K&F INDUSTRIES INC, POS AM, 1995-07-13

K&F INDUSTRIES INC
POS AM, 1995-07-13
AIRCRAFT PARTS & AUXILIARY EQUIPMENT, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1995

Registration No. 33-29035
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
POST-EFFECTIVE

AMENDMENT NO. 12

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
K & F INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
DELAWARE 3728 34-1614845
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code) Identification No.)
___________________

600 THIRD AVENUE
NEW YORK, NEW YORK 10016
(Address of principal executive offices)
212-297-0900
(Registrant's telephone number including area code)
___________________

KENNETH M. SCHWARTZ
CHIEF FINANCIAL OFFICER
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
(Name and address of agent for service)

___________________

Copies to:

JOHN J. SUYDAM, ESQ.
O'SULLIVAN GRAEV & KARABELL
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112

___________________

Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.

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, 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> 2
K & F INDUSTRIES, INC.

CROSS REFERENCE SHEET PURSUANT TO
SECTION 501(b) OF REGULATION S-K

<TABLE>
<CAPTION>
Prospectus Heading
Registration Statement Item and Caption or Other Location
--------------------------------------- -----------------
<S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus . . . . . . . . . . . . . . . . . . Outside Front Cover Page

2. Inside Front and Outside Back Cover Pages of Prospectus . . Inside Front Cover Page; Additional
Information; Outside Back Cover
Page

3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Risk Factors;
Summary Financial Data

4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Use of Proceeds

5. Determination of Offering Price . . . . . . . . . . . . . . Not Applicable

6. Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable

7. Selling Security Holders . . . . . . . . . . . . . . . . . . Not Applicable

8. Plan of Distribution . . . . . . . . . . . . . . . . . . . . Plan of Distribution

9. Description of Securities to be Registered . . . . . . . . . Description of Senior Notes
Debentures

10. Interests of Named Experts and Counsel . . . . . . . . . . . Not Applicable

11. Information with Respect to the Registrant . . . . . . . . . Prospectus Summary; The Company;
Selected Financial Data;
Management's Discussion and
Analysis of Results of Operations
and Financial Condition; Business;
Management; Ownership of Capital
Stock; Description of Certain
Indebtedness; Certain Transactions;
Financial Statements

12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities . . . . . . . . . . . . . . . . . Undertakings
</TABLE>
<PAGE> 3
PROSPECTUS

$210,000,000

K & F INDUSTRIES, INC.

13 3/4% SENIOR SUBORDINATED DEBENTURES DUE 2001

______________________

INTEREST PAYABLE AUGUST 1 AND FEBRUARY 1

______________________

Interest on the 13-3/4% Senior Subordinated Debentures Due 2001 (the
"Subordinated Debentures") of K & F Industries, Inc. ("K & F" or the
"Company") is paid at the rate of 13-3/4% per annum on August 1 and February 1
of each year. As of August 1, 1994, the Subordinated Debentures may be
redeemed, in whole or in part, at the option of the Company, at any time or
from time to time, at the redemption prices set forth herein plus accrued
interest, declining to 100% of their principal amount on and after August 1,
1998, plus accrued interest. Annual equal sinking fund payments commencing
August 1, 1999, are calculated to retire 50% of the Subordinated Debentures
prior to maturity. In the event of a Change of Control (as hereinafter
defined), holders of the Subordinated Debentures will have the right to require
the Company to purchase their Subordinated Debentures. See "Description of the
Subordinated Debentures."

On June 10, 1992, the Company issued (the "Senior Note Offering")
$100,000,000 aggregate principal amount of 11-7/8% Senior Secured Notes Due
2003 (the "Senior Notes"). In connection with the Senior Note Offering, the
Company's subsidiaries entered into an Amended and Restated Revolving Credit
Agreement (the "Restated Revolving Credit Agreement") providing for revolving
loans in an aggregate principal amount not to exceed $70 million. See
"Description of Certain Indebtedness -- The Amended and Restated Revolving
Credit Agreement." Approximately $92.5 million of the proceeds from the Senior
Note Offering were used to repay the Company's obligations under its Term
Credit Agreement (as hereinafter defined). The remaining proceeds were used to
pay fees and expenses incurred in connection with the Senior Note Offering and
to reduce the indebtedness outstanding under the Restated Revolving Credit
Agreement.

The Subordinated Debentures are unsecured and subordinate to all present
and future Senior Debt (as hereinafter defined), including all obligations of
the Company under the Restated Revolving Credit Agreement and the Senior Notes.
In addition, the Subordinated Debentures are effectively subordinated to the
claims of other creditors of the Company's subsidiaries. At March 31, 1995,
the aggregate amount of indebtedness, including trade payables and other
liabilities of the Company's subsidiaries, to which the Subordinated Debentures
would effectively be subordinate was approximately $176.1 million.

This Prospectus is to be used by Lehman Brothers in connection with offers
and sales in market-making transactions at negotiated prices related to
prevailing market prices at the time of the sale. Lehman Brothers may act as
principal or agent in such transactions.
______________________

The Company is, and will continue to be, highly leveraged. SEE "RISK
FACTORS" FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
______________________

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.

______________________

LEHMAN BROTHERS

July 13, 1995

<PAGE> 4
ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall encompass all
amendments, exhibits and schedules thereto) under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Subordinated Debentures
being offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and to which
reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
The Registration Statement and the exhibits and schedules thereto, as well as
such reports and other information filed by the Company with the Commission,
can be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
following regional offices of the Commission: 75 Park Place, New York, New York
10007, Kluczynski Federal Building, 230 South Dearborn Street, Chicago,
Illinois 60604 and Jacob K. Javits Federal Building, 26 Federal Plaza, New
York, New York 10278. Copies of such information can also be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.

The Company is required under the Indenture governing the Subordinated
Debentures to file periodic reports with the Commission and to distribute
copies of such filings to the holders of the Subordinated Debentures.

___________________

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<PAGE> 5
PROSPECTUS SUMMARY

This following summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this
Prospectus. Prospective investors should carefully consider the information
set forth under the heading "Risk Factors." References to worldwide markets
and market share information contained herein have been derived from
information compiled by the Company due to the lack of independently compiled
information. Such references exclude markets formerly controlled by the
U.S.S.R. about which accurate information is not readily available.

THE COMPANY

K & F Industries, Inc. ("K & F" or the "Company") was incorporated in
Delaware on March 13, 1989. K & F, through its wholly owned subsidiary,
Aircraft Braking Systems Corporation ("Aircraft Braking Systems"), is one of
the world's leading manufacturers of aircraft wheels, brakes and anti-skid
systems for commercial transport, general aviation and military aircraft.
K & F sells its products to virtually all major airframe manufacturers and most
commercial airlines and to the United States and certain foreign governments.
During the fiscal year ended March 31, 1995, approximately 87% of the Company's
total revenues were derived from sales made by Aircraft Braking Systems. In
addition, K & F through its wholly owned subsidiary, Engineered Fabrics
Corporation ("Engineered Fabrics"), believes it is the leading worldwide
manufacturer of aircraft fuel tanks, supplying approximately 90% of the
worldwide general aviation and commercial transport market and nearly one-half
of the domestic military market. Engineered Fabrics also manufactures and
sells iceguards and specialty coated fabrics used for storage, shipping,
environmental and rescue applications for commercial and military uses. During
the fiscal year ended March 31, 1995, approximately 13% of the Company's total
revenues were derived from sales made by Engineered Fabrics.

Aircraft Braking Systems and its predecessors have been leaders in the
design and development of aircraft wheels, brakes and anti-skid systems,
investing significant resources refining existing braking systems, developing
new technologies and designing braking systems for new airframes. The Company
has carefully directed its efforts toward expanding Aircraft Braking Systems'
presence in the commercial and general aviation segments of the aircraft
industry, focusing particularly on medium- and short-range commercial aircraft.
These aircraft typically make more frequent landings than long-range commercial
aircraft and correspondingly require more frequent replacement of brake parts.

-3-
<PAGE> 6

THE OFFERING - SUBORDINATED DEBENTURES

Debentures Offered . . . . . . . . . . $210,000,000 principal amount of
13-3/4% Senior Subordinated Debentures
Due 2001 (the "Subordinated
Debentures") issued pursuant to the
Indenture dated as of August 1, 1989
(the "Subordinated Debenture
Indenture") between the Company and The
Connecticut National Bank, as Trustee.

Maturity Date . . . . . . . . . . . . . August 1, 2001.

Interest Payment Dates . . . . . . . . Interest is payable semiannually in
arrears, in cash on August 1 and
February 1 of each year.

Sinking Fund . . . . . . . . . . . . . Sinking fund payments of 25% of the
principal amount of the Subordinated
Debentures originally issued under the
Subordinated Debenture Indenture on
August 1, 1999 and August 1, 2000 are
calculated to retire 50% of the
Subordinated Debentures prior to
maturity.

Optional Redemption; Purchase at
Option of Holder . . . . . . . . . . As of August 1, 1994, the Subordinated
Debentures are redeemable at the
Company's option in whole at any time,
or in part from time to time, initially
at the redemption prices set forth
herein plus accrued interest declining
to 100% of the principal amount on and
after August 1, 1998, plus accrued
interest. For a discussion of the
restrictions on optional redemption of
the Subordinated Debentures by the
Company, see "Certain Indebtedness --
The Amended and Restated Revolving
Credit Agreement." In addition, in the
event of a Change of Control (as
hereinafter defined) of the Company,
holders of the Subordinated Debentures
will have the right to require the
Company to purchase their Subordinated
Debentures at a purchase price equal to
101% of the principal amount of their
Subordinated Debentures, plus accrued
interest. See "Description of the
Subordinated Debentures."

Ranking . . . . . . . . . . . . . . . Subordinate in right of payment to all
existing and future Senior Debt (as
defined in the Subordinated Debenture
Indenture), including all obligations
of the Company under the Restated
Revolving Credit Agreement and the
Senior Notes. At March 31, 1995,
Senior Debt is approximately $100.0
million. Additional Senior Debt may be
incurred to the extent permitted by the
Subordinated Debenture Indenture and
Senior Note Indenture. The Company's
obligations under the Senior Notes are
secured by a pledge of all of the
capital stock of Aircraft Braking
Systems and Engineered Fabrics. In
addition, Aircraft Braking Systems and
Engineered Fabrics are direct borrowers
under the Restated Revolving Credit
Agreement. Aircraft Braking Systems
and Engineered Fabrics have secured
their obligations under the Restated
Revolving Credit Agreement by a first
priority lien on all inventory and
accounts receivables. The operations
of the Company are conducted solely
through its subsidiaries, Aircraft
Braking Systems and Engineered Fabrics.
Claims of holders of the Subordinated
Debentures, as creditors of the
Company, will be junior in right of
payment to all liabilities (whether or
not for borrowed money) of such
subsidiaries. As of March 31, 1995, the
amount of liabilities, including trade
payables and other liabilities, of the
Company's subsidiaries were
approximately $76.1 million. See "Risk
Factors -- Highly Leveraged Position"
and "Risk Factors -- Holding Company
Structure."

-4-
<PAGE> 7

Principal Covenants . . . . . . . . . The Subordinated Debenture Indenture
restricts, among other things, the
ability of the Company to pay dividends
or repurchase its capital stock or Debt
(as defined in the Subordinated
Debenture Indenture) subordinate to the
Subordinated Debentures, to incur
additional Debt, to enter into
transactions with affiliated parties
and to issue Debt senior to the
Subordinated Debentures but subordinate
to other Debt of the Company.

Use of Proceeds . . . . . . . . . . . The net proceeds received by the
Company from the sale of the
Subordinated Debentures (approximately
$201.2 million) were used to prepay the
Subordinated Bridge Notes plus accrued
interest thereon (approximately $8.5
million) and to repay approximately
$12.7 million of borrowings under the
original Revolving Credit Agreement.
See "Use of Proceeds."

Risk Factors . . . . . . . . . . . . For a discussion of certain risk factors
that should be considered in evaluating
an investment in the Subordinated
Debentures, including the Company's
highly leveraged position and
deficiency of earnings to fixed
charges, subordination, the holding
company structure, certain interests of
BLS, Lehman Brothers and its
affiliates, reductions in air transport
activity, reductions in military
appropriations and the absence of a
public market for the Subordinated
Debentures, see "Risk Factors."

-5-
<PAGE> 8
SUMMARY FINANCIAL DATA

The summary financial data has been derived from, and should be read in
conjunction with, the related audited consolidated financial statements.

FOR THE YEARS ENDED
MARCH 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................................... $238,756 $226,131 $277,107 $295,490 $314,635
Cost of sales...................................... 164,697 159,751 199,002 209,552 223,360
Independent research and development............... 8,363 12,858 11,417 14,130 11,781
Selling, general and administrative expenses....... 19,208 22,421 24,154 24,047 25,345
Amortization....................................... 10,411 10,884 10,258 10,306 10,233
-------- -------- -------- -------- --------
Operating income................................... 36,077 20,217 32,276 37,455 43,916
Interest expense, net.............................. 46,250 51,953 53,486 52,179 54,196
-------- -------- -------- -------- --------
Loss before extraordinary charge and cumulative
effect of accounting changes..................... (10,173) (31,736) (21,210) (14,724) (10,280)
Extraordinary charge (a)........................... -- -- (2,477) (992) --
Cumulative effect of accounting changes............ -- (2,305)(b) (73,540)(c) -- --
-------- -------- -------- -------- --------
Net loss........................................... $(10,173) $(34,041) $(97,227) $(15,716) $(10,280)
======== ======== ======== ======== ========
Ratio of earnings to fixed charges (e)............. -- -- -- -- --

BALANCE SHEET DATA (at end of period):
Working capital.................................... $ 48,025 $ 53,091 $ 70,028 $ 77,606 $ 52,312
Total assets....................................... 429,074 446,880 489,968 518,938 536,781
Long-term obligations (d).......................... 406,933 484,407 480,580 405,111 404,871
Stockholders' equity (deficiency) (c) (d).......... (34,748) (90,355) (51,868) 48,331 38,172

OTHER DATA (for the period):
Capital expenditures, net.......................... 2,824 3,127 4,670 3,986 8,718
Depreciation and amortization...................... 18,843 20,527 19,862 19,501 18,683
Non-cash interest - Convertible Debentures (d)..... 3,950 8,443 7,282 6,213 5,237
Non-cash interest - financing costs................ 1,482 1,480 1,507 2,467 1,692
</TABLE>

(a) The extraordinary charge of $2,477 and $992 relates to the accelerated
amortization of unamortized financing costs associated with the prepayment
in full of the senior term loan in fiscal year 1993 and the partial
prepayment of the senior term loan in fiscal year 1992. (See Note 7 to the
consolidated financial statements.)
(b) Represents cumulative effect of the change in method of accounting for the
discounting of liabilities for workers' compensation losses. (See Note 2 to
the consolidated financial statements.)
(c) Includes cumulative effect of accounting change for SFAS No. 106 and the
change in method of accounting for certain overhead costs in inventory. (See
Notes 11 and 4 to the consolidated financial statements.)

(d) On September 2, 1994, K & F retired the $65.4 million principal amount of
Convertible Debentures held by Loral, in exchange for $12.76 million in cash
and 22.5% of equity. As a result, K & F stockholders' equity was increased
by $65.4 million and long-term debt was reduced by an equal amount. (See
Notes 7 and 9 to the consolidated financial statements.)
(e) For purposes of this computation, earnings consist of income (loss)
before income taxes plus fixed charges (excluding capitalized interest).
Fixed charges consist of interest on indebtedness (including capitalized
interest and amortization of debt issuance costs) plus that portion of lease
rental expense representative of the interest factor (deemed to be one-third
of lease rental expense). The Company's earnings were insufficient to cover
fixed charges by $10,173, $31,736, $21,210, $14,724 and $10,280 for the
fiscal years ended March 31, 1995, 1994, 1993, 1992 and 1991, respectively.
Non-cash charges included in the deficiency of earnings available to cover
fixed charges for the fiscal years ended March 31, 1995, 1994, 1993, 1992
and 1991 are $24,275, $30,450, $28,651, $28,181 and $25,612, respectively.
Non-cash charges consist of depreciation, amortization and non-cash interest
on the Convertible Debentures and deferred financing costs.

-6-
<PAGE> 9
THE COMPANY

GENERAL

K & F Industries, Inc. was incorporated in Delaware on March 13, 1989.
K & F, through its wholly owned subsidiary, Aircraft Braking Systems, is one of
the world's leading manufacturers of aircraft wheels, brakes and anti-skid
systems for commercial transport, general aviation and military aircraft. K & F
sells its products to virtually all major airframe manufacturers and most
commercial airlines and to the United States and certain foreign governments.
During the fiscal year ended March 31, 1995, approximately 87% of the Company's
total revenues were derived from sales made by Aircraft Braking Systems. In
addition, K & F through its wholly owned subsidiary, Engineered Fabrics,
believes it is the leading worldwide manufacturer of aircraft fuel tanks,
supplying approximately 90% of the worldwide general aviation and commercial
transport market and nearly one-half of the domestic military market.
Engineered Fabrics also manufactures and sells iceguards and specialty coated
fabrics used for storage, shipping, environmental and rescue applications for
commercial and military uses. During the fiscal year ended March 31, 1995,
approximately 13% of the Company's total revenues were derived from sales made
by Engineered Fabrics.

The Company is a Delaware corporation formed on March 13, 1989, at the
direction of Bernard L. Schwartz ("BLS") and Lehman Brothers Holdings Inc.
("LBH"), to acquire the Aircraft Braking Systems Division and Engineered
Fabrics Division from Loral Corporation ("Loral") for approximately $460
million (the "Acquisition"). The Company is the successor to the businesses of
Aircraft Braking Systems/Engineered Fabrics which were acquired by Loral from
Goodyear on March 13, 1987. The principal executive offices of the Company are
located at 600 Third Avenue, New York, New York 10016, and its telephone number
is (212) 297-0900.

-7-
<PAGE> 10
RISK FACTORS

Purchasers of the Subordinated Debentures should consider the specific
factors set forth below as well as the other information set forth in this
Prospectus.

HIGHLY LEVERAGED POSITION

Debt to Equity Ratio. The Company is highly leveraged. As of March
31, 1995, the Company had a stockholders' deficiency. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the consolidated financial statements.

Dependence on Future Performance to Make Debt Payments. The Company
will be required to make sinking fund payments on the Subordinated Debentures
of $52.5 million on August 1, 1999, $52.5 million on August 1, 2000, to retire
the remaining $105 million of Subordinated Debentures on August 1, 2001 and to
pay all principal plus accrued interest on the Senior Notes in 2003. The
Company's ability to make required principal and interest payments on its
indebtedness is dependent on the future performance of the Company and its
subsidiaries. The Company's performance is subject to a number of factors
beyond its control, including the performance of the global economy and
financial markets, worldwide demand for air travel, legislative pronouncements,
performance of the commercial and military aircraft industries and other
factors affecting the Company and its subsidiaries.

Operating and Financial Restrictions. The Company's level of
indebtedness and the restrictive covenants contained in its debt instruments
could significantly limit the Company's ability to withstand competitive
pressures or adverse economic consequences, including the ability of the
Company to make investments in aircraft programs and capital expenditures. In
addition, the Revolving Loans are floating rate obligations of the Company's
subsidiaries, causing the Company and its subsidiaries to be sensitive to
changes in prevailing interest rates. The Company currently believes that,
based on current levels of operations and anticipated growth, its cash flow
from operations, together with funds available from the Revolving Loans, will
be adequate to allow for anticipated capital expenditures and investments in
original equipment for aircraft programs, to fund working capital requirements
and to make required payments of principal and interest on its debt. However,
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 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.

Restrictive Covenants. The Senior Note Indenture and the Subordinated
Debenture Indenture impose certain operating and financial restrictions on the
Company and its subsidiaries. Such restrictions affect, and in many respects
limit or prohibit, among other things, the ability of the Company and its
subsidiaries to incur additional indebtedness, pay dividends, permit
subsidiaries to issue preferred stock, repay certain indebtedness prior to its
stated maturity, create liens, sell assets or engage in mergers or acquisitions
and make certain capital expenditures. These restrictions, in combination with
the leveraged nature of the Company, could limit the ability of the Company to
effect future financings or otherwise restrict corporate activity. In
addition, the Restated Revolving Credit Agreement imposes certain restrictions
on the Company's subsidiaries, including limitations on additional
indebtedness, dividend payments and other distributions from Aircraft Braking
Systems and Engineered Fabrics to the Company and investments in original
equipment for new airframe programs.

-8-
<PAGE> 11
DEFICIENCY OF EARNINGS TO FIXED CHARGES

For the fiscal years ended March 31, 1995, 1994 and 1993, the
Company's deficiency of earnings available to cover fixed charges was
approximately $10.2 million, $31.7 million and $21.2 million, respectively.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Results of Operations and Financial Condition." The Company's cash flow from
operations has been sufficient to meet its debt service obligations for
interest and required principal payments. Although the Company expects that it
may continue to have a deficiency of earnings to cover fixed charges, the
Company expects that, based upon current operations, it will be able to meet
required principal and interest payments on the Subordinated Debentures.
However, no assurance can be given that the Company's operating results will
provide sufficient cash flow to meet its financial obligations, including
payment of principal and interest on the Subordinated Debentures.

SUBORDINATION

The Subordinated Debentures are subordinate to all Senior Debt (as
defined in the Subordinated Debenture Indenture), which includes the Senior
Notes.

The subordination provisions of the Subordinated Debenture Indenture
provide that no cash payment may be made with respect to the principal of or
premium, if any, or interest on the Subordinated Debentures during the
continuance of a payment default under any Senior Debt. In addition, if
certain non-payment defaults exist with respect to certain Senior Debt, the
holders of such Senior Debt will be able to block payment on the Subordinated
Debentures for specified periods of time. If any of the Subordinated
Debentures are declared due and payable prior to their stated maturity, holders
of Senior Debt will be entitled to payment in full prior to any payment to the
holders of the Subordinated Debentures. See "Description of Certain
Indebtedness -- Senior Notes," "Description of Certain Indebtedness -- The
Amended and Restated Revolving Credit Agreement," and "Description of the
Subordinated Debentures -- Subordination."

HOLDING COMPANY STRUCTURE

The Company is the sole obligor on the Subordinated Debentures. The
Company's operations are conducted through, and substantially all of the
Company's assets are owned by, its directly owned operating subsidiaries,
Aircraft Braking Systems and Engineered Fabrics. As a result, the Company will
be dependent on the earnings and cash flow from Aircraft Braking Systems and
Engineered Fabrics to meet its obligations under the Subordinated Debentures,
the Convertible Debentures and the Senior Notes and to pay its general
expenses. Aircraft Braking Systems and Engineered Fabrics provide funds to the
Company through payments on intercompany indebtedness and dividends. Because
the assets of the Company are held by and will continue to be held by these
subsidiaries, the claims of holders of the Subordinated Debentures and the
Senior Notes are subject to the prior claims of creditors of Aircraft Braking
Systems and Engineered Fabrics, including the claims of the Banks under the
Restated Revolving Credit Agreement and the claims of trade creditors. At
March 31, 1995, the aggregate amount of indebtedness, including trade payables
and other liabilities, of the Company's subsidiaries to which the Subordinated
Debentures would effectively be subordinated, was approximately $176.1 million.
See "Description of the Subordinated Debentures."

Pursuant to a Pledge Agreement between the Company and The Bank of New
York, as collateral trustee (the "Collateral Trustee"), the Company has
assigned and pledged to the Collateral Trustee, for the benefit of the holders
of the Senior Notes, a security interest in all of the capital stock of
Aircraft Braking Systems and Engineered Fabrics to secure performance by the
Company of its obligations under the Senior Note Indenture and the Senior
Notes. In addition, Aircraft Braking Systems and Engineered Fabrics are
borrowers under the Restated Revolving Credit Agreement. Aircraft Braking
Systems and Engineered Fabrics have secured their obligations under the
Restated Revolving Credit Agreement by pledging all of their inventory and
accounts receivables. The Subordinated Debentures are not secured.

ADDITIONAL INDEBTEDNESS

The Subordinated Debentures Indenture limits but does not prohibit the
incurrence by the Company or its operating subsidiaries of additional
indebtedness. See "Description of Subordinated Debentures -- Certain
Covenants."

-9-
<PAGE> 12
INTEREST OF BLS, LEHMAN BROTHERS AND ITS AFFILIATES

BLS owns 27.12% of the capital stock of the Company and has operating
control of the Company by reason of certain stockholder arrangements. In
addition, BLS serves as Chairman of the Board of Directors and Chief Executive
Officer of the Company. In his capacity as Chairman and Chief Executive
Officer, BLS participates in the material business decisions relating to the
Company and its operations but does not participate in the ordinary day to day
operations of the Company. BLS is also the Chairman and Chief Executive
Officer of Loral which owns 22.5% of the capital stock of K & F. BLS and
certain other executive officers of Loral provide, pursuant to a Director
Advisory Agreement (the "Advisory Agreement"), certain services to the Company,
including acting as directors of and providing advisory services to the Company
and its subsidiaries. The Company pays BLS and persons designated at his
discretion an aggregate of $200,000 per month for such services. BLS and
certain other advisors to the Company participate in certain other incentive
compensation plans. See "Management," "Ownership of Capital Stock" and
"Certain Transactions."

Lehman Brothers and its affiliates (the "Lehman Investors") own 48.17%
of the capital stock of the Company. The Lehman Investors have the right
pursuant to certain stockholders arrangements to designate three members of the
Company's Board of Directors. In addition, in the event BLS dies or is
disabled or owns less than a specified number of shares of capital stock of the
Company, the Lehman Investors will be entitled to designate a majority of the
directors of the Company. Pursuant to a financial advisory agreement between
Lehman Brothers and the Company, Lehman Brothers acts as exclusive financial
adviser to the Company. Lehman Brothers has performed investment banking
services for the Company in connection with the Subordinated Debenture Offering
and the Senior Note Offering. In connection with the Subordinated Debenture
Offering and the Senior Note Offering, Lehman Brothers received underwriting
discounts and commissions of $7.35 million and $2.25 million, respectively.
See "Certain Transactions," "Ownership of Capital Stock" and "Plan of
Distribution".

REDUCTIONS IN AIR TRANSPORT ACTIVITY; DELIVERY OF NEW AIRCRAFT

During fiscal year 1995, sales of replacement parts for braking
systems previously installed on aircraft accounted for approximately 75% of
Aircraft Braking Systems' total revenues. The demand for replacement parts for
the Company's wheels and braking systems varies depending upon the number of
aircraft equipped with the Company's products and the number of landings made
by such aircraft. A reduction in airline travel will usually result in reduced
utilization of commercial aircraft, fewer landings, and a corresponding
decrease in the Company's sales of replacement parts and related income and
cash flow. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and "Business."

Since original equipment in new commercial aircraft is supplied at or
substantially below the Company's cost of production, delivery of new aircraft
equipped with the Company's products negatively affects cash flow. The
Company's business plan budgets cash needs based on current delivery schedules
of new aircraft and also accommodates certain increases in aircraft deliveries.
However, significant, unanticipated increases in commercial aircraft deliveries
in a given year could have a material adverse impact on the Company's cash flow
in such year.

REDUCTIONS IN MILITARY APPROPRIATIONS

Recent political developments throughout the world have led to
reconsideration of the United States' military objectives and requirements and
a decline in spending on defense related products. Reduced United States
government (the "Government") demand for products supplied by the Company has
and may continue to have adverse affects on the Company's sales, income and
cash flow. Sales to the Government or to prime contractors or subcontractors
of the Government were approximately 14%, 15% and 23% of the Company's total
sales for the fiscal years ended March 31, 1995, 1994 and 1993, respectively.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and "Business -- Government Contracts."

ABSENCE OF PUBLIC MARKET FOR THE SUBORDINATED DEBENTURES

Lehman Brothers currently makes a market in the Subordinated
Debentures; however, Lehman Brothers is not obligated to do so. Any such
market-making activity may be discontinued at any time, for any reason, without
notice. If Lehman Brothers ceases to act as a market maker for the
Subordinated Debentures for any reason, there can be no assurance that another
firm or person will make a market in the Subordinated Debentures. There can be
no assurance that an active market for the Subordinated Debentures will develop
or, if a market does develop, at what prices the Subordinated Debentures will
trade. In addition, in the recent past the market for "high yield" securities
(of which the Subordinated Debentures may be deemed a part) has been
characterized by certain periods of relative instability and illiquidity. No
assurance can be given as to the status of the market for "high yield"
securities in the future.
-10-
<PAGE> 13

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Subordinated
Debentures (approximately $201.2 million) were used to repay the Subordinated
Bridge Notes and accrued and unpaid interest thereon (approximately $8.5
million) and to repay approximately $12.7 million of borrowings under the
Original Revolving Credit Agreement. The Subordinated Bridge Notes were issued
to LBH to provide a portion of the Financing for the Acquisition. The
Subordinated Bridge Notes ranked subordinate to the Revolving Loan and the Term
Loan and bore interest at an annual rate equal to the reference rate announced
from time to time by Chemical plus 5% until July 27, 1989, and 6% thereafter.
The interest rate on the Subordinated Bridge Notes at the date of the repayment
(August 10, 1989) was 16.5%. The borrowings under the Original Revolving Loan
Agreement that were repaid with the proceeds of the Subordinated Debenture
Offering bore interest at 12.11% per annum and were scheduled to mature on
April 27, 1997.

-11-
<PAGE> 14
SELECTED FINANCIAL DATA

The selected financial data has been derived from, and should be read in
conjunction with, the related audited consolidated financial statements.

-12-
<PAGE> 15

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION

GENERAL

Aircraft Braking Systems generates approximately 75% of its revenues through
the sale of replacement parts for wheels and braking systems previously
manufactured by the Company and its predecessors and installed on over 30,000
commercial, general aviation and military aircraft. As is customary in the
industry, Aircraft Braking Systems incurs substantial expenditures to research,
develop, design and supply original wheel and brake equipment to aircraft
manufacturers at or below the cost of production ("program investments"). Such
expenditures are charged to operations when incurred, or in the case of program
investments, when delivered to the aircraft manufacturer. Since most modern
aircraft have a useful life of 25 years or longer and require periodic
replacement of certain components of the braking system, the Company typically
recoups its initial investment in original equipment and generates significant
profits from the sales of replacement parts over the life of the aircraft. The
Company has invested and will continue to invest significant resources to have
its products selected for use on new commercial airframes, focusing
particularly on medium- and short-range aircraft. During the three years ended
March 31, 1995, the Company spent an aggregate of $103 million for research,
development, design and program investments. As a result of these efforts, the
Company has been selected as a basic supplier of wheels and carbon brakes on
the Airbus A-321, the sole supplier of wheels, carbon brakes and anti-skid
systems on the MD-90, Fo-100 and Fo-70, the sole supplier of wheels and brakes
for the Saab 2000, the Canadair Regional Jet, the Lear 60, the Fairchild Metro
23 and as a supplier of wheels and carbon brakes for the Airbus A-330 and
A-340. These programs are in the early stages of their life cycles and
represent significant future growth opportunities for the Company.

The Company believes that Department of Defense budget reductions have resulted
in a general reduction in the use and deployment of military aircraft. Sales
to the United States military were 14%, 15% and 23% of the Company's total
sales during the fiscal years ended March 31, 1995, 1994 and 1993,
respectively. Based on current backlog and anticipated orders, the Company does
not anticipate any further significant reduction in sales to the United States
military from their fiscal year 1995 levels.

RESULTS OF OPERATIONS

FISCAL YEAR 1995 COMPARED WITH FISCAL YEAR 1994

Sales. Sales for fiscal year 1995 totaled $238.8 million reflecting an
increase of $12.6 million or 5.6% compared with the prior year. This increase
was due to higher commercial sales of wheels and brakes for both commercial
transport and general aviation aircraft of $21.3 million, primarily on the
DC-9, DC-10, Fo-100, MD-90 and Beech programs. The Company experienced strong
demand over substantially all of its commercial programs during fiscal year
1995. Partially offsetting this increase were lower military sales of $3.3
million primarily on the F-16 program and lower shipments of commercial oil
containment booms of $5.4 million.

Gross Margin. The gross margin for fiscal year 1995 was 31.0% compared with
29.4% for fiscal year 1994. This increase was primarily due to a favorable
sales mix, operating efficiencies and the overhead absorption effect relating
to the higher sales volume.

Independent Research and Development. Independent research and development
costs were $8.4 million in fiscal year 1995 compared with $12.9 million in
fiscal year 1994 or 3.5% and 5.7% of sales for fiscal years 1995 and 1994,
respectively. This decrease was primarily due to the incurrance of lower costs
associated with the MD-90 and A-321 programs. The majority of the design and
development efforts relating to these programs has already been completed.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $3.2 million in fiscal year 1995 compared
with fiscal year 1994. This decrease is primarily due to cost reductions
implemented during fiscal year 1994.

-13-
<PAGE> 16

Interest Expense, Net. Net interest expense decreased $5.7 million in fiscal
year 1995 compared with the prior year. This decrease was due to the
retirement of the 14 3/4% Subordinated Convertible Debentures (the "Convertible
Debentures") on September 2, 1994 (see Notes 7 and 9 to the consolidated
financial statements) and due to a lower average principal balance on the
Revolving Loan.

FISCAL YEAR 1994 COMPARED WITH FISCAL YEAR 1993

Sales. Sales for fiscal year 1994 totaled $226.1 million compared with $277.1
million in the prior year. Military sales decreased $27.2 million primarily on
the F-16, F-14A, S-3A, F-117A and Saab J-35 and J-37 programs, reflecting the
overall decline in government procurements. Commercial sales decreased $23.8
million, of which approximately $7.0 million was attributable to replacement
parts of aircraft wheels and brakes, principally on the DC-10 program.
Additionally, demand for original equipment on the MD-11 and various Gulfstream
programs was down and sales of oil spill containment booms were also below
prior year levels.

Gross Margin. The gross margin for fiscal year 1994 was 29.4% compared with
28.2% for fiscal year 1993. This increase was due primarily to lower
postretirement health care and life insurance costs in fiscal year 1994
resulting from various plan amendments (see Note 11 to the consolidated
financial statements) and a favorable sales mix, whereby higher
margin-commercial sales comprised a higher percentage of total sales, partially
offset by the overhead absorption effect relating to lower sales volume.

Independent Research and Development. Independent research and development
costs were $12.9 million in fiscal year 1994 compared with $11.4 million in
fiscal year 1993 or 5.7% and 4.1% of sales for fiscal years 1994 and 1993,
respectively. This increase was primarily due to the incurrence of higher
costs associated with the design and development of wheels and brakes for the
CL-604, Saab 2000 and Japan's FSX programs.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.7 million in fiscal year 1994 compared
with fiscal year 1993. This decrease was primarily due to the Company's
continuous cost containment efforts and lower postretirement health care and
life insurance costs due to various plan amendments. (See Note 11 to the
consolidated financial statements.)

Interest Expense, Net. Net interest expense decreased $1.5 million in fiscal
year 1994 compared with the prior year primarily due to a lower average
principal balance on the Revolving Loan. Partially offsetting this decrease
was a higher principal balance on the Convertible Debentures. The Company
issued $8.4 million and $7.3 million in additional Convertible Debentures
during fiscal years 1994 and 1993, respectively, in payment of non-cash
interest. (See Notes 7 and 9 to the consolidated financial statements.)

Effective April 1, 1993, the Company changed its method of accounting for the
discounting of liabilities for workers' compensation losses, to use a risk-free
rate rather than its incremental borrowing rate. The cumulative effect for
periods prior to April 1, 1993, of this change amounted to $2.3 million, and is
included as an increase to the net loss for the fiscal year ended March 31,
1994. (See Note 2 to the consolidated financial statements.)

Effective April 1, 1992, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." SFAS No. 106 requires accrual of these benefits during
an employee's service period. The effect of adopting SFAS No. 106 was a
cumulative charge of $77.9 million. (See Note 11 to the consolidated financial
statements.)

LIQUIDITY AND FINANCIAL CONDITION

The Company's primary source of funds for conducting its business activities
and servicing its indebtedness has been cash generated from operations and
borrowings under the Revolving Loan. The Company's long-term indebtedness
decreased from $381.4 million at March 31, 1994 to $310.0 million at March 31,
1995. This decrease was due to the retirement of the Convertible Debentures
(see Notes 7 and 9 to the consolidated financial statements) and payment of all
outstanding balances on the Revolving Loan from cash flows generated from
operations.

-14-
<PAGE> 17

On September 2, 1994, K & F retired the $65.4 million principal amount of
Convertible Debentures held by Loral, in exchange for $12.76 million in cash
and 458,994 shares of Class B common stock representing 22.5% of equity. The
cash portion of this transaction was funded with the proceeds from the sale of
capital stock to K & F's principal stockholders. As a result, K & F's
stockholders' equity was increased by $65.4 million and long-term debt was
reduced by an equal amount. (See Notes 7 and 9 to the consolidated financial
statements.)

The Company expects that its principal use of funds for the next several years
will be to pay interest and principal on indebtedness, fund capital
expenditures and make investments in equipment for new airframes. Debt
principal amortization commences August 1, 1999. The Company's management
believes that it will have adequate resources to meet its cash requirements
through funds generated from operations and borrowings under its $70 million
Revolving Loan (maturing April 27, 1997 which is subject to a borrowing base of
eligible accounts receivable and inventory). At March 31, 1995, the Company
had $53.6 million available to borrow under its Revolving Loan. At March 31,
1995 there were no borrowings under the Revolving Loan.

CAPITAL EXPENDITURES

The Company had additions to fixed assets of $2.8 million and $3.1 million for
the fiscal years ended March 31, 1995 and 1994, respectively. These additions
were primarily for manufacturing equipment. Capital spending for fiscal year
1996 is expected to be approximately $6.0 million.

INFLATION

The effect of inflation on the Company's sales and earnings is minimal because
a majority of the Company's sales are conducted through long-term contracts or
established price lists. The selling prices of such contracts and price lists,
established for deliveries in the future, generally reflect estimated costs to
be incurred in these future periods. In addition, some contracts provide for
price adjustments through escalation clauses.

ACCOUNTING PRONOUNCEMENT

In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of," which
establishes accounting standards for the recognition of an impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The Company is currently
evaluating the impact, if any, of SFAS No. 121. (See Note 2 to the
consolidated financial statements.)

-15-
<PAGE> 18
BUSINESS

GENERAL

K & F Industries, Inc. was incorporated in Delaware on March 13, 1989. K & F,
through its wholly owned subsidiary, Aircraft Braking Systems, is one of the
world's leading manufacturers of aircraft wheels, brakes and anti-skid systems
for commercial transport, general aviation and military aircraft. K & F sells
its products to virtually all major airframe manufacturers and most commercial
airlines and to the United States and certain foreign governments. During the
fiscal year ended March 31, 1995, approximately 87% of the Company's total
revenues were derived from sales made by Aircraft Braking Systems. In
addition, K & F through its wholly owned subsidiary, Engineered Fabrics,
believes it is the leading worldwide manufacturer of aircraft fuel tanks,
supplying approximately 90% of the worldwide general aviation and commercial
transport market and nearly one-half of the domestic military market.
Engineered Fabrics also manufactures and sells iceguards and specialty coated
fabrics used for storage, shipping, environmental and rescue applications for
commercial and military uses. During the fiscal year ended March 31, 1995,
approximately 13% of the Company's total revenues were derived from sales made
by Engineered Fabrics.

Aircraft Braking Systems and its predecessors have been leaders in the design
and development of aircraft wheels, brakes and anti-skid systems, investing
significant resources refining existing braking systems, developing new
technologies and designing braking systems for new airframes. The Company has
carefully directed its efforts toward expanding Aircraft Braking Systems'
presence in the commercial and general aviation segments of the aircraft
industry, focusing particularly on medium- and short-range commercial aircraft.
These aircraft typically make more frequent landings than long-range commercial
aircraft and correspondingly require more frequent replacement of brake parts.

THE AIRCRAFT WHEEL AND BRAKE INDUSTRY

Aircraft manufacturers are required to obtain regulatory airworthiness
certification of their commercial aircraft by the FAA, by the United States
Department of Defense in the case of military aircraft, or by similar agencies
in most foreign countries. This process, which is both costly and time
consuming, involves testing the entire airframe, including the wheels and
braking system, to demonstrate that the airframe in operation complies with
relevant governmental requirements for safety and performance. Generally,
replacement parts for a wheel and brake system which has been certified for use
on an airframe may only be provided by the original manufacturer of such wheel
and brake system. Since most modern aircraft have a useful life of 25 years or
more and require replacement of certain components of the braking system at
regular intervals, sales of replacement parts are expected to provide a long
and steady source of revenues for the manufacturer of the braking system.

Due to the cost and time commitment associated with the aircraft certification
process, competition among aircraft wheel and brake suppliers most often occurs
at the time the airframe manufacturer makes its initial installation decision.
Generally, competing suppliers submit proposals in response to requests for
bids from manufacturers. Selections are made by the manufacturer on the basis
of technological superiority, conformity to design criteria established by the
manufacturer and pricing considerations. Typically, general aviation aircraft
manufacturers will select one supplier of wheels and brakes for a particular
aircraft. In the commercial transport market, however, there will often be
"dual sourcing" of wheels and brakes. In such case, an airframe manufacturer
may approve and receive FAA certification to configure a particular airframe
with equipment provided by two or more wheel and brake manufacturers. Where
two suppliers have been certified, the aircraft customer, such as a major
airline, will designate the original equipment to be installed on the
customer's aircraft. Competition among two certified suppliers for that
airline's initial installation decision generally focuses on such factors as
the system's "cost-per-landing," given certain assumptions concerning the
frequency of replacements required and the impact that the weight of the system
has on the airline's ability to load the aircraft with passengers, freight or
fuel, and the technical operating performance characteristics of the wheel and
brake systems. Once selected, airlines infrequently replace entire wheel and
brake systems because of the expense.

-16-
<PAGE> 19
In accordance with industry practice in the commercial aviation industry,
aircraft wheel and brake suppliers customarily sell original wheel and brake
equipment below cost in order to win selection of their products by airframe
manufacturers and airlines. These investments are typically recouped through
sale of replacement parts. Recovery of pricing concessions and design costs
for each airframe's wheels and brakes is contingent on a number of factors but
generally occurs prior to the end of the useful life of the particular
aircraft. Price concessions on original wheel and brake equipment are not
customary in the military market. Although manufacturers of military aircraft
generally select only one supplier of wheels and brakes for each model, the
Government has approved at times the purchase of specific component replacement
parts from suppliers other than the original supplier of the wheel and brake
system.

PRODUCTS

Aircraft Braking Systems. Aircraft Braking Systems is one of the world's
leading manufacturers of wheels, steel and carbon brakes and anti-skid systems
for commercial transport, general aviation and military aircraft. The
Company's strategic focus is on high-cycle, medium- and short-range commercial
aircraft. These aircraft typically make frequent landings and correspondingly
require more frequent replacement of brake parts. The number of commercial
transport aircraft equipped with the Company's wheels and brakes continued to
grow during fiscal year 1995, due to an increase in the number of new aircraft
entering service, as well as a slower than expected retirement rate of older
aircraft. Airlines have responded to recent FAA regulatory noise abatement
requirements by outfitting their older DC-9 fleets with engine hushkits and
aircraft structural overhauls which effectively add fifteen years of service
life to the aircraft. The Company expects to produce replacement parts for
these refurbished aircraft over this period. Northwest Airlines, USAir and
ValuJet have recently opted for DC-9 life extension refurbishment programs, to
meet capacity needs, in lieu of buying replacement aircraft new. Other
airlines are expected to follow similar strategies, as the economics generally
are more favorable.

Approximately 75% of Aircraft Braking Systems' revenues are derived from the
sale of replacement parts. As of March 31, 1995, the Company's products had
been installed on over 30,000 commercial transport, general aviation and
military aircraft for which Aircraft Braking Systems is the sole-source
supplier on the DC-9, DC-10, Fokker Fo-100, Fokker F-28, Canadair Regional Jet
and Saab 340. In addition, the Company supplies spare parts for the MD-80
program on a dual-source wheel and brake program.

Aircraft Braking Systems has been successful in having its wheels and brakes
selected for use on a number of new high-cycle airframe designs. These
aircraft that are just beginning to enter service include the McDonnell Douglas
MD-90, Airbus A-321, A-319, Fokker Fo-70, Canadair Regional Jet, Saab 2000,
Lear 60 and Fairchild Metro 23. In addition, the Company is a supplier of
wheels and carbon brakes for the Airbus A-330 and A-340 wide-body jets.

Aircraft Braking Systems is the sole supplier for wheels, carbon brakes and
anti-skid equipment on the new McDonnell Douglas MD-90 twin-jet. The MD-90
adds new performance characteristics to a product line that began as the DC-9
model jet that first flew in 1965 and evolved later into the popular MD-80
series also furnished with Aircraft Braking Systems' wheels and brakes. A
technologically innovative design, the MD-90 is equipped with an advanced
turbofan engine that complies with the FAA's restrictive Stage III noise
restrictions, offering fuel savings over competing engines. Delta Airlines,
the launch customer, has taken delivery of five MD-90s out of a total order of
31. McDonnell Douglas has booked orders for over 100 aircraft. Other
customers for the MD-90 include Japan Air System and Saudi Arabia which
recently announced orders for 29 of these aircraft.

Aircraft Braking Systems is a basic supplier of wheels and carbon brakes on the
Airbus A-321, the European consortium's new 186-seat "stretch" version of its
popular A-320 standard body twin-jet. Based on airline selections to date,
Aircraft Braking Systems has captured 85% of the A-321 wheel and brake
requirements including Lufthansa, Alitalia, Austrian Airlines and Swissair.
Airbus has booked orders for over 150 aircraft.

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<PAGE> 20

Aircraft Braking Systems is supplying wheels, carbon brakes and anti-skid
equipment on the Fokker Fo-100 and Fo-70 aircraft on a sole-source basis. The
Fo-100 has 276 firm orders of which 262 have been delivered. The Fo-70, the
newest Fokker narrow-body jet has 59 firm orders of which nine have been
delivered. Operators currently using the Fo-100 include American Airlines with
75 aircraft and USAir with 40 aircraft. Customers for the Fo-70 include
Alitalia, British Midland, Air Littoral, Pelita and Sempati Airlines.

The Company's anti-skid systems, which are integrated into a braking system,
are designed to minimize the distance required to stop an aircraft by utilizing
sensors, mounted on the wheel to maximize the braking force while also
preventing the wheels from locking and skidding. Of the three principal
competitors in the wheel and brake industry, Aircraft Braking Systems is the
only significant manufacturer of anti-skid systems. Because of the sensitivity
of anti-skid systems to variations in brake performance, the Company's
management believes that the ability to control the design and performance
characteristics of the strut, brakes and its integrated anti-skid system gives
Aircraft Braking Systems a competitive advantage over its two largest
competitors. Other products manufactured by the Company include helicopter
rotor brakes and brake temperature monitoring equipment for various types of
aircraft.

The following table shows the distribution of sales of aircraft wheels, brakes
and anti-skid systems to total sales of the Company:

<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
----------------------------

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Wheels and brakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80% 76% 75%
Anti-skid systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7% 10% 10%
--- --- ---
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87% 86% 85%
=== === ===
</TABLE>

Engineered Fabrics. Engineered Fabrics is the largest aircraft fuel tank
manufacturer in the world, serving approximately 90% of the worldwide general
aviation and commercial transport market and nearly one-half of the domestic
military market. For the fiscal year ended March 31, 1995, approximately 13%
of the Company's total revenues were derived from sales made by Engineered
Fabrics.

Fuel tanks, manufactured by combining multiple layers of coated fabrics and
adhesives, are sold for use in commercial transport, military and general
aviation aircraft. During the fiscal year ended March 31, 1995, sales of fuel
tanks accounted for approximately 68% of Engiineered Fabrics' total revenues.
For military helicopter applications, Engineered Fabrics' fuel tanks feature
encapsulated layers of rubber which expand in contact with fuel thereby sealing
off holes or gashes caused by bullets or other projectiles penetrating the
walls of the fuel tank. The Company uses this "self-sealing" technology to
manufacture crash-resistant fuel tanks for helicopters, military aircraft and
race cars that significantly reduce the potential for fires, leaks and spilled
fuel following a crash. Engineered Fabrics is the only known supplier of
polyurethane fuel tanks for aircraft, which are substantially lighter and more
flexible than their metal or nitrile counterparts and therefore
cost-advantageous.

In addition to fuel tanks, Engineered Fabrics produces iceguards, which are
heating systems made out of layered composite materials that are applied on
engine inlets, propellers, rotor blades and tails. Encapsulated in the
material are heating elements which are connected to the electrical system of
the aircraft and, when activated by the pilot, heat the composite to inhibit
the formation of ice.

The Company also produces a variety of products utilizing coated fabrics such
as oil containment booms, towable storage bladders, heavy lift bags and pillow
tanks. Oil containment booms are air-inflated cylinders that are used to
confine oil spilled on the high seas and along coastal waterways. Towable
storage bladders are used for storage and transportation of the recovered oil
after removal from the water. Heavy lift bags, often used in emergency
situations, are inserted into tight spaces and inflated to lift heavy loads
short distances. Pillow tanks are collapsible rubberized containers used as an
alternative to steel drums and stationary storage tanks for the storage of
liquids.

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<PAGE> 21
SALES AND CUSTOMERS

K & F sells its products to more than 150 airlines, airframe manufacturers,
governments and distributors within each of the commercial transport, general
aviation and military aircraft markets. Sales to the U.S. government
represented approximately 14%, 15% and 23% of total sales for the fiscal years
ended March 31, 1995, 1994 and 1993, respectively. No other customer accounted
for more than 10% of sales.

The following table shows the distribution of total Company revenues by
respective market, as a percentage of total revenues:

<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Commercial transport . . . . . . . . . . . . . . . . . . . . . . . . . 61% 60% 55%
Military (U.S. and foreign) . . . . . . . . . . . . . . . . . . . . . 19% 22% 28%
General aviation . . . . . . . . . . . . . . . . . . . . . . . . . . . 20% 18% 17%
---- ---- ----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100% 100%
==== ==== ====
</TABLE>

Commercial Transport. Customers for the Company's products in the commercial
transport market include most airframe manufacturers and major airlines. The
Company's products are used on a broad range of large commercial transports (60
seats or more) and commuter aircraft (20 to 60 seats). Where multiple braking
systems are certified for a particular aircraft, it is generally the airline
and not the airframe manufacturer that decides which of the approved wheel and
brake suppliers will originally equip such airlines fleet. Some of the
Company's airline customers include American Airlines, Delta Air Lines,
Alitalia, Japan Air Systems, Lufthansa, Swissair, Northwest Airlines, United
Airlines and USAir. The Company provides replacement parts for certain
aircraft designed by The Boeing Company ("Boeing") including the Boeing 707,
but does not produce products for any commercial aircraft currently
manufactured by Boeing.

Military. The Company believes it is the largest supplier of wheels, brakes
and fuel tanks to the U.S. military and also supplies the militaries of certain
foreign governments. The Company's products are used on a variety of fighters,
training aircraft, transports, cargo planes, bombers and helicopters. Some of
the military aircraft using these products are the F-4, F-14, F-16, F-117A,
A-10, B-1B and the C-130. Substantially all of the Company's military products
are sold to the Department of Defense or to airframe manufacturers including
Lockheed Martin, McDonnell Douglas, Northrop Grumman, Boeing, Sikorsky, Bell
and Rockwell. Anti-skid systems, manufactured for the military, are used on
the F-16, F-117A, B-2, Panavia Toronado, British Aerospace Hawk, JAS-39 and
Jaguar aircraft.

General Aviation. The Company believes it is the industry's largest supplier
of wheels, brakes and fuel tanks for general aviation aircraft. This market
includes personal, business and executive aircraft. Customers include airframe
manufacturers, such as Gulfstream, Beech Aircraft, Lear, Canadair, Cessna,
Dassault and distributors, such as Aviall. Anti-skid systems are supplied by
the Company to Gulfstream, Canadair, Dassault and a variety of other aircraft
manufacturers. General aviation aircraft using the Company's equipment
exclusively include the Beech Starship and Beech 400 series of aircraft, the
Lear series 20, 30, 50 and 60 and the Gulfstream G-I, G-II and G-III.

-19-
<PAGE> 22
FOREIGN CUSTOMERS

The Company supplies products to a number of foreign aircraft manufacturers,
airlines and foreign governments. The following table shows sales of the
Company to both foreign and domestic customers for the last three fiscal years:

<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
-----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Domestic sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62% 63% 68%
Foreign sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38% 37% 32%
---- ---- ----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100% 100%
==== ==== ====
</TABLE>

INDEPENDENT RESEARCH AND DEVELOPMENT

The Company employs scientific, engineering and other personnel to improve its
existing product lines and to develop new products and technologies in the same
or related fields. At March 31, 1995, the Company employed approximately 148
engineers (of whom 30 held advanced degrees); approximately 27 of such
engineers (including 13 holding advanced degrees) devoted all or part of their
effort toward a variety of projects including: refining carbon processing
techniques to create more durable braking systems; upgrading existing braking
systems to provide enhanced performance; and developing new technologies to
improve the Company's products.

The costs incurred relating to independent research and development for the
fiscal years ended March 31, 1995, 1994, and 1993 were $8.4 million, $12.9
million and $11.4 million, respectively.

PATENTS AND LICENSES

The Company has a large number of patents related to the products of its
subsidiaries. In addition, the Company has pending a substantial number of
patent applications and is licensed under several patents of others. While in
the aggregate its patents are of material importance to its business, the
Company believes no single patent or group of patents is of material importance
to its business as a whole.

COMPETITION

The Company faces substantial competition from a few suppliers in each of its
product areas. Its principal competitors that supply wheels and brakes are
Allied Signal's Aircraft Landing Systems Division and the B.F. Goodrich
Company. Both significant competitors are larger and have greater financial
resources than the Company. The principal competitor for anti-skid systems is
the Hydro-Aire Division of Crane Co. The principal competitor for fuel tanks
is American Fuel Cell & Coated Fabrics Company.

BACKLOG

Backlog at March 31, 1995 and 1994 amounted to approximately $151.4 million and
$141.5 million, respectively. Backlog consists of firm orders for the
Company's products which have not been shipped. Approximately 72% of total
Company backlog at March 31, 1995 is expected to be shipped during the fiscal
year ended March 31, 1996, with the balance expected to be shipped over the
subsequent two-year period. No significant seasonality exists for sales of
the products manufactured by the Company.

Of the total Company backlog at March 31, 1995, approximately 31% was directly
or indirectly for end use by the United States Government (the "Government"),
substantially all of which was for use by the Department of Defense. For
certain risks associated with Government contracts, see "Government Contracts"
discussed below.

-20-
<PAGE> 23
GOVERNMENT CONTRACTS

Recent political developments in some regions of the globe have led to
reconsideration of the United States' military objectives and requirements and
a resultant decline in spending on defense related products. Reduced
Government demand for products supplied by the Company has and may continue to
have adverse effects on sales, income and cash flow. For the fiscal years
ended March 31, 1995, 1994 and 1993, approximately 14%, 15%, and 23%,
respectively, of the Company's total sales were made to agencies of the
Government or to prime contractors or subcontractors of the Government.

All of the Company's defense contracts are firm, fixed-price contracts under
which the Company agrees to perform for a predetermined price. Although the
Company's fixed-price contracts generally permit the Company to keep unexpected
profits if costs are less than projected, the Company does bear the risk that
increased or unexpected costs may reduce profit or cause the Company to sustain
losses on the contract. All domestic defense contracts and subcontracts to
which the Company is a party are subject to audit, various profit and cost
controls and standard provisions for termination at the convenience of the
Government. Upon termination, other than for a contractor's default, the
contractor will normally be entitled to reimbursement for allowable costs and
to an allowance for profit. Foreign defense contracts generally contain
comparable provisions relating to termination at the convenience of the
government. To date, no significant fixed-price contract of the Company has
been terminated.

Companies supplying defense-related equipment to the Government are subject to
certain additional business risks peculiar to that industry. Among these risks
are the ability of the Government to unilaterally suspend the Company from new
contracts pending resolution of alleged violations of procurement laws or
regulations. Other risks include a dependence on appropriations by the
Government, changes in the Government's procurement policies (such as greater
emphasis on competitive procurements) and the need to bid on programs in
advance of design completion. A reduction in expenditures by the Government
for aircraft using products of the type manufactured by the Company, or lower
margins resulting from increasingly competitive procurement policies, or a
reduction in the volume of contracts or subcontracts awarded to the Company or
substantial cost overruns would have an adverse effect on the Company's cash
flow.

SUPPLIES AND MATERIALS

The principal raw materials used in the Company's wheel and brake manufacturing
operations are steel, aluminum forgings and carbon compounds. The Company
purchases steel and aluminum forgings from several sources. Substantially all
of the Company's carbon is purchased from HITCO, a division of British
Petroleum Company, p.l.c., pursuant to a multi-year supply contract. Aircraft
Braking Systems also operates a continuous carbon furnace in which it
internally manufactures carbon for selected programs. The Company also
recently developed a new European source of carbon to supply a portion of the
carbon which will be used to produce braking systems for use on the A-321. The
principal raw materials used by Engineered Fabrics to manufacture fuel tanks
and related coated fabric products are nylon cloth, forged metal fittings and
various adhesives and coatings, whose formulae are internally developed and
proprietary.

The Company has not experienced any difficulty obtaining sources of supplies or
adequate supplies of these raw materials, and believes that sufficient
supplies and alternative sources of supply will be available in the foreseeable
future.

PERSONNEL

At March 31, 1995, the Company had 1,173 full-time employees, of which 799 were
employed by Aircraft Braking Systems (369 hourly and 430 salaried employees)
and 374 were employed by Engineered Fabrics (253 hourly and 121 salaried
employees). All 369 of Aircraft Braking Systems' hourly employees are
represented by the United Auto Workers' Union and all 253 of Engineered
Fabrics' hourly employees are represented by the United Textile Workers' Union.

-21-
<PAGE> 24

Engineered Fabrics has entered into a three-year contract with its union that
expires on February 5, 1998. Aircraft Braking Systems' three-year contract
with the United Auto Workers' Union expired on August 10, 1991. Aircraft
Braking Systems has not had a ratified collective bargaining agreement since
August 10, 1991, but has operated under Company implemented terms and
conditions of employment.

PROPERTIES

United States Facilities. Aircraft Braking Systems and Engineered Fabrics
operate two manufacturing facilities in the United States which are
individually owned except as set forth below under "Akron Facility
Arrangements." Aircraft Braking Systems' facility is located in Akron, Ohio,
and consists of approximately 754,000 square feet of manufacturing, engineering
and office space. Engineered Fabrics' facility is located in Rockmart,
Georgia, and consists of approximately 564,000 square feet of manufacturing,
engineering and office space. The Company believes that its property and
equipment are generally well-maintained, in good operating condition and
adequate for its present needs.

Foreign Facilities. The Company occupies approximately 19,000 square feet of
leased office and warehouse space in Slough, England, under a lease expiring in
2020. The Company also maintains sales and service offices in Rome and
Toulouse, France.

Akron Facility Arrangements. The Aircraft Braking Systems manufacturing plant
acquired from Loral Corporation ("Loral") was a part of a larger complex owned
and operated by Loral. Since complete physical separation of the Aircraft
Braking Systems facility from the balance of the complex was impractical at the
time of the Acquisition, Loral and Aircraft Braking Systems entered into
various agreements covering occupancy arrangements and shared easements and
services (including utility services). As an occupant of space within the
Loral complex of approximately 433,000 square feet, Aircraft Braking Systems is
subject to annual occupancy payments to Loral. During the fiscal year ended
March 31, 1995 Aircraft Braking Systems made occupancy payments to Loral of
$1.3 million. While most of the agreements are temporary (having terms ranging
from two to 10 years from the closing date of the Acquisition), certain access
easements and easements regarding water, sanitary sewer, storm sewer, gas,
electricity and telecommunication are perpetual. In addition, as a condition
to obtaining governmental approval to divide the real property following the
Acquisition, Loral and Aircraft Braking Systems jointly formed and equally
control Valley Association Corporation, an Ohio corporation, thereby
establishing a single legal entity to deal with the City of Akron and utility
companies concerning governmental and utility services furnished to Loral's and
Aircraft Braking Systems' facilities and to receive and comply with remedial
requests issued by such institutions.

LEGAL PROCEEDINGS

Aircraft Braking Systems is a defendant in a patent infringement suit filed on
January 31, 1991, by the B.F. Goodrich Company in the United States District
Court for the District of Delaware. The suit alleges infringement by Aircraft
Braking Systems of two Goodrich patents related to the structure and method of
overhaul of aircraft brake assemblies and seeks damages of approximately $75
million. On November 10, 1994, the court issued its decision in favor of
Aircraft Braking Systems and dismissed the plaintiff's claims. The court held
that the patents were invalid and that the Company's brake assemblies did not
infringe the patents. The plaintiff has appealed the decision, however,
management believes based on the court's decision and its own assessment of the
facts and circumstances, as well as advice from counsel, that it is remote that
the Company would suffer a material liability as a result of the above
mentioned lawsuit.

In addition to the foregoing, there are various lawsuits and claims pending
against the Company incidental to its business. Although the final results in
such suits and proceedings cannot be predicted with certainty, in the opinion
of management, the ultimate liability, if any, will not have a material adverse
effect on the Company.

-22-
<PAGE> 25

ENVIRONMENTAL MATTERS

The Company's manufacturing operations are subject to regulation by various
federal, state and local agencies concerned with environmental control. The
Company believes that its manufacturing facilities are in substantial
compliance with all existing federal, state and local environmental
regulations. The Company does not believe that its environmental
expenditures, if any, will have a material adverse effect on its financial
condition.

-23-
<PAGE> 26
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the names, ages and positions of the directors and
executive officers of the Company. All directors hold office until the next
annual meeting of stockholders of the Company and until their successors are
duly elected and qualified, and all executive officers hold office at the
pleasure of the Board of Directors. The following executive officers or
directors of the Company are related by blood or marriage: Kenneth M. Schwartz
is the nephew of Bernard L. Schwartz, Ronald H. Kisner's wife is the niece of
Bernard L. Schwartz and John R. Paddock's wife is the daughter of Bernard L.
Schwartz. No other executive officer or director of the Company is related by
blood, marriage or adoption.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Bernard L. Schwartz* 69 Chairman of the Board
and Chief Executive Officer
Herbert R. Brinberg* 69 Director
Ronald H. Kisner* 46 Director
John R. Paddock* 41 Director
James A. Stern** 44 Director
A. Robert Towbin** 59 Director
Alan H. Washkowitz** 54 Director
Kenneth M. Schwartz 44 Chief Financial Officer,
Treasurer and Secretary
- -----------------------
</TABLE>

* Designated as director by BLS pursuant to the Stockholders Agreement.
** Designated as director by Lehman Brothers Holdings Inc. ("LBH")
pursuant to the Stockholders Agreement.

Mr. Bernard L. Schwartz has been Chairman and Chief Executive Officer of the
Company since 1989. Mr. Schwartz has been Chairman and Chief Executive Officer
of Loral Corporation since 1972. Mr. Schwartz is a Director of Reliance Group
Holdings, Inc. and certain subsidiaries, Sorema International Holding N.V.,
Globalstar Telecommunications Limited, First Data Corporation and Trustee of
New York University Medical Center.

Dr. Brinberg has been President and Chief Executive Officer of Parnassus
Associates International, a firm of consultants in the field of Information
Management, since September 1989. Previously, he was President and Chief
Executive Officer of Wolters Kluwer U.S. Corporation, a wholly owned subsidiary
of Wolters Kluwer N.V. of the Netherlands, and its predecessor companies since
1978. Dr. Brinberg received an A.B. from Cornell University, an M.S. from
Columbia University and a Ph.D. in Economics from New York University. He is
also currently an Adjunct Professor of Management at Baruch College City
University of New York.

Mr. Kisner has been a member of the law firm of Chekow & Kisner, P.C., since
1984. From 1973 to 1982, he was Associate General Counsel of APL Corporation,
where he held such offices as Secretary, Vice President and Director. From
1982 to 1984, Mr. Kisner was a sole practitioner. Mr. Kisner received a B.A.
from Syracuse University in 1970 and a J.D. from Washington College of Law,
American University, in 1973.

Dr. Paddock is a licensed psychologist who has maintained an independent
practice of psychotherapy, assessment and consultation in Atlanta, Georgia
since 1982. He has also been Director of Training for the Georgia School of
Professional Psychology, Adjunct Associate Professor of Psychology at Emory
University, Assistant Professor of Psychology at Kennesaw State College, and
Southern Region Coordinator for National Employee Assistance Services. Dr.
Paddock received his B.A. from Williams College and his M.A. and Ph.D. in
Clinical Psychology from Emory University. Currently, he has clinical faculty
appointments at both Emory's Department of Psychology and in the medical
school.

-24-
<PAGE> 27

Mr. Stern is Chairman of The Cypress Group, a private merchant bank. He was a
Managing Director of Lehman Brothers from 1984 to 1994. From 1989 to 1994, Mr.
Stern was also head of the Merchant Banking Group of Lehman Brothers. He was a
Managing Director of Lehman Brothers Kuhn Loeb, Inc. from 1982 to 1984. Mr.
Stern is also a director of Infinity Broadcasting Corporation, R.P. Scherer
Corp., Noel Group Inc. and Lear Seating Corporation.

Mr. Towbin was elected President and Chief Executive Officer of the
Russian-American Enterprise Fund in January of 1994 and has taken a leave of
absence from Lehman Brothers where he had been a Managing Director of the High
Technology Investment Banking Group since 1987. Prior to joining Lehman
Brothers, Mr. Towbin was Vice Chairman, Member of the Executive Committee and
Director of L.F. Rothschild, Unterberg, Towbin Holdings, Inc. from 1986 to
1987. From 1983 to 1986, Mr. Towbin was Vice Chairman, and from 1977 to 1983
he was General Partner of L.F. Rothschild, Unterberg, Towbin. From 1959 to
1977, Mr. Towbin was General Partner of C.E. Unterberg, Towbin Co. Mr. Towbin
received a B.A. from Dartmouth College in 1957. Mr. Towbin is also a Director
of Bradley Real Estate Trust, Columbus New Millennium Fund, Gerber Scientific,
Inc., Globalstar Telecommunications Limited, the Russian-American Enterprise
Fund, and several Russian Companies.

Mr. Washkowitz has been a Managing Director of Lehman Brothers since 1984. He
was a Managing Director of Lehman Brothers Kuhn Loeb, Inc. from 1978 to 1984.
Mr. Washkowitz began in the Corporate Finance Department of Kuhn Loeb & Co. in
1968 and became a general partner of the firm in 1975. Mr. Washkowitz received
an A.B. from Brooklyn College, an M.B.A. from Harvard Business School and a
J.D. from Columbia Law School. Mr. Washkowitz is also a director of Illinois
Central Corporation and Lear Seating Corporation.

Mr. Kenneth M. Schwartz has been Chief Financial Officer, Treasurer and
Secretary of the Company since June 1989. Previously he was the Corporate
Director of Internal Audit for Loral since late 1987. From 1984 to 1987, Mr.
Schwartz held the position of Director of Cost and Schedule Administration for
Loral Electronic Systems. Prior to 1984, Mr. Schwartz held various other
positions with Loral Electronic Systems and the accounting firm of Deloitte &
Touche. Mr. Schwartz received a B.B.A. in accounting from the University of
Miami in 1973.

EXECUTIVE OFFICERS OF AIRCRAFT BRAKING SYSTEMS CORPORATION
AND ENGINEERED FABRICS CORPORATION

Set forth below are the names, ages and positions of the executive officers of
Aircraft Braking Systems and Engineered Fabrics. All executive officers hold
office at the pleasure of their respective Board of Directors.

AIRCRAFT BRAKING SYSTEMS CORPORATION

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald E. Fogelsanger 69 President
Ronald E. Welsch 60 Executive Vice President and
Chief Operating Officer
Frank P. Crampton 51 Vice President-Marketing
Richard W. Johnson 51 Vice President-Finance and Controller
</TABLE>

-25-
<PAGE> 28
ENGINEERED FABRICS CORPORATION

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Roger C. Martin 58 President
Terry L. Lindsey 50 Vice President-Marketing
Anthony G. McCann 35 Vice President-Operations
John A. Skubina 40 Vice President-Finance
</TABLE>

Mr. Fogelsanger has been President of Aircraft Braking Systems Corporation
since 1989. From 1987 to 1989 he was President of Loral's Aircraft Braking
Systems Division. January 1986 to March 1987 he was Vice President and General
Manager of Goodyear Aerospace Corporation's ABS division. From 1980 to 1986 he
was General Manager of Goodyear's Aircraft Tire Operations. In 1968, Mr.
Fogelsanger directed Goodyear's development of a crash-resistant fuel system
for helicopters that was credited with saving hundreds of lives during the
Vietnam War. He joined Goodyear in 1951 after graduating from Pennsylvania
State University with a bachelor's degree in industrial engineering.

Mr. Welsch joined Aircraft Braking Systems Corporation in September 1993 as
Executive Vice President. In November 1994, Mr. Welsch was named executive
Vice President and Chief Operating Officer. Prior to joining Aircraft Braking
Systems, Mr. Welsch was General Manager of the GE 90 Commercial Engine program
at General Electric Aircraft Engines and held various positions in management,
including engineering, product support, marketing, product planning and program
management, over the course of 26 years. Mr. Welsch started his aviation
career at Douglas Aircraft in 1958 and joined Northrop Corporation in 1961. He
entered the U.S. Marine Corp Aviation following graduation from Purdue
University with a bachelor's degree in mechanical engineering. Mr. Welsch also
attended Massachusetts Institute of Technology-Sloan School in 1983.

Mr. Crampton was named Vice President of Marketing at Aircraft Braking Systems
in March 1987. He had been Director of Business Development for Goodyear
Aerospace Corporation's Wheel and Brake Division since 1985. Prior to that
assignment, he was the divisional manager of Program Operations since 1983.
Mr. Crampton joined Goodyear in 1967 following his graduation from the
University of Akron with a bachelor's degree in electrical engineering. He
became Section Manager in Commercial Sales in 1977, a product marketing manager
in 1978 and Divisional Sales Manager in 1979. In August of 1982, he joined
manufacturing as the manager of the manufacturing process organization. Mr.
Crampton completed the executive management program at Northwestern University
in 1982 and received an M.B.A. from Kent State University in 1983. He also
worked for NASA at the Johnson Space Center, Houston, Texas from 1963 to 1966.

Mr. Johnson has been Vice President of Finance and Controller at Aircraft
Braking Systems since April 1989. From 1987 to 1989 he was Vice President of
Finance and Controller of Loral's Aircraft Braking Systems Division. Prior to
this assignment, he had spent 22 years with Goodyear Aerospace Corporation,
including one year as the Controller of the wheel and brake division. Mr.
Johnson joined Goodyear Aerospace Corporation in 1966 following his graduation
from Kent State University with a bachelor's degree in accounting. He became
Manager of Accounting in 1979 for the Centrifuge Equipment Division of Goodyear
Aerospace Corporation after holding various positions in the Defense Systems
Division.

Mr. Martin has been President of Engineered Fabrics Corporation since 1987.
From June 1984 until 1987, he was General Manager of GAC's Engineered Fabrics
Division. Mr. Martin has been continuously employed by Goodyear, GAC, Loral
and K & F for the past 33 years. Other positions Mr. Martin held with Goodyear
include General Manager, Program Manager and a number of research positions.
He holds a patent for elastomeric protective coating for metal storage reels.
Mr. Martin received a B.S. and a B.Ch.E. in 1958 and 1962, respectively, from
Auburn University.

-26-
<PAGE> 29
Mr. Lindsey has served as Vice President of Business Development since 1989.
He has been with Goodyear Aerospace Corporation, Loral and K & F Industries
since 1977. Prior to this he had 12 years of federal service with the US Army.
He joined GAC as Contract Administrator of the Industrial Brake Operation in
Berea, Kentucky, and transferred to Engineered Fabrics in 1979 as Manager of
Contracts. He received a B.S. in Industrial Technology from Berea College in
1967.

Mr. McCann has been Vice President of Operations at Engineered Fabrics
Corporation since June 1993. Prior to that, he was Manager of Production
Support from April 1990 to June 1993. He joined Engineered Fabrics Corporation
in August 1988 as Manager of Production. From January 1984 to August 1988, Mr.
McCann worked for Aircraft Braking Systems as Manager of Manufacturing
Engineering, Manager of Assembly and as a Manufacturing Engineer. He received
a BSME in 1984 from the University of Akron.

Mr. Skubina has been Vice President of Finance and Administration since
February 1991. Prior to that, he was made Vice President of Finance on April
1, 1990. He joined Engineered Fabrics Corporation in 1988 as Accounting
Manager. From 1985 until 1988, Mr. Skubina was the Assistant Controller and
Controller of MPD, a division of M/A-Com. He received a B.S. in Accounting in
1979 from New York Institute of Technology.

-27-
<PAGE> 30
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE

The following table sets forth the compensation for the past three years paid
to the chief executive officer and each of the other four most highly
compensated executive officers of the Company and the Company's subsidiaries
whose aggregate current remuneration exceeded $100,000.

<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
---------------------------- -------------------
All Other
Options LTIP Compen-
Fiscal Salary Bonus Granted Payouts sation(a)
Name and Principal Position Year ($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bernard L. Schwartz 1995 1,779,500(b)(c) -- -- -- --
Chairman of the Board and Chief 1994 1,859,800(b) -- -- -- --
Executive Officer 1993 1,840,650(b) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------

Kenneth M. Schwartz 1995 283,600(c) 105,000 -- -- 3,565
Chief Financial Officer - K & F 1994 176,418 37,500 -- -- 3,404
Industries, Inc. 1993 167,809 75,000 750 10,000 3,322
- ------------------------------------------------------------------------------------------------------------------------------

Donald E. Fogelsanger 1995 198,538 120,000 -- -- 19,442
President of Aircraft 1994 185,000 -- -- -- 18,949
Braking Systems 1993 178,340 85,000 500 13,333 19,032
- ------------------------------------------------------------------------------------------------------------------------------

Ronald E. Welsch (d) 1995 162,769 78,000 -- -- 3,806
Executive Vice President and 1994 90,359 -- 500 -- 2,026
Chief Operating Officer 1993 -- -- -- -- --
Aircraft Braking Systems
- ------------------------------------------------------------------------------------------------------------------------------

Roger C. Martin 1995 132,767 55,500 -- -- 10,520
President of Engineered Fabrics 1994 127,000 -- -- -- 10,545
Corporation 1993 120,231 38,000 500 6,667 10,237
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Includes the following Company contributions to individual 401(k) plan
accounts for fiscal years 1995, 1994 and 1993, respectively: Mr. K.
Schwartz - $3,375, $3,225 and $3,152; Mr. Fogelsanger - $3,475, $2,719
and $2,977; Mr. Welsch - $3,446 and $1,848; Mr. Martin - $3,110, $3,161
and $2,985. Also includes the value of supplemental life insurance
programs for fiscal years 1995, 1994 and 1993, respectively: Mr. K.
Schwartz - $190, $179 and $170; Mr. Fogelsanger - $15,967, $16,230 and
$16,055; Mr. Welsch - $360 and $178; Mr. Martin - $7,410, $7,384 and
$7,252.

(b) Comprised of amounts paid to BLS under the Advisory Agreement.

(c) The Company has an Advisory Agreement with BLS which provides for the
payment of an aggregate of $200,000 per month of compensation to BLS and
persons designated by him (including certain other executive officers of
Loral who are active in the management of the Company) in exchange for
acting as directors and providing advisory services to the Company and
its subsidiaries. BLS has designated that $100,000 of the aggregate
advisory fee be paid to Kenneth M. Schwartz, which is included in his
fiscal year 1995 salary.

(d) Information for Mr. Welsch is provided for fiscal years 1995 and 1994
because he was not employed by the Company in fiscal year 1993. In
addition, compensation for fiscal year 1994 for Mr. Welsch reflects less
than a full year, as his employment date was September 8, 1993.

-28-
<PAGE> 31
OPTION GRANTS IN LAST FISCAL YEAR

There were no grants of stock options by the Company, during fiscal year 1995,
to the named executive officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS VALUES

Number of Value of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)(1)
---------------------------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bernard L. Schwartz 0 0 0/0 0/0

Kenneth M. Schwartz 0 0 938/562 0/0

Donald E. Fogelsanger 0 0 2,125/375 0/0

Ronald E. Welsch 0 0 0/500 0/0

Roger C. Martin 0 0 1,125/375 0/0
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

(1) None of the Company's stock is currently publicly traded. All options
were granted at book value computed as of the date of Acquisition.

-29-
<PAGE> 32
LONG-TERM INCENTIVE PLAN AWARDS

Under the Company's long-term incentive plan designed to provide an incentive
to encourage attainment of Company objectives and retain and attract key
executives of the Company, a limited number of persons participate in a
Deferred Bonus Plan. Under the terms of the plan, generally no awards are
allocated to any participant unless the Company has achieved at least a 10%
growth in earnings before interest, taxes and amortization over the prior
fiscal year. Awards vest and are paid (unless deferred by recipient
direction) in three equal annual installments starting on January 15th following
each fiscal year-end. All nonvested amounts are forfeited upon termination of
employment for any reason other than death or disability prior to the vesting
date. Awards earned in fiscal year 1990 were paid in fiscal years 1991, 1992
and 1993. In accordance with the plan, the Board of Directors has authorized a
$200,000 award for fiscal year 1995; individual awards have not yet been
determined.

THE RETIREMENT PLAN

The Company established, effective May 1, 1989, as amended, the K & F
Industries Retirement Plan for Salaried Employees (the "Company Retirement
Plan"), a defined benefit pension plan. The Company has applied for a
determination letter from the Internal Revenue Service that the Company
Retirement Plan is a qualified plan under the Internal Revenue Code. The terms
of the Company Retirement Plan are as follows: a non-contributory benefit and a
contributory benefit. The cost of the former is borne by the Company; the cost
of the latter is borne partly by the Company and partly by the participants.
Salaried employees who have completed at least six months of service and
satisfied a minimum earnings level are eligible to participate in the
contributory portion of the Company Retirement Plan; salaried employees become
participants in the non-contributory portion on their date of hire. The Plan
provides a benefit of $20.00 per month for each year of credited service. For
participants who contribute to the Plan, in addition to the benefit of $20.00
per month for each year of credited service, the Plan provides an annual
benefit equal to the greater of: 60% of the participant's aggregate
contributions; or, average compensation earned (while contributing) during the
last 10 years of employment in excess of 90% of the Social Security Wage Base
amount multiplied by: (a) 2.4% times years of continuous service up to 10,
plus, (b) 1.8% times additional years of such service up to 20, plus, (c) 1.2%
times additional years of such service up to 30, plus, (d) 0.6% times all
additional such service above 30 years.

Effective January 1, 1990, the Plan was amended for eligible employees of the
K & F Industries and Aircraft Braking Systems to provide an annual benefit equal
to (a) the accrued benefit described above as of December 31, 1989, plus (b) a
non-contributory benefit for each year of credited service after January 1,
1990, of 0.7% of annual earnings up to the Social Security Wage Base or $288,
whichever is greater, plus (c) for each year of continuous service on and after
January 1, 1990, a contributory benefit of (i) for 14 years of continuous
service or less, 1.05% of annual earnings between $19,800 and the Social
Security Wage Base plus 2.25% of annual earnings above the Social Security Wage
Base, (ii) for more than 14 years of continuous service, 1.35% of annual
earnings between $19,800 and the Social Security Wage Base plus 2.65% of annual
earnings above the Social Security Wage Base. In no event will the amount
calculated in (c) above be less than 60% of the participant's aggregate
contributions made on and after January 1, 1990. Benefits are payable upon
normal retirement age at age 65 in the form of single life or joint and
survivor annuity or, at the participant's option with appropriate spousal
consent, in the form of an annuity with a term certain. A participant who has
(a) completed at least 30 years of continuous service, (b) attained age 55 and
completed at least 10 years of continuous service, or (c) attained age 55 and
the combination of such participant's age and service equals at least 70 years,
is eligible for early retirement benefits. If a participant elects early
retirement before reaching age 62, such benefits will be reduced except that
the non-contributory benefits of a participant with at least 30 years of
credited service will not be reduced. In addition, employees who retire after
age 55 but before age 62 with at least 30 years of service are entitled to a
supplemental non-contributory benefit until age 62. Annual benefits under the
Company Retirement Plan are subject to a statutory ceiling of $120,000 per
participant. Participants are fully vested in their accrued benefits under the
Company Retirement Plan after five years of credited service with the Company.

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<PAGE> 33

Estimated annual benefits upon retirement for the individuals named in the
Summary Compensation Table, who are participants in the amended plan of K & F
and Aircraft Braking Systems, are $11,455 for Mr. K. Schwartz (does not
currently participate in contributory portion of plan); $94,806 for Mr.
Fogelsanger; and $20,123 for Mr. Welsch. BLS does not participate in this
plan. The retirement benefits have been computed on the assumption that (a)
employment will be continued until normal retirement at age 65; and (b) current
levels of creditable compensation and the Social Security Wage Base will
continue without increases or adjustments throughout the remainder of the
computation period. The Company has a similar plan at Engineered Fabrics for
which Mr. Martin participates. Estimated annual benefits for Mr. Martin are
$68,607 using the assumptions in (a) and (b) above.

For purposes of eligibility, vesting and benefit accrual, participants receive
credit for years of service with Loral and Goodyear. At retirement, retirement
benefits calculated according to the benefit formula described above are
reduced by any retirement benefits payable from The Goodyear Tire & Rubber
Company Retirement Plan For Salaried Employees.

COMPENSATION OF DIRECTORS

The Board of Directors held four meetings during the fiscal year ended March
31, 1995. Nonequity members of the Board of Directors receive annual fees of
$12,000 per year. Messrs. Towbin, Washkowitz and Stern (three directors
designated by LBH pursuant to the Stockholders Agreement) waived any
compensation for services as a director for the fiscal year ended March 31,
1995. All directors are reimbursed for reasonable out-of-pocket expenses
incurred in that capacity.

ADVISORY AGREEMENT

The Company has an Advisory Agreement with BLS which provides for the payment
of an aggregate of $200,000 per month of compensation to BLS and persons
designated by him (including certain other executive officers of Loral who are
active in the management of the Company) in exchange for acting as directors
and providing advisory services to the Company and its subsidiaries. Such
agreement will continue until BLS dies or is disabled or ceases to own at least
135,000 shares of common stock of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company has not in the past used a compensation committee to determine
executive officer compensation. The payments to BLS, the Company's Chairman
and Chief Executive Officer, are paid in accordance with the Advisory
Agreement. All other executive compensation decisions are made by BLS in
accordance with policies established in consultation with the Board of
Directors.

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<PAGE> 34
OWNERSHIP OF CAPITAL STOCK

The following table sets forth the ownership of the capital stock of the
Company as of June 1, 1995

<TABLE>
<CAPTION>
Number of Shares Number of Shares Number of Shares Percentage
of Class A of Class B of Preferred Ownership of
Common Stock(a) Common Stock(a)(b) Stock(c) Capital Stock(d)
--------------- ------------------ -------- ----------------
<S> <C> <C> <C> <C>
Bernard L. Schwartz . . . . . . . . . 553,343(e) -- -- 27.12%
*Lehman Brothers Merchant Banking
Portfolio Partnership L.P. . . . . . -- -- 478,387(f) 23.45
*Lehman Brothers Offshore Investment
Partnership L.P. . . . . . . . . . . -- -- 129,745(g) 6.36
*Lehman Brothers Offshore Investment
Partnership - Japan L.P. . . . . . . -- -- 49,348(g) 2.42
* Lehman Brothers Capital Partners II,
L.P. . . . . . . . . . . . . . . . . -- -- 325,156(h) 15.94
CBC Capital Partners, Inc. . . . . . . 1 -- 44,999 2.21
Loral Corporation . . . . . . . . . . -- 458,994 -- 22.50
------- ------- --------- ------
553,344 458,994 1,027,635 100.00%
======= ======= ========= ======

</TABLE>

*Collectively referred to as the "Lehman Investors."

(a) On February 15, 1995, the Board of Directors approved a one-for-ten
reverse common stock split for all holders of Class A and Class B
common stock on such date. (See Note 9 to the consolidated financial
statements.)

(b) On September 2, 1994, K & F retired the $65.4 million principal amount
of Convertible Debentures held by Loral, in exchange for $12.76
million in cash and 458,994 shares of Class B common stock
representing 22.5% of equity. The cash portion of this transaction
was funded with the proceeds from the sale of capital stock to K & F's
principal stockholders for which stockholders received a total of
68,728 shares of Class A common stock and 127,636 shares of preferred
stock. (See Notes 7 and 9 to the consolidated financial statements.)

(d) Assumes that the preferred stock has been converted into voting common
stock.

(e) BLS has granted options to officers and directors of the Company and
its subsidiaries, at a per share exercise price of $40, for an
aggregate of 50,500 shares of the voting common stock owned by BLS.
The agreements pursuant to which such options are issued (i) provide
that the option is exercisable in whole or in part at any time prior
to the tenth anniversary of the date of such agreement and (ii)
restrict the transfer of the option and any shares purchased upon
exercise of the option. The option agreements further provide that
BLS will retain all voting rights with respect to shares sold to an
option holder upon exercise of an option.

(f) Lehman Brothers Merchant Banking Partners Inc. is the general partner
of the limited partnership and is an indirect wholly owned subsidiary
of LBH.

(g) Lehman Brothers Offshore Partners Ltd. is the general partner of the
limited partnership and is an indirect wholly owned subsidiary of LBH.

(h) Lehman Brothers II Investment Inc. is the general partner of the
limited partnership and is an indirect wholly owned subsidiary of LBH.
The limited partnership is a fund for employees of LBH and its
affiliates.

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<PAGE> 35
STOCKHOLDERS AGREEMENT

The Company, BLS, the Lehman Investors, CBC Capital Partners, Inc. and Loral
(each, a "Stockholder") entered into an Amended and Restated Stockholders
Agreement (the "Stockholders Agreement") dated as of September 2, 1994, which
contains certain restrictions with respect to the transferability of the
Company's capital stock, certain rights granted by the Company with respect to
such shares and certain voting and other arrangements. The Stockholders
Agreement will terminate as of such time as more than 75% of the shares of
common stock and shares of common stock issuable upon the exercise of options
or rights to acquire common stock or upon conversion of convertible securities
("Common Equivalents") then outstanding have been sold pursuant to one or more
public offerings, except that the registration rights continue as to any common
stock held by parties thereto as long as they own their shares, and the voting
provisions contained in the Stockholders Agreement terminate on September 2,
2004.

The Stockholders Agreement provides that the Company's Board of Directors be
comprised initially of 7 directors. BLS is entitled to (i) appoint a majority
of the directors as long as he and his affiliates own at least 135,000 shares
of common stock, (ii) three directors as long as he and his affiliates own at
least 100,000 shares of common stock, and (iii) one director as long as he and
his affiliates own any shares of common stock. The Lehman Investors are
entitled to (i) appoint three directors as long as they collectively own at
least 100,000 Common Equivalents, (ii) a majority of the directors if (a) they
own at least 135,000 shares of common stock and (b) BLS dies or becomes
disabled or owns less than 135,000 shares of Common Equivalents and (c) one
director as long as they own any Common Equivalents. If and for so long as
Loral and its affiliates own any shares of voting common stock, at the request
of Loral, the number of members of the Board of Directors shall be increased to
9, Loral shall be entitled to designate one member of the Board of Directors,
and the remaining member shall be designated by the stockholder which at such
time has the right to designate a majority of the Board of Directors. The
Company's by-laws provide that the following corporate actions will require the
vote of at least one Lehman Investor designated director including (with
certain limited exceptions) (i) mergers, consolidations or recapitalizations,
(ii) issuances of capital stock or preferred stock, (iii) repurchases of and
dividends on capital stock, (iv) issuance of employee options representing more
than 50,000 shares of common stock, (v) dissolution or liquidation of the
Company, (vi) acquisition, sale or exchange of assets in excess of $5,000,000,
(vii) the incurrence of debt or liens in excess of $10 million in the
aggregate, (viii) the making of loans, investments or capital expenditures in
excess of $10 million, (ix) transactions with affiliates and (x) prepayments of
or amendments to any amount of financing in excess of $10 million. The
Stockholders Agreement provides that the Charter and By-laws of the Company in
effect on the closing date of the Acquisition may not be amended without the
consent of the Lehman Investors designated director for so long as the Lehman
Investors or its affiliates own at least 100,000 shares of the outstanding
capital stock.

The Stockholders Agreement provides each Stockholder with a right of first
refusal with respect to certain transfers of Common Stock or Common
Equivalents. In addition, subject to certain limitations, if any Stockholder
or group of Stockholders proposes to transfer securities representing more than
15% of the Common Equivalents, then each other Stockholder is permitted to
transfer to the proposed transferee their pro rata share of Common Equivalents
at the price and on the other terms of the proposed transfer.

The Stockholders Agreement provides that either BLS or the Lehman Investors
(the "Put Party") may request an appraisal of the value of the capital stock of
the Company (the "Appraised Value") and may notify the other party of its
desire to sell all of its and its transferee's capital stock for a pro rata
share of such Appraised Value. The other party may elect to purchase such
capital stock, arrange for the purchase of such capital stock by a third party
or notify the Put Party that it does not intend to purchase such capital stock.
If such election is made such party must use its best efforts to purchase or
arrange for the purchase of such capital stock. If such capital stock is not
purchased within a specified period, BLS and the Lehman Investors shall cause
the Company to be sold if such sale can be arranged for a price at least equal
to the Appraised Value. Any sale of the Company as an entirety shall include
all Stockholders and the proceeds thereof shall be allocated among the
Stockholders in accordance with their stock ownership.

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<PAGE> 36

Stockholders of specified percentages of capital stock may demand registration
rights. The Stockholders Agreement also grants the Stockholders incidental
registration rights with respect to shares of capital stock held by them;
provided that the Stockholders not exercising such rights have the right to
purchase the shares which are the subject of such registration rights pursuant
to the right of first offer provided in the Stockholders Agreement. The
Stockholders Agreement contains customary terms and provisions with respect to
such registration rights.

Pursuant to the Stockholders Agreement, Stockholders have certain preemptive
rights, subject to certain exceptions, with respect to future issuances of
shares or share equivalents of capital stock so that such Stockholders may
maintain their proportional equity ownership interest in the Company.

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<PAGE> 37
DESCRIPTION OF THE SUBORDINATED DEBENTURES

The 13-3/4% Senior Subordinated Debentures Due 2001 (the "Subordinated
Debentures") were issued pursuant to an Indenture dated as of August 1, 1989
(the "Subordinated Debenture Indenture") between the Company and The
Connecticut National Bank, as trustee (the "Trustee"). The terms of the
Subordinated Debentures include those stated in the Subordinated Debenture
Indenture and those made part of the Subordinated Debenture Indenture by
reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act") as in
effect on the date of the Subordinated Debenture Indenture. The Subordinated
Debentures are subject to all such terms, and holders of the Subordinated
Debentures are referred to the Subordinated Debenture Indenture and the Trust
Indenture Act for a statement thereof. Principal of, premium, if any, and
interest on the Subordinated Debentures are payable, and will be exchangeable
and transferable, at the office or agency of the Company in Hartford,
Connecticut or The City of New York (which will be the corporate trust office
of the Trustee at 777 Main Street, Hartford, Connecticut 06115 or Shawmut Trust
Company, 40 Bond Street, New York, New York ); provided, however, that payment
of interest may be made at the option of the Company by check mailed to the
person entitled thereto as shown on the register for the Subordinated
Debentures. No service charge will be made for any registration of transfer or
exchange of Subordinated Debentures, except for any tax or other governmental
charge that may be imposed in connection therewith. The Subordinated
Debentures are governed by and construed in accordance with the laws of the
State of New York except as may otherwise be required by mandatory provisions
of law.

The following summary of certain provisions of the Subordinated Debenture
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Subordinated Debenture Indenture, including the definitions
therein of certain terms used below. A copy of the form of Subordinated
Debenture Indenture has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part.

GENERAL

The Subordinated Debentures are general unsecured obligations of the
Company limited to $210,000,000 in aggregate principal amount. The
Subordinated Debentures were issued in fully registered form, without coupons,
in denominations of $1,000 and integral multiples thereof. The Subordinated
Debentures will mature on August 1, 2001, unless redeemed before such date.
The Subordinated Debentures bear interest at the rate shown on the cover page
of this Prospectus from the date of their issuance or from the most recent
Interest Payment Date to which interest has been paid or duly provided for.
Interest is payable semiannually (to holders of record at the close of business
on the July 15 and January 15 immediately preceding the Interest Payment Date)
on August 1 and February 1.

REDEMPTION

OPTIONAL REDEMPTION. As of August 1, 1994 the Company at its option may,
at any time, redeem all, or from time to time any part of, the Subordinated
Debentures upon payment of the following redemption price, together with
accrued interest to the date fixed for redemption, if redeemed during the 12
month period commencing:

<TABLE>
<CAPTION>
REDEMPTION
AUGUST PRICES
------ -------------
<S> <C>
1994 105.00%
1995 103.75%
1996 102.50%
1997 101.25%
</TABLE>

and thereafter at 100% of the principal amount.

SELECTION AND NOTICE OF REDEMPTION. Selection of Subordinated Debentures
for any redemption in part will be made by the Trustee in such manner as in its
sole discretion it shall deem fair and appropriate. Notice of redemption to
the holders of Subordinated Debentures to be redeemed as a whole or in part
shall be given by mailing notice of such redemption by first-class mail,
postage prepaid, at least 30 and not more than 60 days prior to the date fixed
for redemption to such holders of Subordinated Debentures at their last
addresses as they shall appear upon the registry books. On and after the
redemption date, interest ceases to accrue on Subordinated Debentures or
portions thereof called for redemption.

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<PAGE> 38
SINKING FUND. The Subordinated Debenture Indenture requires the Company to
provide for the retirement, by redemption, of 25% of the principal amount of
Subordinated Debentures originally issued under the Subordinated Debenture
Indenture or such lesser amount as shall then be outstanding, on each of August
1, 1999 and August 1, 2000 at a redemption price of 100% of the principal
amount thereof, plus accrued interest to the redemption date. Such sinking
fund payments are calculated to retire 50% of the outstanding Subordinated
Debentures prior to maturity. The Company may, at its option, receive credit
against sinking fund payments for the principal amount of Subordinated
Debentures acquired by the Company and surrendered for cancellation or redeemed
otherwise than through operation of the sinking fund.

CERTAIN DEFINITIONS

Set forth below is a summary of certain of the defined terms used in the
Subordinated Debenture Indenture. Reference is made to the Subordinated
Debenture Indenture for the full definition of all such terms as well as any
other capitalized terms used herein for which no definition is provided.

"Acquisition Debt" means Debt of any person existing at the time such
person became a Subsidiary of the Company, including Debt incurred in
connection with, or in contemplation of, such person becoming a Subsidiary of
the Company (but excluding Debt of such person which is extinguished, retired
or repaid in connection with such person becoming a Subsidiary of the Company).

"Additional Bank Credit Amount" means an amount equal to $25,000,000 of
Debt under or in respect of the Credit Agreement.

"Affiliate" means, when used with reference to a specified person, any
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the person specified. For the purposes of this
definition, "control," when used with respect to any person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.

"Agent" means the agent under the Credit Agreement.

"Asset Acquisition" means (i) an investment by the Issuer or any of its
Subsidiaries in any other person pursuant to which such person shall become a
Subsidiary of the Company or any of its Subsidiaries or shall be merged with
the Company or any of its Subsidiaries or (ii) the acquisition by the Company
or any of its Subsidiaries of the assets of any person which constitutes
substantially all of an operating unit or business of such person.

"Asset Sale" means the sale or other disposition (by merger or otherwise)
by the Company or any of its Subsidiaries (other than to Wholly owned
Subsidiaries) of (i) any of the Capital Stock of any of the Company's
Subsidiaries or (ii) substantially all of the assets which constitute
substantially all of an operating unit or business of the Company or any of its
Subsidiaries.

"Average Life" means, as of the date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such debt security multiplied by the
amount of such principal payment by (ii) the sum of all such principal
payments.

"Bank" or "Banks" means any financial institution(s) extending credit to
the Company pursuant to the Credit Agreement.

"Business Day" means each day other than Saturdays, Sundays and days when
commercial banks are authorized to be closed for business in New York, New York
or Hartford, Connecticut.

"Capital Funds Ratio" means, as of the date of determination, the ratio of
(i) the sum of the Net Worth of the Company on such date (including, without
duplication, all Capital Stock of the Company other than Redeemable Stock) plus
the outstanding aggregate amount of Debt of the Company which is subordinated
in right of payment to the Subordinated Debentures and which has a remaining
Average Life equal to or greater than the remaining Average Life of the
Subordinated Debentures to (ii) the Default Amount as provided in the
Subordinated Debenture Indenture which would be due and payable as of the date
of determination.

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<PAGE> 39
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's capital stock now outstanding, including, without limitation, all
Common Stock.

"Capitalized Lease" means, as applied to any person, any lease of any
property (whether real, personal or mixed) the discounted present value of the
rental obligations of such person as lessee under which, in conformity with
generally accepted accounting principles, is required to be capitalized on the
balance sheet of that person.

"Capitalized Lease Obligation" means, as applied to any person, the rental
obligation under any Capitalized Lease.

"Change of Control" means the occurrence of one or more of the following
events: (i) there shall be consummated (x) any consolidation or merger of the
Company with or into another corporation with the effect that the holders of
the Company as of the date hereof are the beneficial owners of less than 51% of
the combined voting power of the outstanding voting securities of the Company
ordinarily having the right to vote in the election of directors or (y) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, the assets of the Company,
as the case may be, except any such sale, lease, exchange or other transfer
made pursuant to the Credit Agreement; (ii) the shareholders of the Company
shall approve any plan or proposal for the liquidation or dissolution of the
Company; and (iii) a person or entity or group of persons or entities acting in
concert as a partnership, limited partnership, syndicate or other group (other
than LBH, BLS, management of the Company or any of their Affiliates (the
"Purchaser Group")) shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchasers or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing 51% or more of the combined voting power
of the outstanding voting securities for the election of directors or shall
have the right to designate a majority of the Board of Directors of the
Company.

"Common Stock" means, with respect to any person, any and all shares,
interests, participations and other equivalents (however designated, whether
voting or non-voting) of such person's common stock, now outstanding,
including, without limitation, all series and classes of such common stock.

"Consolidated Capital Expenditures" means, for any period, the aggregate of
all expenditures incurred (whether paid in cash or accrued as liabilities and
including any Capitalized Lease Obligations) by the Company and its
Consolidated Subsidiaries during such period that, in conformity with generally
accepted accounting principles, are included in the property, plant or
equipment or similar fixed asset account reflected in the consolidated balance
sheet of the Company and its Consolidated Subsidiaries.

"Consolidated Cash Flow" of any person for any period means the
Consolidated Net Income of such person, plus (i) income taxes (other than
income taxes (either positive or negative) attributable to extraordinary,
unusual and non-recurring gains or losses), determined on a consolidated basis
for such person and its Consolidated Subsidiaries in accordance with generally
accepted accounting principles, (ii) Consolidated Fixed Charges (other than
dividends paid on Subsidiary Preferred Stock), (iii) depreciation and
amortization expense, all determined on a consolidated basis for such person
and its Consolidated Subsidiaries in accordance with generally accepted
accounting principles, (iv) any decreases in Consolidated Working Capital and
(v) all other non-cash items reducing Consolidated Net Income for such period,
all determined on a consolidated basis for such person and its Consolidated
Subsidiaries in accordance with generally accepted accounting principles, and
less (i) the aggregate amount actually paid by such person and its Consolidated
Subsidiaries during such period on account of capital expenditures, (ii) any
increases in Consolidated Working Capital during such period and (iii) all
non-cash items increasing Consolidated Net Income during such period.

"Consolidated Fixed Charges" of any person and its Consolidated
Subsidiaries for any period means the aggregate of (i) Interest Expense plus
(ii) the interest component of Capitalized Leases plus (iii) cash and non-cash
dividends paid or payable on any Subsidiary Preferred Stock, less, to the
extent included in Interest Expense, amortization of Debt issuance costs of
such person and its Consolidated Subsidiaries, determined on a consolidated
basis in accordance with generally accepted accounting principles.

"Consolidated Fixed Charge Ratio" means the ratio, on a pro forma basis, of
(i) the aggregate amount of Consolidated Cash Flow of any person for the
Reference Period immediately prior to the date of the transaction giving rise
to the need to calculate the Consolidated Fixed Charge Ratio (the "Transaction
Date") to (ii) the aggregate

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<PAGE> 40
Consolidated Fixed Charges of such person during such Reference Period;
provided that (A) for purposes of such computation, in calculating Consolidated
Cash Flow and Consolidated Fixed Charges, (1) the Incurrence of the Debt giving
rise to the need to calculate the Consolidated Fixed Charge Ratio and the
application of the proceeds therefrom shall be assumed to have occurred on the
first day of the Reference Period, (2) Asset Sales and Asset Acquisitions which
occur during the Reference Period or subsequent to the Reference Period and
prior to the Transaction Date (but including any Asset Acquisition occurring in
connection with the Incurrence of Debt pursuant to (1) above) shall be assumed
to have occurred on the first day of the Reference Period, (3) the Incurrence
of any Debt during the Reference Period or subsequent to the Reference Period
and prior to the Transaction Date and the application of the proceeds therefrom
shall be assumed to have occurred on the first day of such Reference Period,
(4) Interest Expense attributable to any Debt (whether existing or being
Incurred) computed on a pro forma basis and bearing a floating interest rate
shall be computed as if the rate in effect on the date of computation had been
the applicable rate for the entire period unless such person or any of its
Subsidiaries is a party to an Interest Rate Agreement which has the effect of
reducing the interest rate below the rate on the date of computation, in which
case such lower rate shall be used and (5) there shall be excluded from
Consolidated Fixed Charges any Consolidated Fixed Charges related to any Debt
which was outstanding during and subsequent to the Reference Period but is not
outstanding on the Transaction Date ("Repaid Debt"), unless the Company may
again Incur such Repaid Debt in an amount equal to the weighted average amount
of Repaid Debt outstanding during such Reference Period (the "Weighted Average
Amount") pursuant to clauses (i), (iv), (vii), (ix), (xiv), (xv) and (xvii) set
forth under the exceptions to the "Limitation on Debt" covenant, in which case
such Consolidated Fixed Charges shall not be excluded (it being understood that
if the Company can again so Incur an amount of Repaid Debt which is less than
the Weighted Average Amount, then a portion of such Consolidated Fixed Charges
shall be excluded equivalent to a fraction of which the numerator shall be the
difference between the Weighted Average Amount and the amount of such Repaid
Debt which the Company can again so Incur and of which the denominator shall be
the Weighted Average Amount) and (B) in making any calculation of the
Consolidated Fixed Charge Ratio for any period commencing prior to the
Acquisition, the Acquisition and the financing thereof shall be deemed to have
taken place on the first day of such period. For the purposes of making the
computation referred to in clause (A) above, Asset Sales and Asset Acquisitions
which have been made by any person which has become a Subsidiary of the Company
or been merged with or into the Company or any Subsidiary of the Company during
the Reference Period or subsequent to the Reference Period and prior to the
Transaction Date shall be calculated on a pro forma basis (including all of the
calculations referred to in numbers (1) through (5) of clause (A) above)
assuming such Asset Sales or Asset Acquisitions occurred on the first day of
the Reference Period.

"Consolidated Net Income" of any person for any period means the Net Income
of such person and its Consolidated Subsidiaries for such period, determined on
a consolidated basis in accordance with generally accepted accounting
principles; provided that there shall be excluded (i) the Net Income of any
person other than a Consolidated Subsidiary in which such person or any of its
Consolidated Subsidiaries has a joint interest with a third party except to the
extent of the amount of dividends or distributions actually paid to such person
or a Consolidated Subsidiary during such period, (ii) except to the extent
includable pursuant to the foregoing clause (i), the Net Income of any person
accrued prior to the date it becomes a Subsidiary of such person or is merged
into or consolidated with such person or any of its Subsidiaries or that
person's assets are acquired by such person or any of its Subsidiaries, (iii)
the Net Income (if positive) of any Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
to the Company or to any other Consolidated Subsidiary of such Net Income is
not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary and (iv) without duplication, any
gains or losses attributable to asset sales not in the ordinary course of
business (including any sales of Capital Stock).

"Consolidated Subsidiary" of any person means a Subsidiary which for
financial reporting purposes is or, in accordance with generally accepted
accounting principles, should be, accounted for by such person as a
consolidated subsidiary.

"Consolidated Working Capital" of any person at any date means the excess
of current assets (excluding cash and Cash Equivalents) over current
liabilities (excluding the current portion of long-term Debt and short-term
debt) of such person and its Consolidated Subsidiaries at such date, determined
on a consolidated basis in accordance with generally accepted accounting
principles.

"Credit Agreement" means the credit agreement dated as of April 27, 1989,
as amended providing for the $143 million term loan with the Company and the
revolving credit agreement dated as of April 27, 1989, as amended with certain
of the Company's Subsidiaries providing for the $85 million revolving credit
facility together with any security and other related documents, as such
agreements and other documents may be amended, restated or

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supplemented from time to time and includes any agreement extending the
maturity of, or restructuring all or any portion of, the Debt under such
Agreements or any successor agreements and includes any agreement with one or
more banks refinancing or refunding all or any portion of the Debt under such
Agreements or any successor agreements.

"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company against fluctuations in currency values.

"Debt" of any person means, at any date, without duplication, (i) all
obligations of such person for borrowed money, (ii) all obligations of such
person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such person in respect of letters of credit or other
similar instruments (or reimbursement obligations with respect thereto), (iv)
all obligations of such person to pay the deferred purchase price of property
or services, except Trade Payables, (v) all obligations of such person as
lessee under Capitalized Leases, (vi) all Debt of others secured by a Lien on
any asset of such person, whether or not such Debt is assumed by such person,
(vii) all Debt of others Guaranteed by such person and (viii) to the extent not
otherwise included, obligations under Currency Agreements and Interest Rate
Agreements.

"Designated Senior Debt" means (i) Debt under the Credit Agreement
(including the Additional Bank Credit Amount) and (ii) if there is no Debt
outstanding or active commitments to issue Debt under the Credit Agreement, any
other Debt constituting Senior Debt which, at the time of determination has an
aggregate principal amount outstanding of at least $25 million and is
specifically designated in the instrument evidencing such Senior Debt as
"Designated Senior Debt."

"Generally accepted accounting principles" means generally accepted
accounting principles in the United States as in effect as of the date of the
Subordinated Debenture Indenture, including, without limitation, those 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 approved by a significant segment of the
accounting profession; provided, that all ratios and computations based on
generally accepted accounting principles contained in the Subordinated
Debenture Indenture shall be computed in accordance with generally accepted
accounting principles except that calculations made for the purpose of
determining compliance with the terms of the covenants set forth therein and
other provisions of the Subordinated Debenture Indenture shall be made, except
as otherwise provided therein, without giving effect to adjustments in
component amounts required or permitted by Accounting Principles Board Opinions
Nos. 16 and 17 as a result of the Acquisition and for the amortization of any
expenses incurred in connection with the Acquisition or the financing with
respect thereto.

"Guarantee" by any person means any obligation, contingent or otherwise, of
such person directly or indirectly guaranteeing any Debt or other obligation of
any other person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt or other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for the purpose of assuring in any other manner
the obligee of such Debt or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part),
provided that the term Guarantee shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.

"Incurrence" means the incurrence, creation, assumption or in any other
manner becoming liable with respect to, or the extension of the maturity of or
becoming responsible for the payment of, any Debt. "Incur" shall have a
comparable meaning.

"Interest Expense" of any person for any period means interest expense
(including amortization of original issue discount and non-cash interest
payments or accruals) all as determined in accordance with generally accepted
accounting principles.

"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge arrangement, to or under which the Company or
any of its Subsidiaries is a party or a beneficiary on the date hereof or
becomes a party or a beneficiary hereafter.

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"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that, as to any such arrangement in corporate form, such corporation shall not,
as to any person of which such corporation is a Subsidiary, be considered to be
a Joint Venture to which such person is a party.

"Lien" means, with respect to any Property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
Property. For the purposes of this Agreement, the Company shall be deemed to
own subject to a Lien any Property which it has acquired or holds subject to
the interest of a vendor or lessor under any conditional sale agreement,
Capital Lease or other title retention agreement relating to such Property.

"LIDS Joint Venture" means a joint venture between Aircraft Braking Systems
and Loral Information Defense System Division, which joint venture may be in
partnership, corporate or other business entity form, and any successor joint
venture.

"Material Subsidiary" of any person means, as of any date, any Subsidiary
of such person (a) the value of whose assets, as such assets would appear on a
consolidated balance sheet of such Subsidiary and its Consolidated Subsidiaries
prepared as of the end of the fiscal quarter next preceding such determination
in accordance with generally accepted accounting principles, is at least 10% of
the value of the assets of such person and its Consolidated Subsidiaries,
determined as aforesaid, or (b) whose Consolidated Cash Flow for the most
recently completed fiscal quarter next preceding such date was at least 10% of
the Consolidated Cash Flow of such person for such fiscal quarter.

"Net Cash Proceeds" from a sale, transfer or other disposition of
properties or assets means cash payments received (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received (including
any cash received upon sale or disposition of such note or receivable),
excluding any other consideration received in the form of assumption by the
acquiring person of Debt or other obligations relating to such properties or
assets or received in any other non-cash form) therefrom, in each case, net of
all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be accrued as a liability under generally accepted accounting
principles, as a consequence of such sale, transfer or other disposition
(including any taxes attributable to the assets sold arising pursuant to any
election or action taken for income tax purposes in connection with or relating
to the Acquisition), and in each case net of appropriate amounts to be provided
by the Company as a reserve, in accordance with generally accepted accounting
principles, against any liabilities associated with such assets and retained by
the Company or any Subsidiary after such sale or other disposition thereof,
including, without limitation, pension and other post-employment benefit
liabilities and liabilities related to environmental matters and the
after-tax-cost of any indemnification payments (fixed and contingent)
attributable to seller's indemnities to the purchaser undertaken by the Company
or any of its Subsidiaries in connection with such sale or disposition and net
of all payments made on any Debt which is secured by such assets, in accordance
with the terms of any Lien upon or with respect to such assets or which must by
its terms, or in order to obtain a necessary consent to such asset disposition,
or by applicable law be repaid out of the proceeds from such sale, transfer or
other disposition, and net of all distributions and other payments made to
minority interest holders in Subsidiaries or Joint Ventures as a result of such
sale, transfer or other disposition.

"Net Worth" of any person means as of any date the aggregate of capital,
surplus and retained earnings of such person and its Consolidated Subsidiaries
as would be shown on a consolidated balance sheet of such person and its
Consolidated Subsidiaries prepared as of such date in accordance with generally
accepted accounting principles plus, without duplication, all Capital Stock
(other than Redeemable Stock) not otherwise included in Net Worth in accordance
with generally accepted accounting principles.

"Permitted Payments" means with respect to the Company or any of its
Subsidiaries (i) any dividend on shares of Capital Stock payable solely in
shares of Capital Stock (other than Redeemable Stock) or in options, warrants
or other rights to purchase Capital Stock (other than Redeemable Stock); (ii)
any dividend payable to the Company by any of its Subsidiaries or by a
Subsidiary to another Subsidiary; (iii) the repurchase or other acquisition or
retirement for value of any shares of the Company's Capital Stock with
additional shares of, or out of the proceeds of a substantially contemporaneous
issuance of, Capital Stock (other than Redeemable Stock); (iv) any defeasance,
redemption, repurchase or other acquisition for value of any Debt which is
subordinate to the Subordinated Debentures with the proceeds from the issuance
of (x) Debt which is subordinate to the Subordinated Debentures at least to the
extent and in the manner as the Debt to be defeased, redeemed, repurchased or
otherwise acquired is subordinate to the Securities; provided that such new
subordinated Debt provides for no payments of principal by way of a sinking

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fund, mandatory redemption or otherwise (including defeasance or at the option
of the holder) prior to the maturity of the Debt being replaced and the
proceeds of such new subordinated Debt are utilized for such purpose within 90
days of issuance or (y) Capital Stock (other than Redeemable Stock); (v)
investments, loans or advances to Restricted Subsidiaries in an aggregate
amount at any time not to exceed $20 million and (vi) the repurchase of shares
of, or options to purchase shares of, the Company's Common Stock held by
employees of the Company (other than BLS) or any of its subsidiaries pursuant
to the forms of agreements under which such employees purchase, or are granted
the option to purchase, shares of the Company's Common Stock.

"Redeemable Stock" means, with respect to any person, any class or series
of Capital Stock which is redeemable at the option of the holder or is subject
to mandatory redemption prior to August 1, 2001.

"Reference Period" means the four fiscal quarters for which financial
information is available preceding the date of a transaction giving rise to the
need to make a financial calculation.

"Restricted Payment" means with respect to any person (i) any dividend or
other distribution on any shares of such person's Capital Stock, (ii) any
payment on account of the purchase, redemption, retirement or other acquisition
of (a) any shares of such person's Capital Stock or (b) any option, warrant or
other right to acquire shares of such person's Capital Stock, or (iii) any
defeasance, redemption, repurchase or other acquisition or retirement for value
prior to scheduled maturity of any Debt ranked pari passu or subordinate in
right of payment to the Subordinated Debentures and having a maturity date
subsequent to the maturity of the Subordinated Debentures or (iv) any
investment, loan or advance to any Restricted Subsidiary. Notwithstanding the
foregoing, "Restricted Payment" shall not include any Permitted Payment.

"Restricted Subsidiary" means (i) any Joint Venture in which the Company or
any of its Subsidiaries holds a 50% or less interest or (ii) any Subsidiary
that is subject to consensual restrictions, direct or indirect (other than
pursuant to the Credit Agreement), on the declaration or payment of dividends
or similar distributions by that Subsidiary to the Issuer or any Consolidated
Subsidiary of the Issuer.

"Senior Debt" means (i) all Debt and other monetary obligations (whether
now existing or hereafter incurred) of the Company on, under or in respect of,
the Credit Agreement (including the Additional Bank Credit Amount), and
including all fees, expenses (including reasonable fees and expenses of
counsel), claims, charges, indemnity obligations and interest accruing
subsequent to the filing of a petition initiating any proceeding in bankruptcy,
insolvency or like proceeding whether or not such interest is an allowed claim
enforceable against the debtor in a bankruptcy case under Title 11 of the
United States Code; (ii) all other Debt of the Company (other than the
Subordinated Debentures), whether presently outstanding or hereafter created,
incurred or assumed, unless such Debt, by its terms or the terms of the
instrument creating or evidencing it is subordinate in right of payment to or
pari passu with the Subordinated Debentures and (iii) obligations of the
Company under any Interest Rate Agreement or Currency Agreement; provided that
the term Senior Debt shall not include (a) any Debt of the Company which when
incurred and without respect to any election under Section 1111(b) of the
Bankruptcy Code, was without recourse to the Company, (b) any Debt of the
Company to any of its Subsidiaries, (c) any Debt of the Company not otherwise
permitted by the "Limitation on Debt" and "Limitation on Issuance of other
Subordinated Debt Senior to the Subordinated Debentures" covenants, (d) Debt to
any employee of the Company, (e) any liability for taxes and (f) Trade
Payables.

"Subsidiary" means, with respect to any person, any corporation or other
entity of which a majority of the Capital Stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such person.

"Subsidiary Preferred Stock" with respect to any person means any series of
Preferred Stock issued by a Subsidiary of such person.

"Wholly owned Subsidiary" means with respect to any person a Subsidiary the
voting stock of which is more than 90% owned by such person.

SUBORDINATION

The payment of principal of and interest on the Subordinated Debentures is
subordinated in right of payment, as set forth in the Subordinated Debenture
Indenture, to the prior payment in full of all Senior Debt.

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Upon any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution or winding up or total or partial liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Debt (including in certain instances any interest accruing subsequent to
an event of bankruptcy whether or not such interest is an allowed claim
enforceable against the debtor under the United States bankruptcy code) shall
first be paid in full in cash or cash equivalents, or payment provided for in
cash or Cash Equivalents, before the Holders or the Trustee on behalf of the
Holders shall be entitled to receive any payment by the Company of the
principal of, premium, if any, or interest on the Subordinated Debentures, or
to acquire or redeem any of the Subordinated Debentures for cash or property.
Before any payment may be made by, or on behalf of, the Company of the
principal of, premium, if any, or interest on the Subordinated Debentures upon
any such dissolution, winding up, liquidation or reorganization, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the Holders of the Subordinated
Debentures or the Trustee on their behalf would be entitled, but for the
subordination provisions of the Subordinated Debenture Indenture, shall be made
by the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, directly to the
holders of the Senior Debt (pro rata to such holders on the basis of the
respective amounts of Senior Debt held by such holders) or their
representatives or to the trustee or trustees under any indenture pursuant to
which any of such Senior Debt may have been issued, as their respective
interests may appear, to the extent necessary to pay all such Senior Debt in
full in cash or Cash Equivalents after giving effect to any concurrent payment,
distribution or provision therefor, to or for the holders of such Senior Debt.

If any default in the payment of any principal of or interest on any Senior
Debt when due and payable, whether at maturity, upon any redemption, by
declaration or otherwise, occurs and is continuing, no payment shall be made by
the Company with respect to the principal of or interest on, or other amounts
owing with respect to, the Subordinated Debentures, or to redeem or acquire any
of the Subordinated Debentures for cash or property or otherwise. If any event
of default (other than a default in payment of the principal of or interest on
any Designated Senior Debt) occurs and is continuing (or if such an event of
default would occur upon any payment of any kind or character with respect to
the Subordinated Debentures), as such event of default is defined in such
Designated Senior Debt, permitting the holders thereof to accelerate the
maturity thereof and if the holder or holders or a representative of such
holder or holders gives written notice of the event of default to the Company
and the Trustee (a "Default Notice"), then, unless and until such event of
default has been cured or waived or has ceased to exist or the Trustee receives
notice from the holder or holders of the relevant Designated Senior Debt (or a
representative of such holder or holders) terminating the Blockage Period (as
defined below), during the 179 day period after the delivery of such Default
Notice (the "Blockage Period"), the Company, or any person acting on its
behalf, shall not, (x) make any payment of or with respect to the principal of
or interest on, the Subordinated Debentures or (y) acquire any of the
Subordinated Debentures for cash or property or otherwise. At the expiration
of such Blockage Period, the Company shall, as set forth in the Subordinated
Debenture Indenture, promptly pay to the Trustee all sums which the Company
would have been obligated to pay during such Blockage Period but for this
paragraph. Only one such Blockage Period may be commenced within any 360
consecutive days. For all purposes of this paragraph, no event of default
which existed or was continuing with respect to the Designated Senior Debt to
which the Blockage Period relates on the date such Blockage Period commenced
shall be or be made the basis for the commencement of any subsequent Blockage
Period by the holder or holders of such Designated Senior Debt (or a
representative of such holder or holders) unless such event of default is cured
or waived for a period of not less than 90 consecutive days.

CERTAIN COVENANTS

The Subordinated Debenture Indenture contains, among others, the following
covenants.

LIMITATION ON DEBT. The Company shall not, and shall not permit any of its
Subsidiaries to, Incur any Debt, including Acquisition Debt, unless the
Consolidated Fixed Charge Ratio of the Company would be greater than 1.50 to 1
through March 31, 1996 and 1.75 to 1 thereafter.

Notwithstanding the foregoing, the Company and its Subsidiaries may Incur
each and all of the following: (i) Debt under or in respect of the Credit
Agreement in an aggregate principal amount not to exceed the sum of (A)
$243,000,000 less (x) any scheduled principal payments pursuant to the Term
Loan (as set forth in the Credit Agreement) actually made by the Company and
(y) any amounts by which the Revolving Credit Facility commitments are
permanently reduced and (B) an amount (the "Additional Bank Credit Amount")
equal to $25,000,000; (ii) Debt

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evidenced by the Subordinated Debentures, the Convertible Subordinated
Debentures and the obligations under the indentures with respect thereto; (iii)
Debt of the Company to any of its Wholly owned Subsidiaries, or of a Wholly
owned Subsidiary to the Company or to a Wholly owned Subsidiary, except that
any subsequent issuance or transfer of any Capital Stock which results in any
such Wholly owned Subsidiary ceasing to be a Wholly owned Subsidiary or any
transfer of such Debt by any Wholly owned Subsidiary will, in each case, be
deemed an Incurrence of Debt by the Company or any such Wholly owned
Subsidiary; (iv) Debt under Currency Agreements and Interest Rate Agreements,
provided that in the case of Currency Agreements which relate to Debt (other
than Debt incurred under the Credit Agreement), such Currency Agreements do not
increase the Debt of the Company or any of its Subsidiaries outstanding other
than as a result of fluctuations in foreign currency exchange rates or by
reason of fees, indemnities and compensation payable thereunder; (v) Debt the
proceeds of which are used to refinance outstanding Debt of the Company or any
of its Subsidiaries in an amount (or, if such new Debt provides for an amount
less than the principal amount thereof to be due and payable upon a declaration
of acceleration thereof, with an original issue price) not to exceed the amount
so refinanced (plus accrued interest and fees and expenses), provided that Debt
the proceeds of which are used to refinance the Subordinated Debentures or
other Debt of the Company which is subordinated in right of payment to the
Subordinated Debentures shall only be permitted (1) if, in case the
Subordinated Debentures are refinanced in part, such new Debt is expressly made
pari passu or subordinate in right of payment to the remaining Subordinated
Debentures (2) if, in case the Debt to be refinanced is subordinate to the
Subordinated Debentures such new Debt is subordinated to the Subordinated
Debentures at least to the extent and in the manner that the Debt to be
refinanced is subordinated to the Subordinated Debentures and (3) if, in case
the Subordinated Debentures are refinanced in part or the Debt to be refinanced
is subordinated to the Subordinated Debentures, such new Debt does not mature
prior to the final scheduled maturity date of the Subordinated Debentures and
the Average Life of such new Debt is equal to or greater than the remaining
Average Life of the Securities; and, provided, further, that (A) in no event
may Debt of the Company (other than Senior Debt) be refinanced by means of Debt
of any Subsidiary of the Company pursuant to this clause (v) or (B) any Debt
incurred in connection with any extension, renewal or replacement of the Debt
referred to in clause (xvi) below shall be subordinate in right of payment to
all other Debt of the Company to the same extent as the Debt being extended,
renewed or replaced; (vi) Debt which by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt is issued, (1) is
subordinate to the Subordinated Debentures at least to the extent and in the
manner the Subordinated Debentures are subordinate to Senior Debt, and (2)
provides that no payments of principal of such Debt by way of sinking fund,
mandatory redemption or otherwise (including defeasance) may be made by the
Company (including, without limitation, at the option of the holder thereof) at
any time prior to the maturity of the Securities, provided, however, that after
giving effect to the Incurrence of such Debt, the Consolidated Fixed Charge
Ratio of the Company would be at least 1.50 to 1; (vii) Debt under Guarantees
in respect of obligations of Joint Ventures in an aggregate principal amount
not to exceed $20 million at any one time; (viii) (A) Debt incurred to finance
the purchase or construction of property, plant or equipment which will be
treated as Consolidated Capital Expenditures of the Company so long as such
Debt is secured by a Lien on the property, plant or equipment so purchased or
constructed and such Debt does not exceed the value of the property, plant or
equipment so purchased or constructed and such Lien shall not extend to or
cover other assets of the Company or any of its Subsidiaries other than the
property, plant or equipment so purchased or constructed and the real property,
if any, on which the property so constructed or so purchased, is situated and
the accessions, attachments, replacements and improvements thereto or (B) Debt
Incurred in connection with any lease financing transaction (whether such lease
will be treated as an operating or capital lease in accordance with generally
accepted accounting principles) and the aggregate of the Debt Incurred pursuant
to clauses (A) and (B) does not exceed $15 million during any fiscal year (such
amount is referred to as the "Maximum Amount"); provided that the Maximum
Amount for each year shall be increased by the excess if any, of (a) $30
million over (b) Consolidated Capital Expenditures for the immediately
preceding two years; (ix) Debt under Guarantees of liabilities of employees,
not to exceed $1 million at any one time; (x) obligations under trade letters
of credit incurred in the ordinary course of business, which are to be repaid
in full not more than one year after the date on which such Debt is originally
incurred to finance the purchase of goods by the Company or a Subsidiary of the
Company; (xi) obligations under standby letters of credit issued for the
purpose of supporting (a) workers' compensation liabilities of the Company or
any of its Subsidiaries as required by law, (b) obligations with respect to
leases of the Company or any of its Subsidiaries, (c) performance, payment,
deposit or surety obligations of the Company or any of its Subsidiaries or (d)
environmental liabilities of the Company or any of its Subsidiaries as required
by law, not exceeding an aggregate amount of $15 million at any one time
outstanding in addition to any amounts required by law; provided that in each
case such standby letters of credit are obtained in the ordinary course of
business; (xii) Debt to repurchase shares, or cancel options to purchase
shares, of the Company's Common Stock held by employees of the Company (other
than BLS) or any of its Subsidiaries pursuant to the forms of agreements under
which such employees purchase shares of the Company's Common Stock; (xiii) Debt
of the Company and its Subsidiaries which is outstanding at the Closing Date
and which remains outstanding after consummation of the Acquisition; (xiv) Debt
in an aggregate amount at any

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one time not to exceed $15 million in respect of performance bonds and surety
bonds provided in the ordinary course of business, and refinancings thereof;
(xv) Debt in an aggregate amount not to exceed $5 million at any one time under
Guarantees of Debt incurred in the ordinary course of business of suppliers,
licensees, franchisees, or customers; (xvi) Debt incurred to satisfy any
purchase price adjustment in respect of the Acquisition; (xvii) Debt (other
than Debt permitted under clauses (i) through (xvi) above), provided that the
aggregate principal amount of such Debt shall not exceed $25,000,000 at any
time outstanding, including any extension, renewal or replacement thereof.

For purposes of determining any particular amount of Debt, Guarantees of
(or obligations with respect to letters of credit supporting) Debt otherwise
included in the determination of such amount shall not be included. For the
purpose of determining compliance, (A) in the event that an item of Debt meets
the criteria of more than one of the types of Debt described in the above
clauses, the Company, in its sole discretion, shall classify such item of Debt
and only be required to include the amount and type of such Debt in one of such
clauses, and (B) the amount of Debt issued at a price which is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in accordance with generally accepted accounting
principles.

LIMITATION ON RESTRICTED PAYMENTS. On and after the date of the
Subordinated Debenture Indenture, the Company will not, and will not permit any
Subsidiary to, make any Restricted Payment, if, after giving effect thereto:

(a) an Event of Default, or an event that through the passage of time
or the giving of notice, or both, would become an Event of Default, shall
have occurred and be continuing; or

(b) the aggregate amount of all Restricted Payments (together with
any amounts paid pursuant to clauses (v) and (vi) of the definition of
Permitted Payments or pursuant to the proviso below) made by the Company
and its Subsidiaries (the amount expended or distributed for such purposes,
if other than in cash, to be valued at its fair market value as determined
in good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a resolution of the Board of Directors), from
and after the date hereof shall exceed the sum (without duplication) of:

(i) the aggregate of 50% of Consolidated Net Income of the
Company accrued for the period (taken as one accounting period)
commencing with the first full fiscal quarter after the date of
original issuance of the Subordinated Debentures hereunder to and
including the fiscal quarter ended immediately prior to the date of
such calculation; provided that if Consolidated Net Income for such
period is less than zero, then minus 100% of the amount of such loss;
and

(ii) the aggregate net proceeds, including the fair market
value of property other than cash (as determined in good faith by the
Board of Directors, whose determination shall be conclusive and
evidenced by a resolution of the Board of Directors), received by the
Company from the issuance or sale (other than to a Subsidiary) of its
Capital Stock after the date hereof (including Capital Stock issued
upon conversion of, or exchange for, securities other than its Capital
Stock), and warrants and rights to purchase its Capital Stock, but
excluding the net proceeds from the issuance, sale, exchange,
conversion or other disposition of (x) its Capital Stock convertible
(whether at the option of the Company or the holder thereof or upon
the happening of any event) into any security other than its Capital
Stock and (y) its Capital Stock which may be mandatorily redeemed
(whether at the option of the Company or the holder thereof or upon
the happening of any event) earlier than payment in full of the
Subordinated Debentures;

provided that the foregoing clause (b) shall not prevent (i) the payment of any
dividend within 60 days after the date of its declaration if such dividend
could have been made on the date of its declaration without violation of the
provisions stated herein or (ii) redemptions or repurchases of (x) the
Subordinated Debentures or other Debt of the Company which is pari passu or
subordinated in right of payment to the Subordinated Debentures and which was
scheduled to mature on or after the maturity date of the Subordinated
Debentures or (y) Capital Stock, provided that this clause (ii) shall only be
applicable to any such redemption or repurchase, if after giving effect to such
redemption or repurchase, the Company could incur at least $1.00 of Debt
pursuant to the first paragraph of the "Limitation on Debt" covenant and the
Company would have a Capital Funds Ratio equal to or greater than 1.25 to 1.00
(provided, however, that no redemptions or repurchases may be effected pursuant
to this clause (ii) if, after giving effect to such redemption or repurchase,
the Net Worth of the Company, plus the aggregate amount of Debt of the Company
which is subordinated to the Subordinated Debentures and which has an Average
Life equal to or greater than the remaining Average Life of the Subordinated
Debentures is less than or equal to $65 million. Notwithstanding clause
(b)(ii) above

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(x) the aggregate net proceeds received by the Company from the issuance of its
Capital Stock upon the conversion of, or exchange for, securities evidencing
Debt of the Company shall be calculated on the assumption that the gross
proceeds from such issuance are equal to the aggregate principal amount of the
Debt evidenced by such securities converted or exchanged, (y) the aggregate net
proceeds received by the Company upon the conversion or exchange of other
securities of the Company shall be equal to the aggregate net proceeds of the
original sale of the securities so converted or exchanged if such proceeds of
such original sale were not previously included in any calculation for this
purpose plus any additional sums payable upon conversion or exchange and (z) in
connection with the sale of any Capital Stock for property other than cash, the
Company shall obtain a written opinion of an Independent Financial Advisor
stating that the terms of such transaction are fair to the Company from a
financial point of view.

RESTRICTIONS ON DISPOSITION OF ASSETS OF THE COMPANY. Subject to the
provisions as set forth in the Subordinated Debenture Indenture, the Company
will not, and will not permit any of its Subsidiaries to, sell, transfer or
otherwise dispose of, in any consecutive 12-month period, any assets (including
by way of sale-and-leaseback), other than in the ordinary course of business
and other than to the Company or a Wholly owned Subsidiary of the Company, or
all or substantially all of the Capital Stock of any Subsidiary directly or
indirectly owned by the Company, other than to a Wholly owned Subsidiary of the
Company, with an aggregate fair market value of greater than $5,000,000, unless
(i) the Company (or the Subsidiary, as the case may be) receives consideration
at the time of such sale or other disposition at least equal to the fair market
value (as determined in good faith by the Board of Directors) of the shares or
assets sold or otherwise disposed of, (ii) not less than 70% of the
consideration received by the Company (or the Subsidiary, as the case may be)
is in the form of cash or Cash Equivalents and (iii) the Net Cash Proceeds of
the sale, transfer or other disposition of such assets or Capital Stock in
excess of $5,000,000 are either (x) invested in the business or businesses of
the Company or any of its Subsidiaries or any business related to any business
then conducted by the Company or any of its Subsidiaries or any business
related to the aircraft industry or are used for working capital purposes;
provided that any investment in a business related to any business then
conducted by the Company or any of its Subsidiaries or any business related to
the aircraft industry shall be made only if (A) the investment is to be made in
any person and such person will become a Wholly owned Subsidiary subsequent to
such investment or (B) the Company or one of its Subsidiaries will acquire the
assets of any person which constitutes substantially all of an operating unit
or business of such person and (C) in each case, such investment is committed
to be made within 6 months from the later of the date of such sale or the
receipt of the Net Cash Proceeds or (y) to the extent that such Net Cash
Proceeds are not actually applied in accordance with clause (x), or, if after
being so applied there remain Net Cash Proceeds, to the payment of the
principal of and interest on any Senior Debt of the Company or, in the case of
any such sale, transfer or other disposition by a Subsidiary, any payment of
Debt of such Subsidiary or any other Wholly owned Subsidiary (other than Debt
owed to the Company or another Wholly owned Subsidiary) and in connection with
any such payment, any related loan commitment shall be reduced in an amount
equal to the principal amount so repaid. In the case of (y) above, the Net
Cash Proceeds are to be applied within three months of the expiration of the
six month period referred to in clause (x) above. To the extent such Net Cash
Proceeds are not applied in accordance with clause (x) or (y) above within 9
months of the later of the date of such sale or the receipt of the Net Cash
Proceeds, the Company will make an Offer (as defined below) to purchase the
Subordinated Debentures pursuant to and subject to the conditions set forth in
the following paragraph and such Net Cash Proceeds will be referred to as
"Excess Proceeds".

In the event Excess Proceeds are required to be applied to the purchase of
Subordinated Debentures, the Company will offer to purchase Subordinated
Debentures tendered pursuant to a tender offer by the Company (the "Offer") at
a purchase price equal to the principal amount of the Subordinated Debentures,
plus accrued interest, (subject to proration in the event of oversubscription).
If the aggregate purchase price of Subordinated Debentures tendered pursuant to
the Offer is less than the Excess Proceeds allotted to the purchase of the
Subordinated Debentures, the Company may apply the remaining Excess Proceeds
for general corporate purposes. The Company will not be required to make an
Offer for Subordinated Debentures if the Excess Proceeds available therefor are
less than $10,000,000 (which lesser amounts will be carried forward and
cumulated for each 36 consecutive month periods for purposes of determining
whether an Offer is required with respect to any Excess Proceeds from any
subsequent disposition or dispositions).

The Company will make such Offer by mailing to each Holder, within 90 days
after the date on which Excess Proceeds exceed $10,000,000, a written notice
specifying the purchase date, which shall be not less than 30 days nor more
than 60 days after the date of such notice (the "Purchase Date"). Holders
electing to have their Subordinated Debentures purchased will be required to
surrender such Subordinated Debentures at least one Business Day prior to the
Purchase Date. If at the expiration of the offer period the aggregate
principal amount of Subordinated Debentures surrendered by Holders exceeds the
amount available to purchase Subordinated Debentures, the Company will select
the Subordinated Debentures to be purchased on a pro rata basis.

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In the event the Company is unable to purchase Subordinated Debentures from
Holders in an Offer because of provisions of applicable law or of the Company's
loan agreements, indentures or other contracts, the Company need not make an
Offer. The Company shall then be obligated to use the Excess Proceeds as
working capital or invest the Excess Proceeds in replacement properties and
assets, as described above.

LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not permit any Subsidiary to,
create, assume or otherwise cause or suffer to exist or to become effective any
consensual encumbrance or restriction on the ability of any Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock; (b) make
payments in respect of any Debt owed to the Company or any of the Company's
Subsidiaries; (c) make loans or advances to the Company or any of the Company's
Subsidiaries; or (d) transfer any of its assets to the Company or any of the
Company's Subsidiaries, other than (i) those required by the Credit Agreement
as in effect on the date of the Subordinated Debenture Indenture or the
Subordinated Debentures (or the Subordinated Debenture Indenture), (ii) terms
relating to the nonassignability of any operating lease, (iii) consensual
encumbrances or restrictions which are no less favorable to the Company than
those required by the Credit Agreement as in effect on the date of the
Subordinated Debenture Indenture in connection with any refinancing of Debt
incurred under the Credit Agreement or (iv) consensual encumbrances or
restrictions binding upon any person at the time such person becomes a
Subsidiary of the Company or (v) any restrictions with respect to a Subsidiary
of the Company imposed pursuant to an agreement which has been entered into for
the sale or disposition of all or substantially all of the capital stock or
assets of such Subsidiary.

LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. The Company will not permit
any Subsidiary to create, assume or otherwise cause or suffer to exist any
Subsidiary Preferred Stock except: (a) Subsidiary Preferred Stock outstanding
on the date of the Subordinated Debenture Indenture; (b) Subsidiary Preferred
Stock issued to and held by the Company or a Wholly owned Subsidiary, except
that any subsequent issuance or transfer of any Capital Stock which results in
any Wholly owned Subsidiary ceasing to be a Wholly owned Subsidiary or any
transfer of such Subsidiary Preferred Stock by any Wholly owned Subsidiary
will, in each case, be deemed an issuance of Subsidiary Preferred Stock under
the Subordinated Debenture Indenture required to satisfy the terms thereof; (c)
Subsidiary Preferred Stock issued by a person prior to the time (i) such person
became a Subsidiary, (ii) such person merges with or into a Subsidiary or (iii)
another Subsidiary merges with or into such person (in a transaction in which
such person becomes a Subsidiary), in each case if such Preferred Stock was not
incurred in anticipation of such transaction; (d) Preferred Stock which is
exchanged for, or the proceeds of which are used to refinance, any Preferred
Stock permitted to be outstanding pursuant to clauses (a) through (c) (or any
extension, renewal or refinancing thereof), having a liquidation preference not
to exceed the liquidation preference of the Preferred Stock so exchanged or
refinanced; and (e) additional Subsidiary Preferred Stock having a liquidation
preference at any one time outstanding not in excess of $1,000,000.

LIMITATIONS ON LIENS. The Company may not incur any Debt (i) which is, by
the terms of the instrument creating or evidencing such Debt or pursuant to
which it is outstanding, subordinated in right of payment to any other Debt and
(ii) which is secured, directly or indirectly, with a Lien on the Property or
assets of the Company or any Subsidiary unless the Subordinated Debentures are
equally and ratably secured, except for any such Debt secured by Liens on the
assets of any entity existing at the time such assets are acquired by the
Company or any of its Subsidiaries, whether by merger, consolidation, purchase
of assets or otherwise; provided that such Liens (x) are not created, incurred
or assumed in connection with, or in contemplation of, such assets being
acquired by the Company or any of its Subsidiaries and (y) do not extend to any
other Property of the Company or any of its Subsidiaries.

TRANSACTIONS WITH AFFILIATES. So long as any of the Subordinated
Debentures remain outstanding, neither the Company nor any of its Subsidiaries
will directly or indirectly enter into any transaction involving aggregate
consideration in excess of $500,000 with any Affiliate or holder of 5% or more
of any class of Capital Stock of the Company (including any Affiliates of such
holders) except for transactions (including any loans or advances by or to any
Affiliate) in good faith the terms of which are fair and reasonable to the
Company or such Subsidiary, as the case may be, and are at least as favorable
as the terms which could be obtained by the Company or such Subsidiary, as the
case may be, in a comparable transaction made on an arm's length basis with
persons who are not such a holder, an Affiliate of such holder or Affiliate of
the Company; provided that any such transaction shall be conclusively deemed to
be on terms which are fair and reasonable to the Company or any of its
Subsidiaries and on terms which are at least as favorable as the terms which
could be obtained on an arm's length basis with persons who are not such a
holder, an Affiliate of such holder or Affiliate of the Company if such
transaction is approved by a majority of the Company's directors (including a
majority of the Company's independent directors, if any); and provided further
that with respect to the purchase or disposition of assets of the Company or
any of its Subsidiaries having a net book value in excess

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of $5 million, if the Company does not have any independent directors, in
addition to approval of its board of directors, the Company shall obtain a
written opinion of an Independent Financial Advisor stating that the terms of
such transaction are fair and reasonable to the Company or its Subsidiary, as
the case may be, and are at least as favorable to the Company or such
Subsidiary, as the case may be, as could have been obtained on an arm's length
basis with persons who are not such a holder, an Affiliate of such holder or
Affiliate of the Company. This covenant shall not apply to (a) any transaction
between the Company and LBH, or any Affiliate thereof relating to the
Acquisition, the Subordinated Debenture Indenture or the financing thereof
(including the issuance of the Subordinated Debentures) or the payment of fees
to any of the foregoing for financial and consulting services, (b) transactions
between the Company or any of its Subsidiaries and any employee or director of,
or consultant to, the Company or any of its Subsidiaries that are approved by
the Board of Directors, (c) the payment of reasonable and customary regular
fees to directors of the Company, (d) any transaction between the Company and
any of its Wholly owned Subsidiaries or between any of its Wholly owned
Subsidiaries, (e) any transaction between the Company or any of its
Subsidiaries and Loral as required by the Acquisition Agreement or with respect
to the Convertible Subordinated Debentures, (f) transactions with or relating
to the LIDS Joint Venture or (g) any Restricted Payment not otherwise
prohibited by the "Limitation on Restricted Payments" covenant.

LIMITATION ON ISSUANCE OF OTHER SUBORDINATED DEBT SENIOR TO THE
SUBORDINATED DEBENTURES. The Company will not incur or suffer to exist any
Debt, other than Debt evidenced by or incurred in connection with the
Subordinated Debentures that is subordinate in right of payment to any Senior
Debt unless such Debt, by its terms or the terms of the instrument creating or
evidencing it, is pari passu with or subordinate in right of payment to the
Subordinated Debentures and no payments of principal of such Debt by way of
sinking fund, mandatory redemption or otherwise (including defeasance) may be
made by the Company (including without limitation at the option of the holder
thereof) at any time prior to the maturity of the Subordinated Debentures.

CHANGE OF CONTROL. (a) Upon a Change of Control, each Holder of the
Subordinated Debentures shall have the right to require that the Company (or
its successor or transferee) repurchase such Holder's Subordinated Debentures
at a repurchase price in cash equal to 101% of the principal amount of the
Subordinated Debentures plus, accrued and unpaid interest, if any, to the date
of repurchase, in accordance with the terms contemplated in paragraph (b)
below.

(b) Within 30 days following any Change of Control, the Company (or its
successor or transferee) shall mail a notice to each Holder with a copy to the
Trustee stating:

(1) that a Change of Control has occurred and that such Holder has the
right to require the Company (or its successor or transferee) to repurchase
such Holder's Subordinated Debentures at a repurchase price in cash equal
to 101% of the principal amount of the Subordinated Debentures plus accrued
and unpaid interest, if any, to the date of repurchase;

(2) the circumstance and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such Change in
Control);

(3) the repurchase date (which shall be not earlier than 30 days or
later than 60 days from the date such notice is mailed); and

(4) the instructions determined by the Company (or its successor or
transferee), consistent with this Section, that a Holder must follow in
order to have its Subordinated Debentures repurchased.

(c) Holders electing to have Subordinated Debentures repurchased will be
required to surrender the Subordinated Debentures, with an appropriate form
duly completed, to the Company (or its successor or transferee) at the address
specified in the notice at least 10 Business Days prior to the repurchase date.
Holders will be entitled to withdraw their election if the Trustee or the
Company (or its successor or transferee) receives not later than three Business
Days prior to the repurchase date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Subordinated Debentures which was delivered for purchase by the Holder and a
statement that such Holder is withdrawing his election to have such
Subordinated Debentures repurchased.

(d) On the repurchase date, all Subordinated Debentures repurchased by the
Company (or its successor or transferee) under this Section shall be delivered
by the Trustee for cancellation, and the Company (or its successor or
transferee) shall pay the purchase price plus accrued and unpaid interest, if
any, to the Holders entitled thereto.

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<PAGE> 50
MERGER, CONSOLIDATION OR SALE OF ASSETS

The Company may not consolidate or merge with or into, or sell, lease,
convey or otherwise dispose of all or substantially all of its assets to, any
person (other than a merger with or into a Wholly owned Subsidiary provided
that such Wholly owned Subsidiary is not organized in a foreign jurisdiction)
unless (a) the person formed by or surviving any such consolidation or merger
(if other than the Company), or to which such sale, lease, conveyance or other
disposition shall have been made, is a corporation organized and existing under
the laws of the United States, any state thereof or the District of Columbia;
(b) the corporation formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, lease, conveyance or other
disposition shall have been made, assumes by supplemental indenture all the
obligations of the Company on the Subordinated Debentures and the Subordinated
Debenture Indenture; (c) immediately after the transaction no Event of Default
or event or condition which through the giving of notice or lapse of time or
both would become an Event of Default shall have occurred and be continuing;
(d) immediately after giving effect to such transaction on a pro forma basis,
the Consolidated Net Worth of the Company or the surviving entity would be at
least equal to the Consolidated Net Worth of the Company immediately prior to
such transaction; (e) immediately after giving effect to such transaction on a
pro forma basis, the Consolidated Fixed Charge Ratio of the surviving entity
would be at least 1 to 1; provided that if the Consolidated Fixed Charge Ratio
of the Company immediately prior to and without giving effect to such
transaction would be within the range set forth in column (A) below, then the
pro forma Consolidated Fixed Charge Ratio of the Company or the surviving
entity shall be at least equal to the percentage of the Consolidated Fixed
Charge Ratio of the Company set forth in column (B):

and provided, further, that if the pro forma Consolidated Fixed Charge Ratio of
the surviving entity is 3.00 to 1 or more, the calculation in the preceding
proviso shall be inapplicable and such transaction shall be deemed to have
complied with the requirements of clause (e) and, provided further, that clause
(e) of this covenant shall not prohibit a transaction, the principal purpose of
which is (as determined in good faith by the Board of Directors of the Company
and evidenced by a Board Resolution) to change the state of incorporation of
the Company, and such transaction does not have as one of its purposes the
evasion of the limitations of this covenant; and (f) the Company has prior
thereto delivered to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clause (e)) and an
Opinion of Counsel stating that such consolidation, merger or transfer and such
supplemental indenture comply with the provisions of the Subordinated Debenture
Indenture and that all conditions precedent herein provided for relating to
such transaction have been complied with.

