inc.
725 South Figueroa Street
Los Angeles, California 90017
Attention: National Corporate
Division/Loan Administration
Telex No.: 127001 GCN:LAXIS
Telephone: 213-239-1432
Telecopy: 213-623-3592
<PAGE>
32
$ 30,000,000 WELLS FARGO BANK, N.A.
By:____________________________
Title:
$ 25,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By:____________________________
Title:
$ 5,000,000 MANUFACTURERS BANK
By:____________________________
Title:
$ 5,000,000 ROYAL BANK OF CANADA
By:____________________________
Title:
$ 5,000,000 THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
Los Angeles Agency
By:____________________________
Title:
$ 2,500,000 BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By:____________________________
Title:
By:____________________________
Title:
$ 2,500,000 BANCA COMMERCIALE ITALIANA,
Los Angeles Foreign Branch
By:____________________________
Title:
By:____________________________
Title:
<PAGE>
33
$ 2,500,000 BANCO CENTRAL HISPANOAMERICANO, S.A.
By:____________________________
Title:
$ 2,500,000 THE MITSUBISHI TRUST AND BANKING CORPORATION,
LOS ANGELES AGENCY
By:____________________________
Title:
- ---------------------------
$110,000,000 Total of the Commitments
===========
Assignors
---------
CITIBANK, N.A. (other than with
respect to Letters of Credit)
By:____________________________
Vice President
BANKERS TRUST COMPANY
By:____________________________
Title:
