-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QvrcrOQramuWUfK7V8kQK79U9LXhpzR0UtkpS5D8Td7iCA0LG41FJUTqEvBRlfIz I0EQ8UaS0abehuaKXu8AqA== 0000950123-96-004794.txt : 19960830 0000950123-96-004794.hdr.sgml : 19960830 ACCESSION NUMBER: 0000950123-96-004794 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19960829 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: K&F INDUSTRIES INC CENTRAL INDEX KEY: 0000851797 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 341614845 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-11047 FILM NUMBER: 96623335 BUSINESS ADDRESS: STREET 1: 600 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2122970900 MAIL ADDRESS: STREET 1: 600 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10016 S-4 1 S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1996 REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ K & F INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3728 34-1614845 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
------------------------ 600 THIRD AVENUE NEW YORK, NEW YORK 10016 (212) 297-0900 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ KENNETH M. SCHWARTZ EXECUTIVE VICE PRESIDENT K&F INDUSTRIES, INC. 600 THIRD AVENUE NEW YORK, NEW YORK 10016 (212) 297-0900 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH A COPY TO: JOHN J. SUYDAM, ESQ. O'SULLIVAN GRAEV & KARABELL, LLP 30 ROCKEFELLER PLAZA NEW YORK, NEW YORK 10112 (212) 408-2400 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: / / ------------------------ CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM MAXIMUM AMOUNT OFFERING AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF TO BE PRICE OFFERING PRICE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER NOTE (1) FEE - --------------------------------------------------------------------------------------------------- 10 3/8% Series B Senior Subordinated Notes due 2004................... $140,000,000 100% $140,000,000 $48,276 - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee. ------------------------ 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, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 K&F INDUSTRIES, INC. CROSS REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501(B), SHOWING LOCATION OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
FORM S-4 LOCATION OR ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS ------------------------------------------- ------------------------------------------- (1) Forepart of Registration Statement and Outside Front Cover Page of Prospectus... Facing Page of Registration Statement; Cross-Reference Sheet; Outside Front Cover Page of Prospectus (2) Inside Front and Outside Back Cover Pages of Prospectus............................ Inside Front and Outside Back Cover Pages of Prospectus; Available Information (3) Risk Factors, Ratio of Earnings to Fixed Charges and Other Information............ Prospectus Summary; Risk Factors; Selected Consolidated Financial Information (4) Terms of the Transaction................... Prospectus Summary; The Exchange Offer; Description of the Notes (5) Pro Forma Financial Information............ * (6) Material Contacts with the Company Being Acquired................................. * (7) Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters....................... Plan of Distribution (8) Interests of Named Experts and Counsel..... * (9) Disclosure of Commission Position on Indemnification for Securities Act Liabilities.............................. * (10) Information With Respect to S-3 Registrants.............................. * (11) Incorporation of Certain Information by Reference................................ * (12) Information With Respect to S-2 or S-3 Registrants.............................. * (13) Incorporation of Certain Information by Reference................................ * (14) Information With Respect to Registrants Other Than S-2 or S-3 Registrants........ Prospectus Summary; Risk Factors; Selected Consolidated Financial Information; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Description of Certain Indebtedness (15) Information With Respect to S-3 Companies................................ * (16) Information With Respect to S-2 or S-3 Companies................................ * (17) Information With Respect to Companies Other Than S-2 or S-3 Companies................ * (18) Information if Proxies, Consents or Authorization Are to be Solicited........ * (19) Information if Proxies, Consents or Authorizations Are Not to be Solicited, or in an Exchange Offer.................. Management; Ownership of Capital Stock; Certain Transactions
- --------------- * Not applicable or answer is in the negative. 3 SUBJECT TO COMPLETION, DATED AUGUST 29, 1996 PROSPECTUS K & F INDUSTRIES, INC. OFFER TO EXCHANGE UP TO $140,000,000 OF ITS 10 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2004 FOR ANY AND ALL OF ITS OUTSTANDING 10 3/8% SENIOR SUBORDINATED NOTES DUE 2004 ------------------------ THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1996, UNLESS EXTENDED. ------------------------ K & F Industries, Inc. (the "Company") hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange $1,000 principal amount of 10 3/8% Series B Senior Subordinated Notes due 2004 (the "New Notes") of the Company for each $1,000 principal amount of the issued and outstanding 10 3/8% Senior Subordinated Notes due 2004 (the "Old Notes," and the Old Notes and the New Notes, collectively, the "Notes") of the Company from the Holders (as defined herein) thereof. As of the date of this Prospectus, there is $140,000,000 aggregate principal amount of the Old Notes outstanding. The terms of the New Notes are identical in all material respects to the Old Notes, except that the New Notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and therefore will not bear legends restricting their transfer and will not contain certain provisions providing for an increase in the interest rate on the Old Notes under certain circumstances relating to the Registration Rights Agreement (as defined herein), which provisions will terminate as to all of the Notes upon the consummation of the Exchange Offer. Interest on the New Notes will accrue from August 15, 1996 and will be payable in cash semi-annually in arrears on March 15 and September 15 of each year, commencing March 15, 1997. No interest will be payable on the Old Notes accepted for exchange. The New Notes will be general unsecured obligations of the Company and will be subordinated in right of payment to all existing and future Senior Indebtedness (as defined) of the Company. The Company conducts its operations solely through its subsidiaries, and, accordingly, the New Notes will be effectively subordinated to indebtedness and other liabilities of its subsidiaries. As of June 30, 1996, after giving pro forma effect to the offering of the Old Notes (the "Offering"), application of the net proceeds therefrom and borrowings under the Amended and Restated Credit Agreement (as defined), the Company would have had approximately $160 million of Senior Indebtedness outstanding, and the Company's subsidiaries would have had other liabilities of approximately $92 million outstanding. See "Capitalization." The Old Notes were not registered under the Securities Act in reliance upon an exemption from the registration requirements thereof. In general, the Old Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act. The New Notes are being offered hereby in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement. Based on interpretations by the staff of the Securities and Exchange Commission (the "Commission") set forth in no-action letters issued to third parties, the Company believes that the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 promulgated under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business, such holder has no arrangement with any person to participate in the distribution of such New Notes and neither such holder nor any such other person is engaging in or intends to engage in a distribution of such New Notes. Notwithstanding the foregoing, each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with any resale of New Notes received in exchange for such Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (other than Old Notes acquired directly from the Company). The Company has agreed that, for a period of one year after the date of this Prospectus, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. The Old Notes are designated for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. There is no established trading market for the New Notes. The Company does not currently intend to list the New Notes on any securities exchange or to seek approval for quotation through any automated quotation system. Accordingly, there can be no assurance as to the development or liquidity of any market for the New Notes. The Company will not receive any proceeds from the Exchange Offer. The Company will pay all of the expenses incident to the Exchange Offer. Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn as provided herein at any time prior to the Expiration Date (as defined herein). The Exchange Offer is subject to certain customary conditions. ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OLD NOTES IN THE EXCHANGE OFFER. ------------------------ THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1996 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE. 4 AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-4 (together with all amendments, exhibits, schedules and supplements thereto, the "Registration Statement") under the Securities Act with respect to the New Notes being offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain portions of which have been omitted pursuant to the rules and regulations promulgated by the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document are not necessarily complete. With respect to each such contract, agreement or other document filed or incorporated by reference as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference. The Registration Statement may be inspected by anyone without charge at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, and at the regional offices of the Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may also be obtained at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. Such materials can also be inspected on the Internet at http://www.sec.gov. The Company is subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy and information statements and other information with the Commission. Such materials filed by the Company with the Commission may be inspected, and copies thereof obtained, at the places, and in the manner, set forth above. In the event that the Company ceases to be subject to the informational reporting requirements of the Exchange Act, the Company has agreed that, so long as the Notes remain outstanding, it will file with the Commission and distribute to holders of the Notes copies of the financial information that would have been contained in annual reports and quarterly reports, including management's discussion and analysis of financial condition and results of operations, that the Company would have been required to file with the Commission pursuant to the Exchange Act. Such financial information will include annual reports containing consolidated financial statements and notes thereto, together with an opinion thereon expressed by an independent public accounting firm, as well as quarterly reports containing unaudited condensed consolidated financial statements for the first three quarters of each fiscal year. The Company will also make such reports available to prospective purchasers of the Notes, securities analysts and broker-dealers upon their request. In addition, the Company has agreed that for so long as any of the Old Notes remain outstanding it will make available to any prospective purchaser of the Old Notes or beneficial owner of the Old Notes in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act, until such time as the Company has either exchanged the Old Notes for securities identical in all material respects which have been registered under the Securities Act or until such time as the holders thereof have disposed of such Old Notes pursuant to an effective registration statement filed by the Company. 2 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. (the "Company"), through its wholly owned subsidiary, Aircraft Braking Systems Corporation ("Aircraft Braking Systems"), believes it is one of the world's leading manufacturers of aircraft wheels, brakes and anti-skid systems for commercial, general aviation and military aircraft, supplying approximately 22% of the worldwide market for these products. Aircraft Braking Systems' products are marketed internationally through 10 sales offices located in four countries and are used on approximately 32,000 commercial, general aviation and military aircraft. During the fiscal year ended March 31, 1996, approximately $233.0 million, or 88%, of the Company's total revenues were derived from sales made by Aircraft Braking Systems. Through its other wholly owned subsidiary, Engineered Fabrics Corporation ("Engineered Fabrics"), the Company believes it is the leading worldwide manufacturer of aircraft fuel tanks, supplying approximately 90% of the worldwide commercial transport and general aviation market and over half of the domestic military market. During the fiscal year ended March 31, 1996, approximately $31.7 million, or 12%, of the Company's total revenues were derived from sales made by Engineered Fabrics. Aircraft Braking Systems Since the late 1920s, 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. As is customary in the industry, Aircraft Braking Systems supplies original wheels and brakes for commercial aircraft to aircraft manufacturers at or substantially below the production cost of such equipment. Once a manufacturer's wheels and brakes have been certified and installed on an aircraft, FAA regulations and similar requirements in foreign countries generally require that all replacement parts for such systems be provided by such manufacturer. The FAA also requires the replacement of such parts at regular intervals, which for medium- and short-range commercial aircraft generally averages once or twice a year. Since most modern aircraft have a useful life of 25 years or longer and require scheduled replacement of certain components of the braking system, the Company typically recoups its initial investment in original equipment and generates significant profits from sales of replacement parts over the life of the aircraft. During the three fiscal years ended March 31, 1996, the Company spent and expensed an aggregate of $108 million for research, development and design and the supply of original wheel and brake equipment to aircraft manufacturers. During the fiscal year ended March 31, 1996, approximately 75% of Aircraft Braking Systems' total revenues were derived from the sale of replacement parts for braking systems previously sold by Aircraft Braking Systems. Aircraft Braking Systems also manufactures anti-skid systems for use on a variety of commercial, military and general aviation aircraft. These systems, which are integrated into a braking system, are designed to minimize the distance required to stop an aircraft by utilizing sensors, mounted in the axle and driven by 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 believes that the ability to integrate the design and performance characteristics of its wheels, brakes and integrated anti-skid systems provides Aircraft Braking Systems with a competitive advantage over its two largest competitors. Other products manufactured by Aircraft Braking Systems include helicopter rotor brakes and brake temperature monitoring equipment for various types of aircraft. Aircraft Braking Systems currently sells its products to virtually all major airframe manufacturers and commercial airlines and to the United States and certain foreign governments. Since 1989, Aircraft Braking Systems has carefully directed its efforts toward expanding its presence in the commercial and general aviation segments of the aircraft industry, focusing particularly on medium- and short-range commercial aircraft. As a 3 6 result of these efforts, Aircraft Braking Systems has added approximately 950 medium- and short-range commercial aircraft to the portfolio of aircraft using its products. These aircraft typically make more frequent landings than long-range commercial aircraft and correspondingly require more frequent replacement of brake parts. Aircraft Braking Systems has been successful in having its wheels and brakes selected for use on a number of recent airframe designs which serve this market, including the Airbus Industries ("Airbus") A-321, the McDonnell Douglas Corp. ("McDonnell Douglas") MD-80 and MD-90 programs, the Canadair Regional Jet, the Saab-Scania AB ("Saab") S340 and S2000, the Lear 60 and the Fokker Aircraft ("Fokker") Fo-70 and Fo-100. Aircraft Braking Systems has also been successful in having its brakes selected for use on certain long-range commercial aircraft produced by Airbus, specifically the A-330 and A-340. These long-range aircraft programs enhance the competitive position of Aircraft Braking Systems with Airbus and commercial airlines utilizing Airbus aircraft. The Company believes that these new airframes will expand the portfolio of aircraft using Aircraft Braking Systems' products and that the revenue generated from such aircraft will eventually replace and exceed the revenues generated by the aircraft programs in Aircraft Braking Systems' current portfolio as the aircraft in those programs reach the end of their useful lives. Over the last several years, the Company has introduced a number of new programs at Aircraft Braking Systems to enhance manufacturing efficiency and reduce raw material costs. Among the programs being implemented are cell-based manufacturing and a major expansion of Aircraft Braking Systems' existing carbon manufacturing facility. Over the past several years, cell-based manufacturing has improved productivity, reduced costs and enhanced product quality. Once the expansion is complete, the carbon facility is expected to satisfy substantially all of Aircraft Braking Systems' carbon requirements, lower costs and provide Aircraft Braking Systems with vertical integration of and control over a critical manufacturing process. Engineered Fabrics With its proprietary technology, Engineered Fabrics is the only FAA-certified supplier of polyurethane manufactured fuel tanks in the United States. The polyurethane fuel tanks produced by Engineered Fabrics feature "self-sealing" technology that significantly reduces the potential for fires, leaks and spilled fuel following a crash. Recent programs awarded to Engineered Fabrics in which this technology is being used include production or replacement parts programs for the U.S. Navy's F-18 C/D and E/F aircraft and F-15 and F-16 aircraft. Engineered Fabrics also competes in the nitrile-designed aircraft fuel tank market and won a three-year requirements contract in 1996 to supply nitrile fuel tanks to the U.S. Navy for its F-14 aircraft. During the fiscal year ended March 31, 1996, Engineered Fabrics was selected by the U.S. Army to equip its new stealth RAH-66 Comanche helicopter with fuel tanks. Other helicopter programs which have been awarded to Engineered Fabrics include the McDonnell Douglas MD-600, Bell 412 and Bell/Boeing V/22 Osprey platforms. Engineered Fabrics also manufactures and sells iceguards, inflatable oil booms and various other products made from coated fabrics for commercial and military uses. RECENT DEVELOPMENTS On August 1, 1996, the Company redeemed approximately $9.7 million aggregate principal amount of the 13 3/4% Debentures. On August 14, 1996, Aircraft Braking Systems and Engineered Fabrics entered into an amended and restated credit agreement (the "Amended and Restated Credit Agreement") with the lenders thereunder, consisting of a term loan facility in an aggregate principal amount of $40 million and a revolving credit facility in an aggregate principal amount of $70 million. On August 15, 1996, the Company consummated the Offering and deposited the net proceeds therefrom with the trustee under the indenture governing the Company's outstanding 13 3/4% Senior Subordinated Debentures due 2001 (the "13 3/4% Debentures"). Also on such date, the Company sent a notice to the holders of all outstanding 13 3/4% Debentures that all of such 13 3/4% Debentures would be redeemed 30 days after the date of such notice. The Company is a Delaware corporation formed on March 13, 1989. The Company is the successor to the businesses of Aircraft Braking Systems and Engineered Fabrics formed by Goodyear Tire & Rubber Company, Inc. ("Goodyear") in 1929. Unless the context otherwise requires, references herein to the "Company" refer to K & F Industries, Inc. and its consolidated subsidiaries. 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. 4 7 THE EXCHANGE OFFER Registration Rights Agreement..................... The Old Notes were sold by the Company on August 15, 1996 to Lehman Brothers Inc. and Chase Securities Inc. (the "Initial Purchasers"), who placed the Old Notes with institutional investors and a limited number of accredited investors. In connection therewith, the Company and the Initial Purchasers executed and delivered for the benefit of the holders of the Old Notes a registration rights agreement (the "Registration Rights Agreement") providing, among other things, for the Exchange Offer. The Exchange Offer............ New Notes are being offered in exchange for a like principal amount of Old Notes. As of the date hereof, $140,000,000 aggregate principal amount of Old Notes are outstanding. The Company will issue the New Notes to Holders promptly following the Expiration Date. See "Risk Factors -- Consequences of Failure to Exchange." Expiration Date............... 5:00 p.m., New York City time, on , 1996, unless the Exchange Offer is extended as provided herein, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. Interest...................... Each New Note will bear interest from August 15, 1996, the date of original issuance of the Old Notes. No interest will be paid on the Old Notes accepted for exchange. Conditions to the Exchange Offer......................... The Exchange Offer is subject to certain customary conditions, which may be waived by the Company. The Company reserves the right to amend, terminate or extend the Exchange Offer at any time prior to the Expiration Date upon the occurrence of any such condition. See "The Exchange Offer -- Conditions." Procedures for Tendering Old Notes......................... Each Holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Old Notes and any other required documentation to the exchange agent (the "Exchange Agent") at the address set forth herein. By executing the Letter of Transmittal, each Holder will represent to the Company, among other things, that (i) the New Notes acquired pursuant to the Exchange Offer by the Holder and any beneficial owners of Old Notes are being obtained in the ordinary course of business of the person receiving such New Notes, (ii) neither the Holder nor such beneficial owner has an arrangement with any person to participate in the distribution of such New Notes, (iii) neither the Holder nor such beneficial owner nor any such other person is engaging in or intends to engage in a distribution of such New Notes and (iv) neither the Holder nor such beneficial owner is an "affiliate," as defined under Rule 405 promulgated under the Securities Act, of the Company. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of marketmaking activities or other trading activities (other than Old Notes acquired directly from the Company), may partici- 5 8 pate in the Exchange Offer but may be deemed an "underwriter" under the Securities Act and, therefore, must acknowledge in the Letter of Transmittal that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "The Exchange Offer -- Procedures for Tendering" and "Plan of Distribution." Special Procedures for Beneficial Owners............. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered Holder promptly and instruct such registered Holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such beneficial owner's own behalf, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering his Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such beneficial owner's name or obtain a properly completed bond power from the registered Holder. The transfer of registered ownership may take considerable time. See "The Exchange Offer -- Procedures for Tendering." Guaranteed Delivery Procedures.................... Holders of Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." Withdrawal Rights............. Tenders may be withdrawn as provided herein at any time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer -- Withdrawal of Tenders." Acceptance of Old Notes and Delivery of New Notes......... The Company will accept for exchange any and all Old Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The New Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." Exchange Agent................ Fleet National Bank is serving as Exchange Agent in connection with the Exchange Offer. See "The Exchange Offer -- Exchange Agent." Use of Proceeds............... There will be no cash proceeds to the Company from the exchange pursuant to the Exchange Offer. Consequences of Failure to Exchange.................... Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth 6 9 in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, Old Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. SUMMARY DESCRIPTION OF THE NEW NOTES The Exchange Offer applies to $140,000,000 aggregate principal amount of Old Notes. The terms of the New Notes are identical in all material respects to the Old Notes, except that the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain certain provisions providing for an increase in the interest rate on the Old Notes under certain circumstances relating to the Registration Rights Agreement, which provisions will terminate as to all of the Notes upon the consummation of the Exchange Offer. The New Notes will evidence the same debt as the Old Notes and, except as set forth in the immediately preceding sentence, will be entitled to the benefits of the Indenture, under which both the Old Notes were, and the New Notes will be, issued. See "Description of Notes." THE NEW NOTES................. $140,000,000 aggregate principal amount of 10 3/8% Series B Senior Subordinated Notes due 2004. MATURITY DATE................. September 1, 2004. INTEREST PAYMENT DATES........ March 1 and September 1, commencing March 1, 1997. MANDATORY REDEMPTION.......... None. OPTIONAL REDEMPTION........... The New Notes will be redeemable at the Company's option in whole or in part, at any time, on or after September 1, 2000 at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. In addition, in the event that the Company consummates an initial public offering of its common stock on or before August 15, 1999, the Company may, at its option, redeem up to an aggregate of $49 million in principal amount of New Notes at a redemption price of 110.375% of the principal amount thereof, plus accrued and unpaid interest through the redemption date. See "Description of the Notes -- Optional Redemption." RANKING....................... The New Notes will be general unsecured obligations of the Company, will be subordinated in right of payment to all existing and future Senior Indebtedness (as defined in the Indenture) including all obligations of the Company under the Amended and Restated Credit Agreement (as defined) and the Senior Notes (as defined), and will be senior in right of payment to or pari passu with all other indebtedness of the Company. The Company conducts its operations solely through its subsidiaries and, accordingly, the New Notes will be effectively subordinated to indebtedness and other liabilities of such subsidiaries. As of June 30, 1996, after giving pro forma effect to the Offering, application of the net proceeds therefrom and borrowings under the Amended and Restated Credit Agreement, the Company would have had approximately $160 million of Senior Indebtedness outstanding and the Company's subsidiaries would have had other liabilities of approxi- 7 10 mately $92 million outstanding. See "Capitalization" and "Description of the Notes -- Subordination." CERTAIN COVENANTS............. The indenture pursuant to which the Old Notes were, and Notes will be, issued (the "Indenture") contains certain covenants that, among other things, limit the ability of the Company and its subsidiaries to (i) incur additional indebtedness, (ii) pay dividends or make certain other restricted payments, (iii) enter into transactions with affiliates, (iv) create certain liens, (v) make certain asset dispositions and (vi) merge or consolidate with, or transfer substantially all of its assets to, another person. The Indenture also limits the ability of the Company's subsidiaries to issue preferred stock and to create restrictions on the ability of such subsidiaries to pay dividends or make any other distributions. In addition, the Company is obligated, under certain circumstances, to offer to purchase Notes with the net cash proceeds of certain sales and other dispositions of assets at a purchase price of 100% of the principal amount of the Notes, plus accrued and unpaid interest to the date of purchase. See "Description of the Notes -- Repurchase at the Option of Holders" and "-- Certain Covenants." CHANGE OF CONTROL............. In the event of a Change of Control (as defined), each holder of New Notes will have the right, at the holder's option, to require the Company to purchase such holder's New Notes in whole or in part, at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The Amended and Restated Credit Agreement limits the Company's ability to make such a purchase. See "Description of the Notes -- Repurchase at the Option of Holders." 8 11 SUMMARY CONSOLIDATED FINANCIAL INFORMATION The following table sets forth summary historical financial information for the Company for the three months ended June 30, 1996 and June 30, 1995 and for each of the fiscal years in the five-year period ended March 31, 1996. The summary historical financial data for the Company for each fiscal year in the five-year period ended March 31, 1996 have been derived from the Company's audited consolidated financial statements. The audited consolidated financial statements of the Company for each of the years in the three-year period ended March 31, 1996 are included elsewhere in this Prospectus, together with the report thereon of Deloitte & Touche LLP, independent auditors. The historical financial data for the three months ended June 30, 1996 and June 30, 1995 have been derived from the Company's unaudited financial statements which, in the opinion of management of the Company, contain all adjustments necessary for a fair presentation of this information. The historical data with respect to the results of operations for the three months ended June 30, 1996 should not be regarded as necessarily indicative of the results that may be expected for the entire year. This historical data should be read in conjunction with the consolidated financial statements and notes thereto of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
THREE MONTHS ENDED JUNE 30, YEARS ENDED MARCH 31, ------------------- ----------------------------------------------------------- 1996 1995 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Net sales................................ $ 71,537 $ 62,293 $264,736 $238,756 $226,131 $277,107 $295,490 Cost of sales............................ 44,835 43,582 180,435 164,697 159,751 199,002 209,552 -------- -------- -------- -------- -------- -------- -------- Gross margin........................... 26,702 18,711 84,301 74,059 66,380 78,105 85,938 Independent research and development..... 3,225 1,822 9,767 8,363 12,858 11,417 14,130 Selling, general and administrative expenses............................... 5,814 5,147 22,564 19,208 22,421 24,154 24,047 Amortization............................. 2,601 2,615 10,415 10,411 10,884 10,258 10,306 -------- -------- -------- -------- -------- ------- ------- Operating income....................... 15,062 9,127 41,555 36,077 20,217 32,276 37,455 Interest expense, net(a)................. 9,572 10,426 41,048 46,250 51,953 53,486 52,179 -------- -------- -------- -------- -------- -------- ------- Income (loss) before income taxes, extraordinary charge and cumulative effect of accounting changes........... 5,490 (1,299) 507 (10,173) (31,736) (21,210) (14,724) Income taxes............................. (220) -- -- -- -- -- -- -------- -------- -------- -------- -------- ------- ------- Income (loss) before extraordinary charge and cumulative effect of accounting changes................................ 5,270 (1,299) 507 (10,173) (31,736) (21,210) (14,724) Extraordinary charge..................... -- -- (1,913)(b) -- -- (2,477)(c) (992)(c) Cumulative effect of accounting changes................................ -- -- -- -- (2,305)(d) (73,540)(e) -- -------- -------- -------- -------- -------- -------- -------- Net income (loss)...................... $ 5,270 $ (1,299) $ (1,406) $(10,173) $(34,041) $(97,227) $(15,716) ======== ======== ======== ======== ======== ======== ======== BALANCE SHEET DATA (AT END OF PERIOD): Working capital.......................... $ 38,457 $ 51,210 $ 36,327 $ 48,025 $ 53,091 $ 70,028 $ 77,606 Total assets............................. 422,199 429,567 416,037 429,074 446,880 489,968 518,938 Long-term debt(b)(f)..................... 289,657 310,000 294,000 310,000 381,421 379,478 388,571 Stockholders' deficiency(e)(f)........... (34,387) (36,061) (39,701) (34,748) (90,355) (51,868) 48,331 OTHER DATA (FOR THE PERIOD): EBITDA(g)................................ 19,849 13,932 60,476 54,920 40,744 52,138 56,956 Capital expenditures..................... 4,268 622 10,418 2,824 3,127 4,670 3,986 Depreciation and amortization............ 4,787 4,805 18,921 18,843 20,527 19,862 19,501 Pro forma cash interest expense(h)....... 7,914 34,214 Ratio of EBITDA to pro forma cash interest expense(g)(h)................. 2.51x 1.77x
- --------------- (a) Interest expense, net includes, for the three months ended June 30, 1996 and 1995 and the years ended March 31, 1996, 1995, 1994, 1993 and 1992, non-cash interest expense (including the amortization of deferred financing costs and the interest associated with the Convertible Debentures (as defined)) of $388,000, $375,000, $1,561,000, $5,432,000, $9,923,000, $8,789,000 and $8,680,000, respectively. (b) On December 28, 1995, the Company redeemed $30,000,000 principal amount of the 13 3/4% Debentures. In connection therewith, the Company recorded an extraordinary charge of $1,913,000. See Note 7 to the consolidated financial statements. (c) The extraordinary charges of $2,477,000 and $992,000 relate to the accelerated amortization of unamortized financing costs associated with the prepayment in full of the Company's senior term loan in fiscal year 1993 and the partial prepayment of such senior term loan in fiscal year 1992. (d) Represents the 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. (e) Includes the cumulative effect of accounting change for Statement of Financial Accounting Standards ("SFAS") No. 106 and the change in method of accounting for certain overhead costs in inventory. (f) On September 2, 1994, the Company retired the $65,400,000 principal amount of its 14 3/4% Subordinated Convertible Debentures (the "Convertible Debentures") held by Loral Corporation in exchange for $12,760,000 in cash and 22.5% of the Company's outstanding capital stock. As a result, the Company's stockholders' equity was increased by $65,400,000 and long-term debt was reduced by an equal amount. See Note 9 to the consolidated financial statements. (g) EBITDA represents operating income plus depreciation and amortization. While EBITDA should not be construed as a substitute for operating income or as a better indicator of liquidity than cash flows from operating activities, which are determined in accordance with generally accepted accounting principles, EBITDA is included herein to provide additional information with respect to the ability of the Company to meet its future debt service, capital expenditures and working capital requirements. EBITDA is not necessarily a measure of the Company's ability to fund its cash needs. EBITDA is included herein because the Company believes that certain investors find it be a useful tool for measuring the ability to service debt. (h) Pro forma cash interest expense gives effect to the Offering, application of the net proceeds therefrom and borrowings under the Amended and Restated Credit Agreement (and an assumed interest rate of 8.25% on borrowings under the Amended and Restated Credit Agreement) as if each had occurred on April 1, 1995. See "Capitalization." 9 12 RISK FACTORS Holders should consider carefully the following matters, as well as the other information contained in this Prospectus before making a decision to tender their Old Notes in the Exchange Offer. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange the Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register the Old Notes under the Securities Act. Based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 promulgated under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business, such holder has no arrangement with any person to participate in the distribution of such New Notes and neither such holder nor any such other person is engaging in or intends to engage in a distribution of such New Notes. Notwithstanding the foregoing, each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with any resale of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (other than Old Notes acquired directly from the Company). The Company has agreed that, for a period of one year from the date of this Prospectus, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." However, the ability of any Holder to resell the New Notes is subject to applicable state securities laws as described in "-- Blue Sky Restrictions on Resale of New Notes" below. NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES To participate in the Exchange Offer, and to avoid the restrictions on transfer of the Old Notes, Holders of Old Notes must transmit a properly completed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to the Exchange Agent at one of the addresses set forth below under "The Exchange Offer -- Exchange Agent" on or prior to the Expiration Date. In addition, either (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal or (ii) a timely confirmation of a book-entry transfer of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company pursuant to the procedure for book-entry transfer described herein, must be received by the Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with the guaranteed delivery procedures described herein. See "The Exchange Offer." BLUE SKY RESTRICTIONS ON RESALE OF NEW NOTES In order to comply with the securities laws of certain jurisdictions, the New Notes may not be offered or resold by any Holder unless they have been registered or qualified for sale in such jurisdictions or an exemption from registration or qualification is available and the requirements of such exemption have been satisfied. The Company does not currently intend to register or qualify the resale of the New Notes in any such jurisdictions. However, an exemption is generally available for sales to registered broker-dealers and certain institutional buyers. Other exemptions under applicable state securities laws may also be available. 