EVENTS OF DEFAULT AND REMEDIES

An Event of Default is (a) default in the payment of any interest upon any
of the Subordinated Debentures as and when the same shall become due and
payable, and continuance of such default for a period of 30 days; (b) default
in the payment of all or any part of the principal of any of the Subordinated
Debentures as and when the same shall become due and payable, either at
maturity, upon any redemption, by declaration or otherwise; provided that, in
the case of any obligation to repurchase the Subordinated Debentures pursuant
to the covenant relating to a Change of Control more than 33-1/3% of the then
outstanding Subordinated Debentures have been surrendered to the Company (or
its successor or transferee) for repurchase and the Company (or its successor
or transferee) has failed to repurchase all of the Subordinated Debentures so
surrendered, whether or not such purchase is prohibited by the Credit Agreement
or any other agreement binding upon the Company; (c) failure on the part of the
Company duly to observe or perform any covenant or agreement set forth in the
Subordinated Debentures or in this Subordinated Debenture Indenture for a
period of 45 days after the date on which written notice specifying such
failure, stating that such notice is a "Notice of Default" hereunder and
demanding that the Company remedy the same, shall have been given by registered
or certified mail, return receipt requested, to the Company by the Trustee or
to the Company and the Trustee by the Holders of a majority in aggregate
principal amount of the Subordinated Debentures at the time outstanding; (d)(i)
the Company and/or any Subsidiary shall have failed to make any principal
payment due at final maturity of $10,000,000 in principal amount or more
individually or in the aggregate and such failure to pay is

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<PAGE> 51
continuing for more than 30 days after the payment default has occurred, or
(ii) there shall have occurred with respect to any issue or issues of Debt of
the Company or any Subsidiary having an outstanding principal amount when due
of $10,000,000 individually or in the aggregate for all such issues of all such
persons, an event of default which has caused the holders of such Debt to
declare such Debt to be due and payable prior to the maturity thereof and such
Debt has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration; (e) the Company or
any Subsidiary shall fail to discharge any final judgment not covered by
insurance (from which no further appeal may be taken) in excess of $5,000,000
and such judgment shall remain in force, undischarged, unsatisfied, unstayed
and unbonded for more than 30 days; or (f) certain events of bankruptcy or
insolvency of the Company or any Material Subsidiary.

If the Event of Default (other than an Event of Default specified in clause
(f) above) occurs and is continuing under the Subordinated Debenture Indenture,
either the Trustee or the holders of 33-1/3% in aggregate principal amount of
the Subordinated Debentures then outstanding hereunder, by notice in writing to
the Company (and to the Trustee if given by Debentureholders) (the
"Acceleration Notice"), shall declare all unpaid principal of, and accrued
interest on, the Subordinated Debentures to be due and payable immediately, and
the same shall become immediately due and payable; provided, that, so long as
the Credit Agreement is in effect, such declaration shall not become effective
until the earlier of (i) 5 days after receipt of the Acceleration Notice by the
Agent and the Company or (ii) an acceleration of debt under the Credit
Agreement. If an Event of Default specified in clause (f) above occurs, all
unpaid principal of, and accrued interest on, the Subordinated Debentures shall
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Debentureholder. The Holders of at least a
majority in principal amount of the Subordinated Debentures, by notice to the
Trustee, may rescind an acceleration and its consequences if all existing
Events of Default, other than the nonpayment of the principal of, and accrued
interest on, the Subordinated Debentures which became due solely by such
declaration of acceleration, have been cured or waived.

The Holders of at least a majority in principal amount of the outstanding
Subordinated Debentures may direct the time, method and place of conducting any
proceeding or any remedy available to the Trustee or exercising any trust or
power conferred on such Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Subordinated Debenture Indenture, or
that may involve the Trustee in personal liability. A Holder may not pursue
any remedy with respect to the Subordinated Debenture Indenture or the
Subordinated Debentures unless (i) the Holder gives to the Trustee written
notice of a continuing Event of Default; (ii) the Holders of at least a
majority in principal amount of the outstanding Subordinated Debentures make a
written request to the Trustee to pursue the remedy; (iii) such Holder or
Holders offer to the Trustee indemnity satisfactory to such Trustee against any
loss, liability or expense; (iv) such Trustee does not comply with the request
within 30 days after receipt of the request and the offer of indemnity; and (v)
during such 30-day period the Holders of a majority in principal amount of the
outstanding Subordinated Debentures do not give a Trustee a direction which is
inconsistent with the request.

SATISFACTION AND DISCHARGE OF THE SUBORDINATED DEBENTURE INDENTURE; COVENANT
DEFEASANCE

If at any time (a) the Company shall have paid or caused to be paid the
principal of and interest on all the Subordinated Debentures outstanding
hereunder, as and when the same shall have become due and payable, or (b) the
Company shall have delivered to the Trustee for cancellation all Subordinated
Debentures theretofore authenticated (other than any Subordinated Debentures
which shall have been destroyed, lost or stolen and which shall have been
replaced or paid as provided in the Subordinated Debenture Indenture) or (c)(i)
the Subordinated Debentures not theretofore delivered to the Trustee for
cancellation shall have become due and payable, or are by their terms to become
due and payable within one year, or are to be called for redemption under
arrangements satisfactory to the Trustee for the giving of notice of
redemption, and (ii) the Company shall have irrevocably deposited or caused to
be deposited with the Trustee as trust funds the entire amount in cash (other
than moneys repaid by the Trustee or any paying agent to the Company in
accordance with the provisions of the Subordinated Debenture Indenture),
sufficient to pay at maturity or upon redemption all such Subordinated
Debentures not theretofore delivered to the Trustee for cancellation, including
principal and interest due or to become due to such date of maturity or
redemption, as the case may be, and if, in any such case, the Company shall
also pay or cause to be paid all other sums payable hereunder by the Company,
then this Subordinated Debenture Indenture shall cease to be of further effect
(except as to (i) rights of registration of transfer and exchange, and the
Company's right of optional redemption, (ii) substitution of apparently
mutilated, defaced, destroyed, lost or stolen Subordinated Debentures, (iii)
rights of holders to receive payments of principal thereof and interest
thereon, (iv) the rights, obligations and immunities of the Trustee hereunder
and (v) the rights of the Debentureholders as beneficiaries thereof with
respect to the property so deposited with the Trustee payable to all or any of
them), and the Trustee, on demand of the Company accompanied by an Officers'
Certificate

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<PAGE> 52
and an Opinion of Counsel and at the cost and expense of the Company, shall
execute proper instruments acknowledging such satisfaction of and discharging
this Subordinated Debenture Indenture. The Company has agreed to reimburse the
Trustee for any costs or expenses (including the reasonable fees of its
counsel) thereafter reasonably and properly incurred and to compensate the
Trustee for any services thereafter reasonably and properly rendered by the
Trustee in connection with the Subordinated Debenture Indenture or the
Subordinated Debentures.

The Company shall be deemed to have paid and discharged the entire
indebtedness on all the Outstanding Subordinated Debentures on the 123rd day
after the date of the deposit referred to below, and the provisions of the
Subordinated Debenture Indenture, as it relates to such Outstanding
Subordinated Debentures, shall no longer be in effect (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), except as to (a) rights of registration of transfer and exchange, and
the Company's right of optional redemption, (b) substitution of apparently
mutilated, defaced, destroyed, lost or stolen Subordinated Debentures, (c)
rights of holders to receive payments of principal thereof and interest
thereon, (d) the rights, obligations and immunities of the Trustee thereunder
and (e) the rights of the Debentureholders as beneficiaries thereof with
respect to the property so deposited with the Trustee payable to all or any of
them; provided that (A) with reference to this provision the Company has
irrevocably deposited or caused to be irrevocably deposited with the Trustee
(or another trustee satisfying the requirements of the terms of the
Subordinated Debenture Indenture) as trust funds in trust, specifically pledged
as security for, and dedicated solely to, the benefit of the Holders of the
Subordinated Debentures, (i) money in an amount, or (ii) U.S. Government
Obligations which through the payment of interest and principal in respect
thereof in accordance with their terms will provide not later than one day
before the due date of any payment referred to in this subparagraph (A) money
in an amount, or (iii) a combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge
without consideration of the reinvestment of such interest and after payment of
all Federal, state and local taxes or other charges and assessments in respect
thereof payable by the Trustee the principal of and interest on the Outstanding
Subordinated Debentures at the maturity date of such principal or interest; (B)
such deposit shall not cause the Trustee to have a conflicting interest as
defined in the provisions of the Subordinated Debenture Indenture and for
purposes of the Trust Indenture Act; (C) such deposit will not result in a
breach or violation of, or constitute a default under, the Subordinated
Debenture Indenture or any other agreement or instrument to which the Company
is a party or by which it is bound; (D) no Event of Default or event which with
notice or lapse of time would become an Event of Default shall have occurred
and be continuing on the date of such deposit or during the period ending on
the 123rd day after such date; (E) the Company has delivered to the Trustee (i)
either (A) a ruling directed to the Trustee received from the Internal Revenue
Service to the effect that the Holders of the Subordinated Debentures will not
recognize income, gain or loss for Federal income tax purposes as a result of
the Company's exercise of its option herein and will be subject to Federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such option had not been exercised or (B) an
Opinion of Counsel to the same effect as the ruling described in clause (A) and
(ii) an Opinion of Counsel to the effect that, (A) the trust funds will not be
subject to any rights of holders of Senior Debt, including without limitation
those arising under the subordination provisions of this Subordinated Debenture
Indenture, and (B) after the passage of 123 days following the deposit, the
trust funds will not, with respect to the Company, be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (F) the Company has delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to the defeasance contemplated by
this provision have been complied with.

The Company may omit to comply with any term, provision or condition set
forth in the covenants described under "Certain Covenants" above with respect
to the Subordinated Debentures, if (a) the Company has irrevocably deposited or
caused to be irrevocably deposited with the Trustee (or another trustee
satisfying the requirements of the Subordinated Debenture Indenture) as trust
funds in trust, specifically pledged as security for, and dedicated solely to,
the benefit of the Holders of the Subordinated Debentures, (i) money in an
amount, or (ii) U.S. Government Obligations which through the payment of
interest and principal in respect thereof in accordance with their terms will
provide not later than one day before the due date of any payment referred to
below money in an amount, or (iii) a combination thereof, sufficient, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
and discharge without consideration of the reinvestment of such interest and
after payment of all Federal, state and local taxes or other charges and
assessments in respect thereof payable by the Trustee (A) the principal of and
each installment of principal and interest on the Outstanding Subordinated
Debentures on the maturity date of such principal or installment or principal
or interest and (B) any mandatory sinking fund payments or analogous payments
applicable to the Subordinated Debentures on the day on which such payments are
due and payable in accordance with the terms of the Subordinated Debenture
Indenture and of such Subordinated Debentures; (b) such deposit shall not cause
the Trustee to have a conflicting

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<PAGE> 53
interest as defined in the terms of the Subordinated Debenture Indenture and
for purposes of the Trust Indenture Act; (c) such deposit will not result in a
breach or violation of, or constitute a default under, the Subordinated
Debenture Indenture or any other agreement or instrument (including the Credit
Agreement) to which the Company is a party or by which it is bound; (d) no
Event of Default or event which with notice or lapse of time would become an
Event of Default shall have occurred and be continuing on the date of such
deposit; (e) the Company has delivered to the Trustee an Opinion of Counsel to
the effect that (i) the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and (ii) the Holders of the Subordinated
Debentures have a valid perfected first-priority security interest in the trust
funds; and (f) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the defeasance contemplated herein
have been complied with.

TRANSFER AND EXCHANGE

A holder may transfer or exchange Subordinated Debentures in accordance
with the Subordinated Debenture Indenture. The Registrar may require a holder,
among other things, to furnish appropriate endorsements and transfer documents,
and to pay any taxes and fees required by law or permitted by the Subordinated
Debenture Indenture. The Registrar is not required to transfer or exchange any
Subordinated Debentures selected for redemption.

The registered holder of a Debenture may be treated as the owner of it for
all purposes.

AMENDMENT, SUPPLEMENT AND WAIVER

The Subordinated Debenture 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 Subordinated Debentures at the time
outstanding, to amend or supplement such Subordinated Debenture Indenture or
any supplemental indenture or modify the rights of the relevant holders,
provided that no such modifications may, (a) extend the final maturity of any
Subordinated Debentures, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, or reduce any amount
payable on redemption thereof, or impair or affect the right of any
Debentureholder to institute suit for the payment thereof without the consent
of the holder of each Debenture so affected, or (b) reduce the aforesaid
percentage of Subordinated Debentures, the consent of the holders of which is
required for any such supplemental indenture, without the consent of the
holders of all Subordinated Debentures then outstanding; provided, however,
that no such supplemental indenture shall modify any provision of the
Subordinated Debenture Indenture so as to affect adversely the rights of any
holder of Senior Debt at the time outstanding to the benefits of subordination
hereunder without the consent of such holder.

CONCERNING THE TRUSTEE

The Subordinated Debenture Indenture provides that except during the
continuance of an Event of Default, the Trustee thereunder will perform only
such duties as are specifically set forth in the Subordinated Debenture
Indenture. During the existence of an Event of Default, such Trustee will
exercise such rights and powers vested in it under the Subordinated Debenture
Indenture and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs. The Company may remove the Trustee at any time for any reason.

The Subordinated Debenture Indenture and provisions of the Trust Indenture
Act contain limitations on the rights of the Trustee thereunder, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claims,
as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, that if it acquires any conflicting interest (as
defined) it must eliminate such conflict or resign.

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<PAGE> 54
DESCRIPTION OF CERTAIN INDEBTEDNESS

The following is a summary of certain indebtedness of the Company and its
subsidiaries and is qualified in its entirety by reference to the definitive
agreements and instruments governing such indebtedness, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus
is a part.

SENIOR NOTES

General. $100,000,000 aggregate principal amount of the Company's 11 7/8%
Senior Secured Notes Due 2003 (the "Senior Notes") were issued pursuant to an
Indenture dated as of June 1, 1992 (the "Senior Note Indenture") between the
Company and The Bank of New York, as trustee (the "Senior Note Trustee"). The
Senior Notes are direct obligations of the Company, secured in the manner
described below, limited to $100,000,000 in aggregate principal amount. The
Senior Notes mature on December 1, 2003, unless redeemed before such date. The
Senior Notes bear interest at the rate of 11 7/8% from June 1, 1992 or from the
most recent Interest Payment Date (as defined in the Senior Note Indenture) to
which interest has been paid or duly provided for. Interest is payable
semi-annually (to holders of record at the close of business on the May 15 and
November 15 immediately preceding the Interest Payment Date) on June 1 and
December 1.

Redemption. The Senior Notes may not be redeemed prior to June 1, 1997.
On or after June 1, 1997 the Company at its option may, at any time, redeem
all, or from time to time any part of, the Senior Notes at the following prices
(expressed as percentages of the outstanding principal amount), together with
accrued interest to the date fixed for redemption. If redeemed during the 12
month period commencing:

<TABLE>
<CAPTION>
JUNE REDEMPTION PRICES
---- ------------------
<S> <C>
1997 105.28%
1998 103.96%
1999 102.64%
2000 101.32%
2001 and thereafter 100.00%
</TABLE>

Sinking Fund. The Senior Notes are not subject to a sinking fund.

Change of Control. Upon the occurrence of a Change of Control (as defined
in the Senior Note Indenture), each holder of Senior Notes is entitled to
require the Company to repurchase such holder's Senior Notes at a price equal
to 101% of the principal amount thereof plus accrued interest to the date of
repurchase.

Ranking. The Senior Notes rank senior in right of collateral to all
unsecured indebtedness of the Company and senior in right of collateral and
payment to the Subordinated Debentures. The Senior Notes are effectively
subordinated to the Revolving Loans and to the claims of other creditors of the
Aircraft Braking Systems and Engineered Fabrics.

Collateral and Security. Pursuant to a Pledge Agreement between the
Company and the Senior Note Trustee, as Collateral Trustee, the Company has
assigned and pledged to the Collateral Trustee for the benefit of the holders
of the Senior Notes a security interest in all of the capital stock of the
Aircraft Braking Systems and Engineered Fabrics to secure performance of the
Company's obligations under the Senior Note Indenture and the Senior Notes.

Certain Covenants; Limitation on Debt. Under the Senior Note Indenture,
the Company is prohibited from, and shall not permit any of its subsidiaries
to, incurring any indebtedness if, after giving effect thereto, (i) an Event of
Default (as defined in the Senior Note Indenture) or an event that through the
passage of time or the giving of notice or both, would become an Event of
Default, shall have occurred and be continuing or (ii) the Consolidated
Interest Coverage Ratio (as defined in the Senior Note Indenture) of the
Company would be less than 1.70 to 1.

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<PAGE> 55

Certain Covenants; Limitation on Restricted Payments. Under the Senior
Note Indenture, the Company is prohibited from, and will not permit any
subsidiary to, make any restricted payment (which includes dividends or other
distributions on shares of capital stock, the purchase, redemption, retirement
or other acquisition of shares of capital stock, options, warrants, or
indebtedness (other than those payments required under the Subordinated
Debenture Indenture) and certain payments to affiliates), if, after giving
effect thereto:

(a) an Event of Default shall have occurred and be continuing under
the Senior Note Indenture; and

(b) the aggregate amount of all such restricted payments made by the
Company and its subsidiaries from and after March 31, 1992 shall exceed the
sum (without duplication) of: (i) an amount equal to the difference (but
not less than zero) between (A) Cumulative Operating Cash Flow (as defined
in the Senior Note Indenture) and (B) the product of 1.3 times Cumulative
Total Interest Expense (as defined in the Senior Note Indenture); and (ii)
the aggregate net proceeds, including the fair market value of property
other than cash of its Capital Stock (as defined in the Senior Note
Indenture) after March 31, 1992 and (iii) $15 million.

Additional Covenants. The Senior Note Indenture contains certain
covenants, including but not limited to covenants limiting the following: (i)
the issuance of capital stock by Aircraft Braking Systems, (ii) the application
of proceeds of certain asset sales, (iii) the incurrence of liens, (iv) the
creation of restrictions on the ability of the Company's subsidiaries to make
distributions and (v) the ability of the Company and its subsidiaries to engage
in certain mergers or consolidations or to transfer all or substantially all of
their assets to another person.

Events of Default. The Senior Note Indenture contains default provisions
typically found in secured financings. If an Event of Default is continuing
under the Senior Note Indenture, either the Senior Note Trustee or the holders
of 25% in aggregate principal amount of the Senior Notes then outstanding may
declare all unpaid principal of, and accrued interest on, the Senior Notes to
be due and payable immediately.

THE AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT

General. The Original Revolving Credit Agreement was amended and restated
pursuant to an Amended and Restated Revolving Credit Agreement (the "Restated
Revolving Credit Agreement") simultaneously with the issuance of the Senior
Notes. In connection with such amendment and restatement, the Banks released
their lien on the capital stock of Aircraft Braking Systems and Engineered
Fabrics. The Restated Revolving Credit Agreement provides for revolving loans
(the "Revolving Loans") to Aircraft Braking Systems and Engineered Fabrics
(each a "Borrower" and together the "Borrowers") in an aggregate principal
amount of up to $70 million (but not exceeding a borrowing base equal to 85% of
eligible accounts receivable and 45% of eligible inventory), secured by a lien
on the inventories and accounts receivable of Aircraft Braking Systems and
Engineered Fabrics. As part of the total commitment under the Revolving Loans,
the Restated Revolving Credit Agreement provides for the issuance of letters of
credit for the account of the Borrowers in an aggregate amount not to exceed
$11 million for specified purposes.

Maturity. All borrowings under the Revolving Loans mature on April 27,
1997. Borrowings under the Revolving Loans may be prepaid in whole or in part
at any time without premium or penalty, and the Banks' commitment under
Revolving Loans may be reduced in whole or in part at any time.

Interest. Borrowings under the Revolving Loans bear interest at floating
rates.

Security. The obligations of the Borrowers under the Revolving Credit
Agreement are secured by liens on the Borrowers' inventory and accounts
receivable.

Covenants; Event of Default. The Restated Revolving Credit Agreement
contains covenants and events of default including limitations on additional
indebtedness, liens, asset sales, and investments in original equipment by the
Company in new airframe programs and contains financial ratio requirements
including cash interest coverage and consolidated net worth.

K & F Agreement. In connection with the execution and delivery of the
Restated Revolving Credit Agreement, the Company entered into the K & F
Agreement with the Banks which contains limitations on the incurrence by the
Company of additional indebtedness and limitations on annual operating expenses.

-53-
<PAGE> 56

CONVERTIBLE DEBENTURES

On September 2, 1994 K & F retired the $65.4 million principal amount of
Convertible Debentures held by Loral, in exchange for $12.76 million in cash
and 458,994 shares of Class B common stock representing 22.5% of equity. The
cash portion of this transaction was funded with the proceeds from the sale of
capital stock to K & F's principal stockholders for which stockholders received
a total of 68,728 shares of Class A common stock and 127,636 shares of
preferred stock. As a result, K & F stockholders' equity was increased by
$65.4 million and long-term debt was reduced by an equal amount. (See Notes 7
and 9 to the consolidated financial statements.)

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<PAGE> 57
CERTAIN TRANSACTIONS
GENERAL

BLS owns 27.12% of the capital stock of the Company and pursuant to the
Stockholders Agreement has the right to designate a majority of the Board of
Directors of the Company. In addition, BLS serves as Chairman of the Board of
Directors and Chief Executive Officer of the Company and devotes such time to
the business and affairs of the Company as he deems appropriate. BLS is also
Chairman and Chief Executive Officer of Loral. Because BLS is Chairman of the
Board of Directors and has the right to designate a majority of the Directors
to the Board of the Company, he has operating control of the Company.

On September 2, 1994 K & F retired the $65.4 million principal amount of
Convertible Debentures held by Loral. (See Notes 7 and 9 the the consolidated
financial statements.)

The Company has an Advisory Agreement with BLS which provides for the
payment of an aggregate of $200,000 per month of compensation to BLS and
persons designated by him (including certain other executive officers of Loral
who are active in the management of the Company) in exchange for acting as
directors and providing advisory services to the Company and its subsidiaries.
Such agreement will continue until BLS dies or is disabled or ceases to own at
least 1,350,000 shares of common stock of the Company.

The Company has a bonus plan pursuant to which the Company's board of
directors awards bonuses to BLS and other advisers ranging from 5% to 10% of
earnings in excess of $50 million before interest, taxes and amortization. No
bonuses were earned under this plan during fiscal years ended March 31, 1995,
1994 and 1993.

Certain persons who are designated by LBH to serve as members of the
Company's Board of Directors may, under certain limited circumstances, comprise
a majority of the Board of Directors, although initially BLS has the right to
designate all of the directors of the Company other than the three directors
which may be LBH designees so long as BLS and his affiliates own at least
135,000 shares of the outstanding Common stock. See "Ownership of Capital
Stock -- Stockholders Agreement" for a description of the restrictions on
transfer of Common Stock, registration rights and voting arrangements.

In addition, Loral, BLS and the Lehman Investors have engaged in a
variety of commercial transactions to which the Company and its subsidiaries
were not party.

See "Business -- Properties -- Akron Facility Arrangements" for a
description of certain property arrangements between Loral and the Company.

Pursuant to a financial advisory agreement between Lehman Brothers and
the Company, Lehman Brothers acts as exclusive financial adviser to the
Company. The Company pays Lehman Brothers customary fees for services rendered
on an as-provided basis. The agreement may be terminated by the Company or
Lehman Brothers upon certain conditions. In connection with the Senior Note
Offering on June 10, 1992, Lehman Brothers received underwriting discounts and
a commission of $2.25 million.

During the fiscal year ended March 31, 1995, the Company invested
excess cash in commercial paper with an affiliate of Lehman Brothers. Total
interest received during the fiscal year ended March 31, 1995 was $19,000. The
total amount of commercial paper held at March 31, 1995 was $6.0 million.

Pursuant to agreements between K & F and Loral, the parties provide
services to each other and share certain expenses relating to a production
program, real property occupancy, benefits administration, treasury, accounting
and legal services. The related charges agreed upon by the parties were
established to reimburse each party on the actual cost incurred without profit
or fee. The Company believes the arrangements with Loral are as favorable to
the Company as could have been obtained from unaffiliated parties. Billings
from Loral were $3.0 million, $3.0 million and $3.7 million in fiscal years
1995, 1994 and 1993, respectively. Billings to Loral were $.2 million, $1.1
million and $1.1 million in fiscal years 1995, 1994 and 1993. Purchases from
Loral were $1.9 million, $4.2 million and $3.7 million in fiscal years 1995,
1994 and 1993. Included in accounts receivable and accounts payable at March
31, 1995 is $.7 million and $1.8 million. Included in accounts receivable and
accounts payable at March 31, 1994 is $.6 million and $2.0 million.

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<PAGE> 58
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

FOREIGN HOLDERS

The following discussion is a summary of certain United States Federal
income tax consequences to a Foreign Person that holds a Subordinated
Debenture. The term "Foreign Person" means a nonresident alien individual or a
foreign corporation (as such terms are defined for United States tax purposes)
who is considered to own less than 10% of the stock of the Company, but only if
the income or gain on the Subordinated Debenture is not "effectively connected
with the conduct of a trade or business within the United States" within the
meaning of Section 864 of the Code. If the income or gain on the Subordinated
Debenture is "effectively connected with the conduct of a trade or business
within the United States", then the nonresident alien individual or foreign
corporation will be subject to tax in essentially the same manner as a United
States citizen or resident or a domestic corporation and in the case of a
foreign corporation, may also be subject to the branch profits tax. The
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, Internal Revenue Service ("IRS") rulings and
judicial decisions now in effect, all of which are subject to change at any
time by legislative, judicial or administrative action, and any such changes
may be retroactively applied in a manner that could adversely affect a holder
of one or more of the Subordinated Debentures. Davis Polk & Wardwell, counsel
to the Company at the time of the Subordinated Debenture Offering, has rendered
an opinion (dated July 21, 1989) that, subject to the qualifications stated
herein, the following discussion describes the material Federal income tax
considerations relevant to the purchase, ownership and disposition of the
Subordinated Debentures by a Foreign Person. Such opinion represents its best
legal judgment, but it will not be binding on the IRS or the courts. The
Company has not sought, nor does it intend to seek, a ruling from the IRS that
its position as reflected in the following discussion will be accepted by the
IRS. Each prospective investor should consult his own tax advisor concerning
the tax consequences of the purchase, ownership and disposition of the
Subordinated Debentures.

In the opinion (dated July 21, 1989) of Davis Polk & Wardwell, counsel
to the Company at the time of the Subordinated Debenture Offering, the
Subordinated Debentures should be treated as debt for Federal income tax
purposes. Accordingly, no tax will be withheld from payments to Foreign
Persons who are eligible for the "portfolio interest" exception and comply with
the certification requirements described below. However, if any of the
Subordinated Debentures ultimately are treated as equity rather than debt, then
the "portfolio interest" exception would not apply to such Subordinated
Debentures and withholding tax at a flat rate of 30% (or a lower rate under an
applicable income tax treaty) would be imposed on amounts treated as
distributions on such Subordinated Debentures out of current or accumulated
earnings and profits or on the entire distribution if the withholding agent
does not know the amount of such earnings and profits. If it were subsequently
determined that such distributions were not made out of current or accumulated
earnings and profits, a holder may be entitled to apply for a refund of amounts
withheld. Any such withholding could commence with the first cash payment
disbursed after the IRS first asserted that the Subordinated Debenture
constituted equity; in such event, if the IRS did not ultimately prevail, the
holder would be able to recover the tax withheld by filing a claim for refund
with the IRS.

Under the "portfolio interest" exception to the general rules for the
withholding of tax on interest paid to Foreign Persons, a Foreign Person will
not be subject to United States tax (or to withholding) on interest on a
Subordinated Debenture, provided that (i) the Foreign Person does not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and is not a controlled
foreign corporation with respect to the United States that is related to the
Company through stock ownership, and (ii) the Company, its paying agent or the
person who would otherwise be required to withhold tax receives either (A) a
statement (an "Owner's Statement") signed under penalties of perjury by the
beneficial owner of the Subordinated Debenture in which the owner certifies
that the owner is not a United States person and which provides the owner's
name and address, or (B) a statement signed under penalties of perjury by the
Financial Institution holding the Subordinated Debenture on behalf of the
beneficial owner in which the Financial Institution certifies that it has
received the Owner's Statement from the beneficial owner, together with a copy
of the Owner's Statement. The term "Financial Institution" means a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business and that
holds a Subordinated Debenture on behalf of the beneficial owner of the
Subordinated Debenture.

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<PAGE> 59
A Foreign Person who does not qualify for the "portfolio interest"
exception would generally be subject to United States withholding tax at a flat
rate of 30% (or a lower rate under an applicable income tax treaty) on interest
payments and payments including redemption proceeds attributable to interest on
the Subordinated Debentures.

In general, gain recognized by a Foreign Person upon the redemption,
sale or exchange of a Subordinated Debenture will not be subject to United
States tax. However, a Foreign Person may be subject to United States tax at a
flat rate of 30% (unless exempt by an applicable income tax treaty) on any such
gain if the Foreign Person is an individual present in the United States for
183 days or more during the taxable year in which the Subordinated Debenture is
redeemed, sold or exchanged.

BACKUP WITHHOLDING

Under Federal income tax backup withholding rules, unless an exception
applies under the applicable law and regulations, the Company, its paying agent
or other withholding agent may be required to withhold and remit to the
Treasury 20% of the interest payments on the Subordinated Debentures if the IRS
notifies the Company, its paying agent or other withholding agent that the
holder is subject to backup withholding or if the holder fails to provide his
taxpayer identification number (employer identification number or social
security number), to certify that such holder is not subject to backup
withholding, or to otherwise comply with applicable requirements of the backup
withholding rules. Certain holders (including among others corporations and
foreign individuals who comply with the certification requirements described
under "Foreign Holders" above) are not subject to these backup withholding and
reporting requirements.

THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
SUBORDINATED DEBENTURES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.

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<PAGE> 60
PLAN OF DISTRIBUTION

This Prospectus is to be used by Lehman Brothers in connection with
offers and sales of the Subordinated Debentures in market-making transactions
at negotiated prices related to prevailing market prices at the time of sale.
Lehman Brothers may act as principal or agent in such transactions and has no
obligation to make a market in the Senior Notes, and may discontinue its
market-making activities at any time without notice, at its sole discretion.

Lehman Brothers is affiliated with entities that own capital stock of
the Company representing 48.17% of the aggregate voting power of the capital
stock of the Company and have the ability to elect 3 members of the Company's
Board of Directors. See "Certain Risk Factors-Interest of BLS, Lehman Brothers
and its Affiliates" and "Ownership of Capital Stock."

Lehman Brothers acted as underwriter in connection with the original
offering of the Subordinated Debentures and received underwriting discounts and
commissions of $7.35 million in connection therewith.

Lehman Brothers acted as underwriter in connection with the original
offering of the Senior Notes and received underwriting discounts and
commissions of $2.25 million in connection therewith.

LBH received fees and additional interest aggregating $5.4 million in
connection with the sale of the Subordinated Bridge Notes, plus certain
out-of-pocket expenses.

Lehman Brothers has from time to time provided investment banking,
financial advisory and other services to the Company, for which services Lehman
Brothers has received fees. As the beneficial owners of 48.17% of the
outstanding capital stock, the Lehman Investors are able to elect three
directors to the Company's Board of Directors. See "Management -- Directors
and Executive Officers of the Company" and "Certain Transactions."

LEGAL MATTERS

Certain legal matters in connection with the sale of the Subordinated
Debentures were passed upon for the Company by Davis Polk & Wardwell, New York,
New York. Certain legal matters in connection with the sale of the
Subordinated Debentures were passed upon for the Underwriter by Schulte Roth &
Zabel, New York, New York. Davis Polk & Wardwell represented the Company in
connection with the Acquisition and the Financing. O'Sullivan Graev &
Karabell, New York, New York, represented the Company in connection with the
sale of the Senior Notes. Michael B. Targoff represented the Company in
connection with the preparation of this Prospectus.

EXPERTS

The consolidated financial statements as of March 31, 1995 and 1994
and for the years ended March 31, 1995, 1994 and 1993, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report dated May 19, 1995 (which expresses an unqualified
opinion and includes an explanatory paragraph related to changes in the
Company's method of accounting for discounting of certain liabilities,
effective April 1, 1993, and certain overhead costs included in inventory and
postretirement benefits other than pensions, effective April 1, 1992) appearing
herein and elsewhere in the registration statement, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.

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<PAGE> 61
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
K & F INDUSTRIES, INC. AND SUBSIDIARIES

Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the years ended
March 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended
March 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>

F-1
<PAGE> 62

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
K & F Industries, Inc.:

We have audited the accompanying consolidated balance sheets of K & F
Industries, Inc. and subsidiaries (the "Company") as of March 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity (deficiency), and cash flows for each of the three years in the period
ended March 31, 1995. 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 K & F Industries, Inc. and
subsidiaries as of March 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1995 in conformity with generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, effective
April 1, 1993, the Company changed its method of accounting for discounting of
certain liabilities. As discussed in Notes 4 and 11, respectively, to the
consolidated financial statements, effective April 1, 1992, the Company changed
its method of accounting for certain overhead costs included in inventory and
postretirement benefits other than pensions.

DELOITTE & TOUCHE LLP
New York, New York
May 19, 1995

F-2
<PAGE> 63
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
March 31,
--------------------------------

1995 1994
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 8,493,000 $ 4,327,000
Accounts receivable, net . . . . . . . . . . . . . . . . . . . 33,548,000 32,783,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,767,000 67,613,000
Other current assets . . . . . . . . . . . . . . . . . . . . . 1,106,000 1,196,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . 104,914,000 105,919,000
------------ ------------

Property, Plant and Equipment - Net . . . . . . . . . . . . . . . 63,132,000 68,740,000

Deferred Charges - Net of amortization of $10,708,000 and
$8,328,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 26,508,000 28,050,000

Cost in Excess of Net Assets Acquired - Net of amortization of
$36,148,000 and $30,036,000 . . . . . . . . . . . . . . . . . . 208,228,000 214,340,000

Intangible Assets - Net of amortization of $20,645,000 and
$17,244,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 26,292,000 29,831,000
------------ ------------

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $429,074,000 $446,880,000
============ ============

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 10,345,000 $ 9,028,000
Interest payable . . . . . . . . . . . . . . . . . . . . . . . 8,771,000 8,818,000
Other current liabilities . . . . . . . . . . . . . . . . . . . 37,773,000 34,982,000
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . 56,889,000 52,828,000
------------ ------------

Postretirement Benefit Obligation Other Than Pensions . . . . . . 77,717,000 80,150,000

Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . 19,216,000 22,836,000

Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . 310,000,000 381,421,000

Commitments and Contingencies
(Notes 12 and 13)

Stockholders' Deficiency:
Preferred stock, $.01 par value - authorized, 1,050,000 and
900,000 shares; issued and outstanding, 1,027,635 and 899,999
shares (liquidation preference of $60,110,000 and
$76,154,000) . . . . . . . . . . . . . . . . . . . . . . . . 10,000 9,000
Common stock, Class B, $.01 par value - authorized, 460,000
shares; issued and outstanding, 458,994 shares (liquidation
preference of $26,848,000) . . . . . . . . . . . . . . . . . 5,000 --
Common stock, Class A, $.01 par value - authorized, 2,100,000
and 535,000 shares; issued and outstanding, 553,344 and
484,616 shares . . . . . . . . . . . . . . . . . . . . . . . 6,000 5,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . 155,350,000 89,986,000
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (182,643,000) (172,470,000)
Adjustment to equity for minimum pension liability . . . . . . (7,192,000) (7,467,000)
Cumulative translation adjustment . . . . . . . . . . . . . . . (284,000) (418,000)
------------ ------------
Total stockholders' deficiency . . . . . . . . . . . . . . . (34,748,000) (90,355,000)
------------ ------------

Total Liabilities and Stockholders' Deficiency . . . . . . . . . $429,074,000 $446,880,000
============ ============
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 64

K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------------------

1995 1994 1993
---- ---- ----

<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . $238,756,000 $226,131,000 $277,107,000

Cost of sales . . . . . . . . . . . . . . . . . . . . . 164,697,000 159,751,000 199,002,000

Independent research and development . . . . . . . . . 8,363,000 12,858,000 11,417,000

Selling, general and administrative expenses . . . . . 19,208,000 22,421,000 24,154,000

Amortization . . . . . . . . . . . . . . . . . . . . . 10,411,000 10,884,000 10,258,000
------------ ------------ ------------

Operating income . . . . . . . . . . . . . . . . . . . 36,077,000 20,217,000 32,276,000

Interest expense, net of interest income of $374,000,
$96,000 and $108,000 . . . . . . . . . . . . . . . . 46,250,000 51,953,000 53,486,000
------------ ------------ ------------

Loss before extraordinary charge and cumulative effect
of changes in accounting principles . . . . . . . . . (10,173,000) (31,736,000) (21,210,000)

Extraordinary charge from early extinguishment of debt -- -- (2,477,000)

Cumulative effect of change in method of accounting
for the discounting of certain liabilities . . . . . -- (2,305,000) --

Cumulative effect of change in method of accounting
for postretirement benefits other than pensions . . . -- -- (77,902,000)

Cumulative effect of change in method of accounting
for certain overhead costs in inventory . . . . . . . -- -- 4,362,000
------------ ------------ ------------

Net loss . . . . . . . . . . . . . . . . . . . . . . . $(10,173,000) $(34,041,000) $(97,227,000)
============ ============ ============
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 65
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED MARCH 31, 1995, 1994 AND 1993

Class B Class A
Preferred Stock Common Stock Common Stock
--------------- ------------ ------------

Shares Shares Shares
Issued Amount Issued Amount Issued Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1,
1992................ 899,999 $ 9,000 -- $ -- 484,616 $5,000

Net loss..............

Pension adjustment....

Cumulative
translation
adjustment..........
--------- ------- ------- ------ ------- ------

Balance, March 31,
1993................ 899,999 9,000 -- -- 484,616 5,000

Net loss..............

Pension adjustment....

Cumulative
translation
adjustment..........
--------- ------- ------- ------ ------- ------

Balance, March 31,
1994................ 899,999 9,000 -- -- 484,616 5,000

Net loss..............

Conversion of
subordinated
convertible
debentures.......... 458,994 5,000

Issuance of preferred
stock............... 127,636 1,000

Issuance of common
stock................. 68,728 1,000

Pension adjustment....

Cumulative
translation
adjustment..........
--------- ------- ------- ------ ------- ------

Balance, March 31,
1995................ 1,027,635 $10,000 458,994 $5,000 553,344 $6,000
========= ======= ======= ====== ======= ======

Adjustment
to Equity
for
Additional Minimum Cumulative
Paid-in Pension Translation
Capital Deficit Liability Adjustment
------- ------- --------- ----------
<S> <C> <C> <C> <C>
Balance, April 1,
1992................ $ 89,986,000 $ (41,202,000) $ (467,000) $ --

Net loss.............. (97,227,000)

Pension adjustment.... (2,585,000)

Cumulative
translation
adjustment.......... (387,000)
------------ ------------- ----------- ---------

Balance, March 31,
1993................ 89,986,000 (138,429,000) (3,052,000) (387,000)

Net loss.............. (34,041,000)

Pension adjustment.... (4,415,000)

Cumulative
translation
adjustment.......... (31,000)
------------ ------------- ----------- ---------

Balance, March 31,
1994................ 89,986,000 (172,470,000) (7,467,000) (418,000)

Net loss.............. (10,173,000)

Conversion of
subordinated
convertible
debentures.......... 52,602,000

Issuance of preferred
stock............... 10,799,000

Issuance of common
stock................. 1,963,000

Pension adjustment.... 275,000

Cumulative
translation
adjustment.......... 134,000
------------ ------------- ----------- ---------

Balance, March 31,
1995................ $155,350,000 $(182,643,000) $(7,192,000) $(284,000)
============ ============= =========== =========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 66
K & F INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------------

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $(10,173,000) $(34,041,000) $(97,227,000)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Cumulative effect of change in accounting for:
Discounting certain liabilities . . . . . . . . . . . -- 2,305,000 --
Postretirement benefits other than pensions . . . . . -- -- 77,902,000
Certain overhead costs in inventory . . . . . . . . . -- -- (4,362,000)
Depreciation . . . . . . . . . . . . . . . . . . . . . 8,432,000 9,643,000 9,604,000
Amortization . . . . . . . . . . . . . . . . . . . . . 10,411,000 10,884,000 10,258,000
Non-cash interest expense-convertible debentures . . . 3,950,000 8,443,000 7,282,000
Non-cash interest expense-amortization of deferred
financing charges . . . . . . . . . . . . . . . . . . 1,482,000 1,480,000 1,507,000
Provision for losses on accounts receivable . . . . . . 63,000 450,000 190,000
Extraordinary charge from early extinguishment of debt -- -- 2,477,000
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . (767,000) 16,797,000 5,110,000
Inventory . . . . . . . . . . . . . . . . . . . . . . 5,919,000 9,638,000 12,038,000
Other current assets . . . . . . . . . . . . . . . . 90,000 (137,000) (262,000)
Accounts payable . . . . . . . . . . . . . . . . . . 1,317,000 (5,298,000) 1,141,000
Interest payable . . . . . . . . . . . . . . . . . . (47,000) (438,000) 3,552,000
Other current liabilities . . . . . . . . . . . . . . 2,791,000 (2,692,000) 4,567,000
Postretirement benefit obligation other than pensions . (2,433,000) (4,090,000) 6,338,000
Other long-term liabilities . . . . . . . . . . . . . (3,682,000) (3,981,000) (1,289,000)
Deferred charges - financing costs . . . . . . . . . -- -- (3,256,000)
------------ ------------ ------------

Net cash provided by operating activities . . . . . . 17,353,000 8,963,000 35,570,000
------------ ------------ ------------

Cash Flows From Investing Activities:
Capital expenditures . . . . . . . . . . . . . . . . . (2,824,000) (3,127,000) (4,670,000)
Deferred charges . . . . . . . . . . . . . . . . . . (363,000) 74,000 258,000
------------ ------------ ------------

Net cash used in investing activities . . . . . . . . (3,187,000) (3,053,000) (4,412,000)
------------ ------------ ------------

Cash Flows From Financing Activities:
Payments of senior revolving loan . . . . . . . . . . . . (20,000,000) (43,500,000) (81,000,000)
Borrowings under senior revolving loan . . . . . . . . . 10,000,000 37,000,000 47,000,000
Payment of convertible debentures . . . . . . . . . . . . (12,764,000) -- --
Proceeds from issuance of common and preferred stocks . . 12,764,000 -- --
Proceeds from sale and leaseback transaction . . . . . . -- 1,996,000 --
Payments of senior term loan . . . . . . . . . . . . . . -- -- (95,875,000)
Proceeds from issuance of senior secured notes . . . . . -- -- 100,000,000
------------ ----------- ------------

Net cash used by financing activities . . . . . . . (10,000,000) (4,504,000) (29,875,000)
------------ ------------ ------------

Net increase in cash and cash equivalents . . . . . . . . . . 4,166,000 1,406,000 1,283,000

Cash and cash equivalents, beginning of year . . . . . . . . 4,327,000 2,921,000 1,638,000
------------ ------------ ------------

Cash and cash equivalents, end of year . . . . . . . . . . . $ 8,493,000 $ 4,327,000 $ 2,921,000
============ ============ ============

Supplemental Information:
Interest paid during the year . . . . . . . . . . . . . . $ 41,239,000 $42,564,000 $41,253,000
============ =========== ===========
</TABLE>

Supplemental disclosure of non-cash financing activities:
See Notes 7 and 9 for a discussion of non-cash financing
activities.

See notes to consolidated financial statements.

F-6
<PAGE> 67
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

K & F Industries, Inc. ("K & F") and subsidiaries (collectively, the
"Company") is primarily engaged in the design, development,
manufacture and distribution of wheels, brakes and anti-skid systems
for commercial, military and general aviation aircraft, and the
manufacture of materials for fuel tanks, iceguards, inflatable oil
booms and various other products made from coated fabrics for military
and commercial uses. The Company's activities are conducted through
its two wholly owned subsidiaries, Aircraft Braking Systems
Corporation ("Aircraft Braking Systems") and Engineered Fabrics
Corporation (collectively the "Subsidiaries").

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation- The consolidated financial statements
include the accounts of the Company. All material intercompany
accounts and transactions between these entities have been eliminated.

Cash and Cash Equivalents - Cash and cash equivalents consist of cash,
commercial paper and other investments that are readily convertible
into cash and have original maturities of three months or less.

Revenue and Expense Recognition - Sales are recorded as units are
shipped. The Company customarily sells original wheel and brake
equipment below cost as an investment in a new airframe which is
expected to be recovered through the subsequent sale of replacement
parts. These commercial investments (losses) are recognized when
original equipment is shipped. Losses on U.S. Government contracts are
immediately recognized in full when determinable.

Inventory - Inventory is stated at average cost, not in excess of net
realizable value. In accordance with industry practice, inventoried
costs may contain amounts relating to contracts with long production
cycles, a portion of which will not be realized within one year. During
fiscal year 1993, the Company changed its method of accounting for
certain overhead costs. (See Note 4.)

Property, Plant and Equipment - Property, plant and equipment are
stated at cost. Maintenance and repairs are expensed when incurred;
renewals and betterments are capitalized. When assets are retired or
otherwise disposed of, the cost and accumulated depreciation are
eliminated from the accounts, and any gain or loss is included in the
results of operations. Depreciation is provided on the straight-line
method over the estimated useful lives of the related assets as
follows: buildings and improvements - 8 to 40 years; machinery,
equipment, furniture and fixtures - 3 to 25 years; leasehold
improvements - over the life of the applicable lease or 10 years,
whichever is shorter.

Deferred Charges - Deferred charges consist primarily of financing
costs ($9.7 million and $11.2 million, which is net of amortization
(non-cash interest expense) of $5.4 million and $3.9 million in fiscal
years 1995 and 1994, respectively), and program participation costs
($15.4 and $16.3 million, which is net of amortization of $1.0
million and $.2 million, in fiscal years 1995 and 1994, respectively)
paid in connection with the sole-source award of wheels, brakes and
anti-skid equipment on the McDonnell Douglas Corporation's MD-90
twin-jet program. Program participation costs are being amortized on
a straight-line method over a period of 20 years. Deferred financing
charges are primarily being amortized on an effective interest method
over periods of 8 to 12 years.

Cost in Excess of Net Assets Acquired - Cost in excess of net assets
acquired is being amortized on the straight-line method over a period
of 40 years.

F-7
<PAGE> 68
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Intangible Assets - Intangible assets consist of patents, licenses and
computer software which are stated at cost and are being amortized on
a straight-line method over periods of 5 to 30 years.

Evaluation of Long-Lived Assets - Long-lived assets are assessed for
recoverability on an on-going basis. In evaluating the value and
future benefits of long-lived assets, their carrying value would be
reduced by the excess, if any, of the long-lived asset over
management's estimate of the anticipated undiscounted future net cash
flows of the related long-lived asset. There were no adjustments to
the carrying amount of long-lived assets in fiscal years 1995, 1994 and
1993 resulting from the Company's evaluations.

Warranty - Estimated costs of product warranty are accrued when
individual claims arise with respect to a product. When the Company
becomes aware of such defects, the estimated costs of all potential
warranty claims arising from such defects are fully accrued.

Business and Credit Concentrations - The Company's customers are
concentrated in the airline industry but are not concentrated in any
specific region. The United States Government accounted for
approximately 14%, 15% and 23% of total sales for the fiscal years
ended March 31, 1995, 1994 and 1993, respectively. No other single
customer accounted for 10% or more of consolidated revenues for the
fiscal years then ended, and there were no significant accounts
receivable from a single customer, except the United States
Government, at March 31, 1995.

Accounting and Reporting Changes - Effective April 1, 1994, the
Company adopted Statement of Financial Accounting Standards (SFAS) No.
112, "Employers' Accounting for Postemployment Benefits." This
statement requires that the costs of benefits provided to employees
after employment but before retirement be recognized in the financial
statements on an accrual basis. The adoption of SFAS No. 112 did not
have a material effect on the Company's financial position or results
of operations.

Effective April 1, 1993, the Company changed its method of accounting
for the discounting of liabilities for workers' compensation losses,
to use a risk-free rate rather than its incremental borrowing rate.
The cumulative effect for periods prior to April 1, 1993, of this
change amounted to $2,305,000, and is included as an increase to the
net loss for the fiscal year ended March 31, 1994. The effect of the
change on the results of operations for the fiscal years ended March
31, 1994 and 1993 (pro forma) were not material.

Effective April 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." (See Note 14.)

Effective April 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." (See
Note 11.)

Accounting Pronouncement - In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of," which establishes accounting
standards for the recognition of an impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets
to be held and used for long-lived assets and certain identifiable
intangibles to be disposed of. This new standard is effective for
fiscal years beginning after December 15, 1995. The Company is
currently evaluating the impact, if any, of SFAS No. 121.

F-8
<PAGE> 69
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
March 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Accounts receivable, principally from commercial
customers . . . . . . . . . . . . . . . . . . . . . . $30,036,000 $29,099,000

Accounts receivable on U.S. Government and other
long-term contracts . . . . . . . . . . . . . . . . . 3,871,000 4,379,000

Allowances . . . . . . . . . . . . . . . . . . . . . . . (359,000) (695,000)
----------- -----------

Total . . . . . . . . . . . . . . . . . . . . . $33,548,000 $32,783,000
=========== ===========
</TABLE>

4. INVENTORY

<TABLE>
<CAPTION>
March 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Raw materials and work-in-process . . . . . . . . . . . $35,819,000 $42,375,000

Finished goods . . . . . . . . . . . . . . . . . . . . . 15,500,000 15,821,000

Inventoried costs related to U.S.
Government and other long-term contracts . . . . . . . 11,072,000 9,823,000
----------- -----------
62,391,000 68,019,000
Less: unliquidated progress payments received,
principally related to long-term government
contracts . . . . . . . . . . . . . . . . . . . . . . 624,000 406,000
----------- -----------

Total . . . . . . . . . . . . . . . . . . . . . $61,767,000 $67,613,000
=========== ===========

</TABLE>

During the fiscal year ended March 31, 1993, the Company's Aircraft
Braking Systems subsidiary changed its method of accounting, effective
April 1, 1992, to capitalize in inventory certain material related
overhead costs (such as procurement and receiving) at the raw
material, work-in-process and finished goods stages. Historically,
these costs were inventoried only in finished goods.

The cumulative effect of this change in method of accounting for
periods prior to April 1, 1992, amounted to $4,362,000, and is
included as a reduction in the net loss for the fiscal year ended
March 31, 1993. The effect of the change on the results of
operations for the fiscal year ended March 31, 1993 was to increase
the loss before extraordinary charge and cumulative effect of changes
in accounting principles by $1,469,000 and to reduce the net loss by
$2,893,000.

F-9
<PAGE> 70
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
March 31,
--------------------------------
1995 1994
---- ----
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . $ 661,000 $ 662,000
Buildings and improvements . . . . . . . . . . . . . . . 27,232,000 27,113,000
Machinery, equipment, furniture and fixtures . . . . . . 86,813,000 84,107,000
------------ ----------

Total . . . . . . . . . . . . . . . . . . . . . 114,706,000 111,882,000

Less: accumulated depreciation and amortization . . . . 51,574,000 43,142,000
------------ -----------

Total . . . . . . . . . . . . . . . . . . . . . $ 63,132,000 $68,740,000
============ ===========

</TABLE>

During the fiscal year ended March 31, 1994, the Company sold and
leased back assets with a net book value of $1,006,000.

6. OTHER CURRENT LIABILITIES

<TABLE>
<CAPTION>
March 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Accrued payroll costs . . . . . . . . . . . . . . . . . $ 13,149,000 $ 11,687,000
Accrued taxes . . . . . . . . . . . . . . . . . . . . . 6,978,000 7,094,000
Accrued costs on long-term contracts . . . . . . . . . . 6,477,000 4,183,000
Accrued warranty costs . . . . . . . . . . . . . . . . . 5,248,000 4,502,000
Postretirement benefit obligation other than pensions . . 2,000,000 2,000,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . 3,921,000 5,516,000
------------ ------------

Total . . . . . . . . . . . . . . . . . . . . . $ 37,773,000 $ 34,982,000
============ ============
</TABLE>

7. LONG-TERM DEBT

<TABLE>
<CAPTION>
March 31,
--------------------------------
1995 1994
---- ----
<S> <C> <C>
Senior revolving loan (a) . . . . . . . . . . . . . . . $ -- $ 10,000,000
11 7/8% Senior Secured Notes due 2003 (b) . . . . . . . 100,000,000 100,000,000
13 3/4% Senior Subordinated Debentures due 2001 (c) . . 210,000,000 210,000,000
14 3/4% Convertible Debentures due 2004 (d) . . . . . . -- 61,421,000
------------ ------------

Total . . . . . . . . . . . . . . . . . . . . . $310,000,000 $381,421,000
============ ============
</TABLE>

(a) Credit Agreements - On April 27, 1989, the Company entered into senior
term loan and senior revolving loan credit agreements (collectively
referred to as the "Credit Agreement") with a syndicate of banks. On
June 10, 1992, the Company issued $100 million aggregate principal
amount of 11 7/8% Senior Secured Notes due 2003 (the "Senior Notes").
The net proceeds from the Senior Notes were used to prepay the senior
term loan in full and reduce the outstanding amount of the senior
revolving loan. The Company recorded an extraordinary charge of
$2,477,000 relating to the accelerated amortization of unamortized
financing costs associated with the prepayment of the senior term loan
in fiscal year 1993.

F-10
<PAGE> 71
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In connection with the Senior Note offering, the original senior
revolving loan credit agreement was amended and restated pursuant to
an Amended and Restated Revolving Credit Agreement (the "Restated
Revolving Credit Agreement"). The Restated Revolving Credit Agreement
provides for revolving loans (the "Revolving Loan") in an aggregate
principal amount not to exceed $70 million (subject to a borrowing
base of a portion of eligible accounts receivable and inventory). The
Company's obligation under the Revolving Loan is secured by a first
priority lien on all accounts receivable and inventory of the
Subsidiaries. All borrowings under the Revolving Loan will mature on
April 27, 1997.

Borrowings under the Revolving Loan bear interest at floating rates.
At March 31, 1995, had there been any borrowings under the Revolving
Loan, the rate would have been 8.44%. At March 31, 1994, the interest
rate on borrowings under the Revolving Loan was 5.81%. As part of the
total commitment, the Restated Revolving Credit Agreement provides for
the issuance of letters of credit not to exceed $11 million. As of
March 31, 1995 and 1994, the Company had outstanding letters of credit
of $7.4 million and $7.5 million, respectively. At March 31, 1995 and
1994, the Company had $53.6 million and $45.7 million, respectively,
available under the Revolving Loan.

The Restated Revolving Credit Agreement contains certain covenants and
events of default, including limitations on additional indebtedness,
liens, asset sales, dividend payments and other distributions from the
subsidiaries to K & F and contains financial ratio requirements
including cash interest coverage and consolidated net worth. The
Company was in compliance with all covenants at March 31, 1995.

(b) 11 7/8% Senior Secured Notes - On June 10, 1992, the Company issued
$100 million of 11 7/8% Senior Secured Notes which mature on December
1, 2003. The Senior Notes are not subject to a sinking fund. The
Senior Notes may not be redeemed prior to June 1, 1997. On and after
June 1, 1997, the Company may redeem the Senior Notes at descending
premiums ranging from 5.28% in June 1997 to no premium after June
2001.

(c) 13 3/4% Senior Subordinated Debentures - On August 10, 1989, the
Company issued $210 million of 13 3/4% Senior Subordinated Debentures
which mature on August 1, 2001 (the "Subordinated Debentures"). The
Company is required to make sinking fund payments of $52.5 million
plus accrued interest on each of August 1, 1999 and August 1, 2000.
The Company may, at its option, receive credit against sinking fund
payments for the principal amount of Subordinated Debentures acquired
by the Company. As of August 1, 1994, the Company may redeem the
Subordinated Debentures at descending premiums ranging from 5% in
August 1994 to no premium after August 1998.

(d) 14 3/4% Convertible Debentures - On September 2, 1994, K & F retired
the $65.4 million principal amount of 14 3/4% Convertible Debentures
held by Loral Corporation. (See Note 9.)

F-11
<PAGE> 72
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of all financial instruments reported on the
balance sheet at March 31, 1995 and 1994 approximate their fair value,
except as discussed below.

The fair value of the Company's total debt (excluding the Convertible
Debentures in fiscal year 1994, which were retired in fiscal year
1995) based on quoted market prices or on current rates for similar
debt with the same maturities, was approximately $306 million and $297
million at March 31, 1995 and 1994, respectively.

9. CAPITAL STOCK

a. On February 15, 1995, the Board of Directors approved a
one-for-ten reverse common stock split for all holders of
Class A and Class B common stock on such date. Stockholders'
equity has been restated to give retroactive recognition to
the stock split for all periods presented. In addition, all
references in the financial statements to number of shares and
stock option data have been restated.

b. On September 2, 1994, K & F retired the $65.4 million
principal amount of 14 3/4% Subordinated Convertible
Debentures held by Loral Corporation, in exchange for $12.76
million in cash and 458,994 shares of Class B common stock
representing 22.5% of equity. The cash portion of this
transaction was funded with the proceeds from the sale of
capital stock to K & F's principal stockholders for which
stockholders received a total of 68,728 shares of Class A
common stock and 127,636 shares of preferred stock. As a
result, K & F's stockholders' equity was increased by $65.4
million and long-term debt was reduced by an equal amount,
resulting in no gain or loss on the transaction.

c. The preferred stock is convertible into Class A voting common
stock on a one-for-one basis. The preferred stock and Class B
common stock are entitled to vote on all matters on which the
Class A common stock will vote and are entitled to one vote
per share.

d. In November 1989, the Company adopted the 1989 Stock Option
Plan, which provides for the grant of nonqualified or
incentive stock options to acquire 50,000 authorized but
unissued shares of Class A common stock. The options are
exercisable in four equal installments on the second, third,
fourth and fifth anniversaries of the date of grant, and shall
remain exercisable until the expiration of the option, 10
years from the date of the grant, at an exercise price of
$84.60.

Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year . . . 12,000 13,750 11,600
Granted . . . . . . . . . . . . . . . -- 500 2,750
Cancelled . . . . . . . . . . . . . . (500) (2,250) (600)
------ ------ ------
Outstanding at end of year . . . . . . 11,500 12,000 13,750
====== ====== ======

Exercisable options outstanding . . . 8,938 6,563 5,500
====== ====== ======

Available for future grants . . . . . 38,500 38,000 36,250
====== ====== ======
</TABLE>

F-12
<PAGE> 73
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. EMPLOYEE BENEFIT PLANS

The Company provides pension benefits to substantially all employees
through two pension plans (hourly and salaried). The plans provide
benefits based primarily on the participant's years of service. The
salaried plan also includes voluntary employee contributions.

Net pension cost included the following:

<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------------

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the
period . . . . . . . . . . . . . . . . . . . $1,590,000 $1,361,000 $1,407,000
Interest cost on projected
benefit obligation . . . . . . . . . . . . . 4,224,000 4,033,000 3,632,000
Actual loss (return) on plan assets . . . . . 954,000 (3,683,000) (2,960,000)
Net amortization and deferral . . . . . . . . (3,869,000) 809,000 315,000
---------- ---------- ----------

Net pension cost . . . . . . . . . . . . . . $2,899,000 $2,520,000 $2,394,000
========== ========== ==========

</TABLE>

The table below sets forth the funded status of the plans as follows:

<TABLE>
<CAPTION>
March 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation . . . . . . . . . . . . . . $51,770,000 $53,088,000
=========== ===========

Accumulated benefit obligation . . . . . . . . . . . . $52,189,000 $53,535,000
Effect of projected future salary increases . . . . . 860,000 1,053,000
----------- -----------

Projected benefit obligation . . . . . . . . . . . . . 53,049,000 54,588,000
Plan assets at fair market value . . . . . . . . . . . . 42,626,000 40,347,000
----------- -----------

Unfunded projected benefit obligation . . . . . . . . . 10,423,000 14,241,000
Unrecognized prior service cost . . . . . . . . . . . . (2,389,000) (2,786,000)
Unrecognized net loss . . . . . . . . . . . . . . . . . (7,761,000) (7,971,000)
Adjustment for minimum liability . . . . . . . . . . . . 9,290,000 9,704,000
----------- -----------

Accrued pension cost recognized in the
consolidated balance sheet . . . . . . . . . . . . . . $9,563,000 $13,188,000
========== ===========
</TABLE>

F-13
<PAGE> 74
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Statement of Financial Accounting Standards No. 87 requires
recognition in the balance sheet of an additional minimum pension
liability for underfunded plans with accumulated benefit obligations
in excess of plan assets. A corresponding amount is recognized as an
intangible asset or a reduction of equity. At March 31, 1995, the
Company's additional minimum liability was $9,290,000 with a
corresponding equity reduction of $7,192,000 and intangible asset of
$2,098,000. At March 31, 1994, the Company's additional minimum
liability was $9,704,000 with a corresponding equity reduction of
$7,467,000 and intangible asset of $2,237,000.

Investments held by the Company's pension plans consist primarily of
Fortune 500 equity securities and investment grade fixed income
securities.

The assumptions used in accounting for the plans are as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate . . . . . . . . . . . . . . . . . . . 8.50% 7.75% 9.00%
Rate of increase in compensation levels . . . . . . 4.50 4.50 5.50
Expected long-term rate of return on assets . . . . 9.50 9.50 9.50
</TABLE>

Eligible employees having one year of service also participate in one
of the Company's Savings Plans (hourly or salaried). Under one of
these plans, the Company matches 45% of a participating employee's
contributions, up to 6% of compensation. The employer contributions
generally vest to participating employees after five years of service.
The matching contributions were $532,000, $568,000 and $582,000 for
the fiscal years ended March 31, 1995, 1994 and 1993, respectively.

11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company provides postretirement health care and life insurance
benefits for all eligible employees and their dependents active at
April 27, 1989 and thereafter, and postretirement life insurance
benefits for retirees prior to April 27, 1989. Participants are
eligible for these benefits when they retire from active service and
meet the eligibility requirements of the Company's pension plans. The
health care plans are generally contributory and the life insurance
plans are generally noncontributory. These costs were previously
recognized as claims were paid. Effective April 1, 1992, the Company
adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." SFAS No. 106 requires accrual of these
benefits during an employee's service period. The Company elected to
record the transition obligation of $77,902,000 as a one-time charge
against earnings.

During the first quarter of fiscal year 1994, the Company adopted
various plan amendments which had the effect of reducing the
accumulated postretirement benefit obligation. This reduction is
being amortized as prior service cost over the average remaining years
of service to full eligibility of active plan participants.

F-14
<PAGE> 75
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Net periodic postretirement benefit cost included the following
components:

<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits attributed to service during the
period . . . . . . . . . . . . . . . . . . . . . . . $ 400,000 $ 458,000 $2,287,000
Interest cost on accumulated postretirement benefit
obligation . . . . . . . . . . . . . . . . . . . . . 3,543,000 2,749,000 7,100,000
Net amortization and deferral . . . . . . . . . . . . . (3,732,000) (4,677,000) --
---------- ---------- ----------

Net periodic postretirement benefit cost . . . . . . . $ 211,000 $(1,470,000) $9,387,000
========= ============ ==========
</TABLE>

A portion of the net postretiretirement benefit cost is capitalized in
inventory at year end. The net periodic postretirement benefit cost
charged to operations was $(83,000), $443,000 and $7,768,000 for the
fiscal years ended March 31, 1995, 1994 and 1993, respectively.

Presented below are the total obligations and amounts
recognized in the Company's consolidated balance sheets, inclusive of
the current portion:

<TABLE>
<CAPTION>
March 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . $28,066,000 $23,989,000
Fully eligible active plan participants. . . . . . . . . . . . 2,983,000 2,159,000
Other active plan participants. . . . . . . . . . . . . . . . 12,653,000 11,882,000
----------- -----------
Total accumulated postretirement benefit obligation. . . . . . . . 43,702,000 38,030,000
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . (10,843,000) (7,416,000)
Unrecognized prior service cost related to plan amendments . . . . 46,858,000 51,536,000
----------- ----------

Accrued postretirement benefit costs . . . . . . . . . . . . . . . $79,717,000 $82,150,000
=========== ===========
</TABLE>

The assumed annual rate of increase in the per capita cost of covered
health care benefits was 13.1% in fiscal year 1995 and will be 12.2%
in fiscal year 1996. The rate was assumed to decrease gradually to
6.5% by fiscal year 2002 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the
amounts reported. A change in the assumed health care trend rates by
1% in each year would change the accumulated postretirement benefit
obligation at March 31, 1995 by $5,900,000 and the aggregate of the
service and interest cost components of net postretirement benefit
cost for the fiscal year ended March 31, 1995 by $1,000,000. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation as of March 31, 1995 and 1994 was
8.50% and 7.75%, respectively.

F-15
<PAGE> 76

K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. COMMITMENTS

The Company is party to various noncancelable operating leases which
are longer than a one-year term for certain data processing, and other
equipment and facilities with minimum rental commitments payable as
follows:

<TABLE>
<CAPTION>
Year Ending March 31, Amount
--------------------- ------
<S> <C>
1996 $ 4,356,000
1997 4,247,000
1998 4,296,000
1999 4,328,000
2000 4,062,000
Thereafter 7,120,000
</TABLE>

Rental expense was $4,641,000, $4,190,000, and $3,941,000 for the
fiscal years ended March 31, 1995, 1994 and 1993, respectively.

13. CONTINGENCIES

There are various lawsuits and claims pending against the Company
incidental to its business. Although the final results in such suits
and proceedings cannot be predicted with certainty, in the opinion of
management, the ultimate liability, if any, will not have a material
adverse effect on the Company.

14. INCOME TAXES

Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." In
connection with such adoption, there was no impact to the financial
statements as the Company has provided a 100 percent valuation
allowance against its net deferred tax benefit.

The components of the net deferred tax benefit are as follows:

<TABLE>
<CAPTION>
March 31, March 31,
1995 1994
--------- ---------
<S> <C> <C>
Tax net operating loss carryforwards . . . . . . . . . . . . . . . $ 42,280,000 $ 43,135,000

Temporary differences:
Postretirement and other employee
benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 38,746,000 37,337,000
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . 32,237,000 28,223,000
Program participation costs . . . . . . . . . . . . . . . . . . (6,215,000) (6,651,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,656,000 7,179,000
------------ ------------

Net deferred tax benefit . . . . . . . . . . . . . . . . . . . . . $114,704,000 $109,223,000
============ ============
</TABLE>

In the event of future recognition of a 100 percent reduction of the
valuation allowance, income tax expense and goodwill would be reduced
by approximately $59 million and $56 million, respectively.

F-16
<PAGE> 77
K & F INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)

The Company's effective tax rate of zero percent results from
non-recognition of tax net operating losses and temporary differences
as compared to the federal statutory rate (benefit of 35%).

15. RELATED PARTY TRANSACTIONS

Bernard L. Schwartz ("BLS") owns 27.12% of the common stock of the
Company and serves as Chairman of the Board of Directors and Chief
Executive Officer. BLS is also Chairman and Chief Executive Officer
of Loral. The Company has an Advisory Agreement with BLS which
provides for the payment of an aggregate of $200,000 per month of
compensation to BLS and persons designated by him. Such agreement
will continue until BLS dies or is disabled or ceases to own at least
135,000 shares of common stock of the Company.

On September 2, 1994, K & F retired the $65.4 million principal amount
of Convertible Debentures held by Loral. (See Notes 7 and 9.)

Pursuant to a financial advisory agreement between Lehman Brothers and
the Company, Lehman Brothers acts as exclusive financial adviser to
the Company. The Company pays Lehman Brothers customary fees for
services rendered on an as-provided basis. The agreement may be
terminated by the Company or Lehman Brothers upon certain conditions.
In connection with the Senior Note offering on June 10, 1992, Lehman
Brothers received underwriting discounts and commissions of $2.25
million.

During the fiscal year ended March 31, 1995, the Company invested
excess cash in commercial paper with an affiliate of Lehman Brothers.
Total interest received during the fiscal year ended March 31, 1995
was $19,000. The total amount of commercial paper held at March 31,
1995 was $6.0 million.

Pursuant to agreements between K & F and Loral, the parties provide
services to each other and share certain expenses relating to a
production program, real property occupancy, benefits administration,
treasury, accounting and legal services. The related charges agreed
upon by the parties were established to reimburse each party on the
actual cost incurred without profit or fee. The Company believes the
arrangements with Loral are as favorable to the Company as could have
been obtained from unaffiliated parties. Billings from Loral were
$3.0 million, $3.0 million and $3.7 million in fiscal years 1995, 1994
and 1993, respectively. Billings to Loral were $.2 million, $1.1
million, and $1.1 million in fiscal years 1995, 1994 and 1993.
Purchases from Loral were $1.9 million, $4.2 million, and $3.7 million
in fiscal years 1995, 1994 and 1993. Included in accounts receivable
and accounts payable at March 31, 1995 is $.7 million and $1.8
million. Included in accounts receivable and accounts payable at March
31, 1994 is $.6 million and $2.0 million.

F-17
<PAGE> 78
================================================================================

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

______________________

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information 2
Prospectus Summary 3
The Company 7
Risk Factors 8
Use of Proceeds 11
Selected Financial Data 12
Management's Discussion and Analysis of
Results of Operations and Financial
Condition 13
Business 16
Management 24
Ownership of Capital Stock 32
Description of Subordinated Debentures 35
Description of Certain Indebtedness 52
Certain Transactions 55
Certain Federal Income Tax Considerations 56
Plan of Distribution 58
Legal Matters 58
Experts 58
Index to Financial Statements F-1

</TABLE>

$210,000,000

K & F INDUSTRIES, INC.

13-3/4% SENIOR SUBORDINATED
DEBENTURES DUE 2001

______________________

PROSPECTUS

JULY 13, 1995

______________________

LEHMAN BROTHERS

================================================================================
<PAGE> 79

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all fees and expenses paid by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby (other than underwriting discounts and commissions).

<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,000
NASD fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,500
Printing and engraving expenses . . . . . . . . . . . . . . . . . . . . 261,956
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . 181,800
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . 445,217
Trustee's fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,160
Qualified Independent Underwriter's fees and expenses . . . . . . . . . 175,477
Rating services registration fees . . . . . . . . . . . . . . . . . . . 75,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,345
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,453,455
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of the State of Delaware provides
for the indemnification of officers and directors under certain circumstances
against expenses incurred in successfully defending against a claim and
authorizes Delaware corporations to indemnify their officers and directors
under certain circumstances against expenses and liabilities incurred in legal
proceedings involving such persons because of their being or having been an
officer or director. Pursuant to Section 102(b)(7) of the General Corporation
Law of the State of Delaware, the Certificate of Incorporation of the
Registrant provides that the directors of the Registrant, individually or
collectively, shall not be held personally liable to the Registrant or its
stockholders for monetary damages for breaches of fiduciary duty as directors,
except that any director shall remain liable (1) for any breach of the
director's fiduciary duty of loyalty to the Registrant or its stockholders, (2)
for acts or omissions not in good faith or involving intentional misconduct or
a knowing violation of law, (3) for liability under Section 174 of the General
Corporation Law of the State of Delaware or (4) for any transaction from which
the director derived an improper personal benefit. The by-laws of the
Registrant provide for indemnifications of its officers and directors to the
full extent authorized by law.

Reference is made to the Underwriting Agreement and the Independent
Underwriting Agreement, the proposed forms of which were filed herewith as
Exhibits 1.01 and 1.02, respectively, for additional indemnification
provisions.

II-1
<PAGE> 80
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Common Stock

On April 27, 1989 in connection with the Acquisition, the Registrant sold
shares of Common Stock as follows:

<TABLE>
<CAPTION>
Purchaser Shares Purchase Price
--------- ------ --------------
<S> <C> <C>
Lehman Brothers Holdings Inc. 175,000 Voting Common Stock $14,807,693

475,000 Non-Voting Common Stock 40,192,307
-----------
$55,000,000

Bernard L. Schwartz 350,000 Voting Common Stock $10,000,000
</TABLE>

On July 28, 1989, Lehman Brothers Holdings Inc. sold 32,499 shares of
Non-Voting Common Stock to CBC Capital Partners, Inc. who subsequently
exchanged the shares of Non-Voting Common Stock for an equal number of shares
of Convertible Preferred Stock and one share of Voting Common Stock.

On July 28, 1989, Lehman Brothers Holdings, Inc. sold its remaining
shares of Common Stock (at the price and upon the same terms at which Lehman
Brothers Holdings Inc. purchased such Common Stock) to certain affiliates of
Shearson Lehman Brothers Holdings, Inc. which were subsequently exchanged for
an equal number of shares of Convertible Preferred Stock as follows:

<TABLE>
<CAPTION>
Shares of Convertible
Name Preferred Stock
---- ---------------
<S> <C>
Lehman Brothers Merchant Banking Portfolio Partnership L.P. . . . . . . . . . . . . . . . . . . . . . . 301,143
Lehman Brothers Offshore Investment Partnership L.P. . . . . . . . . . . . . . . . . . . . . . . . . . 81,017
Lehman Brothers Offshore Investment Partnership - Japan L.P. . . . . . . . . . . . . . . . . . . . . . 30,800
Lehman Brothers Capital Partners II, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,540
</TABLE>

On November 15, 1989, the Board of Directors approved a ten-for-one
Common Stock split for all holders of Common Stock on such date. Total Common
Stock and Preferred Stock outstanding subsequent to the events described above
are 3,500,010 and 649,999, respectively.

II-2
<PAGE> 81
On July 22, 1991, the Registrant sold shares of Common Stock and
Convertible Preferred Stock as follows:

<TABLE>
<CAPTION>
Shares of Shares of
Voting Convertible
Common Preferred Purchase
Stock Stock Price
--------- ----------- --------
<S> <C> <C> <C>
Bernard L. Schwartz 1,346,154 $3,846,154
Lehman Brothers Merchant Banking Portfolio
Partnership, L.P. 115,353 9,760,607
Lehman Brothers Offshore Investment
Partnership L.P. 31,713 2,683,399
Lehman Brothers Offshore Investment
Partnership - Japan, L.P . 12,050 1,019,576
Lehman Brothers Capital
Partners II, L.P. 78,384 6,632,572
CBC Capital Partners, Inc. 12,500 1,057,692
--------- ------- -----------
1,346,154 250,000 $25,000,000
========= ======= ===========
</TABLE>

On September 2, 1994 the Registrant sold shares of Common Stock and
Convertible Preferred Stock as follows:
<TABLE>
<CAPTION>
Shares of Shares of
Voting Convertible
Common Preferred Purchase
Stock Stock Price
--------------- --------------- -----------
<S> <C> <C> <C>
Bernard L. Schwartz 687,273 $1,963,636
Lehman Brothers Merchant Banking Portfolio
Partnership, L.P. 61,891 5,236,910
Lehman Brothers Offshore Investment
Partnership, L.P. 17,015 1,439,751
Lehman Brothers Offshore Investment
Partnership - Japan, L.P. 6,498 549,839
Lehman Brothers Capital
Partners II, L.P. 42,232 3,573,500
------- ------- -----------
687,273 127,636 $12,763,636
======= ======= ===========
</TABLE>

On September 2, 1994, K & F retired the $65.4 million principal amount of
14 3/4% Subordinated Convertible Debentures due 2004 held by Loral Corporation,
in exchange for $12.76 million in cash and 4,589,938 shares of Class B common
stock representing 22.5% of equity. The cash portion of this transaction was
funded with the proceeds from the sale of capital stock to K & F's principal
stockholders for which stockholders received a total of 687,273 shares of Class
A common stock and 127,636 shares of preferred stock. As a result, K & F
stockholders' equity was increased by $65.4 million and long-term debt was
reduced by an equal amount. (See Notes 7 and 9 to the consolidated financial
statements.)

On February 15, 1995, the Board of Directors approved a one-for-ten reverse
Common Stock split for all the holders of Class A and Class B Common Stock on
such date. Total Class A Common Stock, Class B Common Stock and Preferred
Stock outstanding subsequent to the events described above are 553,344, 458,994
and 1,027,635, respectively.

Debt Securities

On April 27, 1989, the Registrant sold $180 million aggregate principal
amount of its Subordinated Bridge Notes due October 27, 1989 to Lehman Brothers
Holdings, Inc. The Subordinated Bridge Notes were repaid in full on August 10,
1989.

The shares of Common Stock and the Preferred Stock issued as provided above
were not registered under the Securities Act of 1933 (the "Act"). All of such
shares of Common and Preferred Stock were issued in reliance on the exemption
from registration provided by Section 4(2) of the Act.

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<PAGE> 82
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS.

1.01 - Form of Underwriting Agreement(5)

1.02 - Form of Qualified Independent Underwriting Agreement(2)

2.01 - Agreement or Sale and Purchase of Assets dated March 26, 1989
between Loral Corporation and the Registrant

3.01 - Amended and Restated Certificate of Incorporation of K & F
Industries, Inc.(7)

3.02 - Amended and Restated By-Laws of K & F Industries, Inc.(6)

4.01 - Indenture for the 13 3/4% Senior Subordinated Debentures due
2001(1)

4.02 - Indenture for the 14 3/4% Subordinated Convertible Debentures
Due 2004(1)

4.03 - First Supplemental Indenture dated as of July 22, 1991, to
Convertible Debenture Indenture(4)

4.04 - Form of Second Supplemental Indenture dated as of June 10,
1992, to Convertible Debenture Indenture(5)

4.05 - Form of Indenture dated as of June 1, 1992 for the 11 7/8%
Senior Secured Notes Due 2003(5)

4.06 - Form of 11 7/8% Senior Secured Notes due 2003(5)

4.07 - Form of Pledge Agreement(5)

5.01 - Opinion of Davis Polk & Wardwell(1)

8.01 - Tax Opinion of Davis Polk & Wardwell(1)

9.01 - Stockholders Agreement dated April 27, 1989 among the
Registrant, Lehman Brothers Holdings Inc. ("LBH") and Bernard
L. Schwartz ("BLS")(1)

10.01 - Credit Agreement dated as of April 27, 1989 among the
Registrant, Chemical Banking Corporation, as Agent and the
Banks named therein(1)

10.02 - Revolving Credit Agreement dated as of April 27, 1989, among
Aircraft Braking Systems Corporation, Engineered Fabrics
Corporation, the Agent and the Banks named therein(1)

10.03 - Securities Purchase Agreement dated as of April 27, 1989,
among the Registrant, BLS and LBH(1)

10.04 - Assumption Agreement dated as of April 27, 1989(1)

10.06 - Senior Subordinated Loan Agreement dated as of April 27, 1989
among the Registrant and LBH(1)

10.07 - Shared Services Agreement dated April 27, 1989, among Loral,
the Registrant, Aircraft Braking Systems Corporation and
Engineered Fabrics Corporation(1)

II-4
<PAGE> 83
(A) EXHIBITS (CONTINUED):

10.08 - Director Advisory Agreement dated as of April 27, 1989, among
the Registrant and BLS(1)
10.09 - Non-Competition Agreement dated as of April 27, 1989, between
the Registrant and BLS(1)

10.10 - K & F Industries, Inc. Retirement Plan for Salaried
Employees(5)

10.11 - K & F Industries, Inc. Savings Plan for Salaried Employees(5)

10.12 - Goodyear Aerospace Corporation Supplemental Unemployment
Benefits Plan for Salaried Employees - Plan A(1)

10.13 - The Loral Systems Group Release and Separation Allowance
Plan(1)

10.14 - Letter Agreement dated April 27, 1989, between the Registrant
and Shearson Lehman Brothers Inc.(1)

10.15 - Amendment and Waiver dated as of July 14, 1989(1)

10.16 - Amendment to Credit Agreement dated as of July 31, 1989,
between K & F Industries, the Subsidiaries and the Banks
named therein(2)

10.17 - K & F Industries, Inc. 1989 Stock Option Plan(2)

10.18 - K & F Industries, Inc. Executive Deferred Bonus Plan(2)

10.19 - Amendment to the Credit Agreement dated as of June 26, 1991(3)

10.21 - Securities Purchase Agreement dated as of July 22, 1991,
among the Registrant, BLS and the Lehman Investors(4)

10.24 - Securities Purchase Agreement among K & F Industries, Inc.,
BLS and the Lehman Brothers Partnerships dated September 2,
1994(6)

10.25 - Amended and Restated Stockholders Agreement dated as of
September 2, 1994 By and Among
K & F Industries, Inc., BLS, the Lehman Brothers
Partnerships, CBC Capital Partners, Inc. and Loral
Corporation(6)

10.26 - Agreement dated as of September 2, 1994 between K & F
Industries, Inc. and Loral Corporation(6)

10.27 - Form of Amended and Restated Revolving Credit Agreement dated
as of June 10, 1992, among Chemical Bank, the Banks named
therein, Aircraft Braking Systems Corporation and Engineered
Fabrics Corporation(5)

10.28 - Waiver and Consent dated as of August 26, 1994(6)

10.29 - Amendment of Stockholders Agreement dated November 8, 1994(6)

10.30 - Securities Conversion Agreement among K & F Industries, Inc.
and the Converting Stockholders, dated November 8, 1994(6)

II-5
<PAGE> 84
(A) EXHIBITS (CONTINUED):

10.31 - First Amendment, dated April 6, 1995 to the Amended and
Restated Revolving Credit Agreement (7)

12.01 - Statement of computations of ratio of earnings (deficiency) to
fixed charges(5)

12.02 - Statement of computation of pro forma deficiency ratio of
earnings to fixed charges(5)

21.01 - Subsidiaries of the Registrant(1)

23.01 - Consent of Deloitte & Touche LLP

24.01 - Powers of Attorney (included on signature page)

26.01 - Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of The Connecticut National Bank, with
respect to the indenture for the 13 3/4% Senior Subordinated
Debentures due 2001(1)

26.02 - Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of The Bank of New York, with respect
to the Indenture for the 11 7/8% Senior Secured Notes(5)

27.01 - Financial Data Schedule(7)

-------------------------

(1) Previously filed, as an exhibit to the Company's Registration Statement on
Form S-1, No. 33-29035.

(2) Previously filed, as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1990.

(3) Previously filed, as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1991.

(4) Previously filed, as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991.

(5) Previously filed, as an exhibit to the Company's Registration Statement on
Form S-1, No. 33-47028.

(6) Previously filed, as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.

(7) Previously filed, as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1995.

(B) FINANCIAL STATEMENT SCHEDULES:

None

All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto. Exhibits 10.08 through 10.13 and Exhibits 10.17 and 10.18 are
management contracts or compensation plans.

II-6

<PAGE> 85

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made of the securities registered hereby, a post-effective amendment to this
registration statement (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of this registration statement
(or the most recent post-effective amendment hereto) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement; provided, however, that the undertakings set forth in subparagraphs
(i) and (ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 that are incorporated by reference in this registration
statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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;

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering; and

(4) That, for the 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 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.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 hereof, 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-7
<PAGE> 86

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Post-Effective Amendment No. 12 to the Registration Statement
on Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, New York on the 13th day of July, 1995.

K & F INDUSTRIES

By: KENNETH M. SCHWARTZ
-------------------
Kenneth M. Schwartz
Chief Financial Officer
POWER OF ATTORNEY

We the undersigned directors of K & F Industries, Inc. do hereby
constitute and appoint Kenneth M. Schwartz our true and lawful attorney and
agent, to do any and all acts and things in our name and behalf in our
capacities as directors and officers and to execute any and all instruments for
us in our names in the capacities indicated below, which said attorney and
agent, may deem necessary or advisable to enable said corporation to comply with
the Securities Act of 1933 and any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection with this Post-Effective
Amendment No. 12, including specifically, but without limitation, power and
authority to sign for us or any of us in our names in the capacities indicated
below, any and all amendments (including post-effective amendments) hereto; and
we do hereby ratify and confirm all that said attorney and agent, shall do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 12 to the Registration Statement on Form S-1 has
been signed by the following persons in the capacity and on the dates indicated.

Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ BERNARD L. SCHWARTZ Chairman of the Board, Chief May 1, 1995
- --------------------------- Executive Officer and Director
Bernard L. Schwartz (principal executive officer)

KENNETH M. SCHWARTZ Chief Financial Officer (principal July 13, 1995
- --------------------------- financial and accounting officer)
Kenneth M. Schwartz

/s/ HERBERT R. BRINBERG Director May 1, 1995
- ---------------------------
Herbert R. Brinberg

/s/ RONALD H. KISNER Director May 1, 1995
- ---------------------------
Ronald H. Kisner

/s/ JOHN R. PADDOCK Director May 1, 1995
- ---------------------------
John R. Paddock

/s/ JAMES A. STERN Director May 1, 1995
- ---------------------------
James A. Stern

/s/ A. ROBERT TOWBIN Director May 1, 1995
- ---------------------------
A. Robert Towbin

/s/ ALAN H. WASHKOWITZ Director May 1, 1995
- ---------------------------
Alan H. Washkowitz
</TABLE>

II-8
<PAGE> 87
EXHIBIT INDEX
-------------

Ex-23.01 Consent of Deloitte & Touche LLP

<PAGE> 1
EXHIBIT 23.01

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Post-Effective Amendment No. 12 to Registration
Statement No. 33-29035 of K & F Industries, Inc. of our report dated May 19,
1995 (which expresses an unqualified opinion and includes an explanatory
paragraph related to changes in the Company's method of accounting for
discounting of certain liabilities, effective April 1, 1993, and certain
overhead costs included in inventory and postretirement benefits other than
pensions, effective April 1, 1992), appearing in the Prospectus, which is a
part of such Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.

DELOITTE & TOUCHE LLP

New York, New York

July 13, 1995