10 13 HIGHLY LEVERAGED POSITION Debt to Equity Ratio. The Company is highly leveraged. As of June 30, 1996, after giving pro forma effect to the Offering, application of the net proceeds therefrom and borrowings under the Amended and Restated Credit Agreement, in addition to the Notes the Company would have had approximately $160 million of Senior Indebtedness outstanding, the Company's subsidiaries would have had other liabilities of approximately $92 million outstanding, and the Company had a stockholders' deficiency. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Selected Consolidated Financial Information." Dependence on Future Performance to Make Debt Payments. The Company will be required to pay all principal plus accrued interest on its outstanding $100 million aggregate principal amount of 11 7/8% Senior Secured Notes due 2003 (the "Senior Notes") in 2003 and all principal plus accrued interest on the New Notes in 2004. In addition, the Company's subsidiaries will be required to make scheduled payments pursuant to the Amended and Restated Credit Agreement, which consists of a term loan facility in an aggregate principal amount of $40 million and a revolving credit facility in an aggregate principal amount of $70 million, beginning in 1997 and ending in 2002. 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 its ability to withstand competitive pressures or adverse economic consequences, including its ability to make investments in aircraft programs and capital expenditures. In addition, borrowings under the Amended and Restated Credit Agreement will be 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 borrowings from time to time under the Amended and Restated Credit Agreement, 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 indenture governing the Senior Notes (the "Senior Note Indenture") and the 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 Amended and Restated 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. The Company's redemption of the 13 3/4% Debentures may, under certain circumstances, have constituted a "Restricted Payment" under the Senior Note Indenture and, therefore, could only be effected in compliance with the Senior Note Indenture. On September 2, 1994 the Company retired $65.4 million aggregate principal amount of its Convertible Debentures in exchange for $12,760,000 of cash and 458,994 shares of capital stock. The Company believes that the exchange of its Convertible Debentures for its capital stock constituted a "Permitted Payment" under the Senior Note Indenture. The determination of whether the exchange 11 14 constituted a "Permitted Payment" depends on whether it is viewed as a retirement of the Convertible Debentures with the proceeds of the issuance of capital stock. "Permitted Payments" do not constitute "Restricted Payments" under the Senior Note Indenture and do not reduce the Company's ability to make future "Restricted Payments" under the Senior Note Indenture. As a "Permitted Payment", the exchange transaction had the effect of increasing the Company's ability to make "Restricted Payments" under the Senior Note Indenture by $52.0 million. Absent such increase, the Company would not have had sufficient "Restricted Payment" capacity under the Senior Note Indenture to effect the redemption of the 13 3/4% Debentures consummated in December 1995, the redemption effected in August 1996 and the redemption effected with the proceeds of borrowings under the Amended and Restated Credit Agreement in connection with the Offering. If a holder of Senior Notes or the trustee under the Senior Note Indenture were to raise the issue, there can be no assurance that a court reviewing the Senior Note Indenture would find that the redemption of the 13 3/4% Debentures was in accordance with the terms of the Senior Note Indenture. In the event that a court determined that the redemption of the 13 3/4% Debentures violated the Senior Note Indenture, and the Company is unable to cure such violation by obtaining consents or retiring the Senior Notes, holders of the Senior Notes and the Lenders under the Amended and Restated Credit Agreement would have the right to accelerate the maturity of the indebtedness then outstanding thereunder. In the event of any such acceleration, holders of the Notes would have the right to accelerate the maturity of the Notes; however, payment of the Notes is subordinated to payments in respect of Senior Indebtedness, including the Senior Notes and Indebtedness under the Amended and Restated Credit Agreement and there can be no assurance that the Company would have sufficient assets to repay the Notes after repaying all of such outstanding Indebtedness. See "-- Subordination" and "-- Holding Company Structure." HISTORY OF NET LOSSES; DEFICIENCY OF EARNINGS TO FIXED CHARGES The Company had net income of $5.3 million for the three months ended June 30, 1996. However, for the three months ended June 30, 1995 and the fiscal years ended March 31, 1996, 1995 and 1994, the Company incurred net losses of approximately $1.3 million, $1.4 million, $10.2 million and $34.0 million, respectively. For the three months ended June 30, 1996 and the fiscal year ended March 31, 1996, the Company's ratio of earnings to fixed charges was 1.51 and 1.01, respectively. For the three months ended June 30, 1995 and the fiscal years ended March 31, 1995 and 1994, the Company's deficiency of earnings available to cover fixed charges was approximately $1.3 million, $10.2 million and $31.7 million, respectively. See "Selected Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's cash flow from operations has been sufficient to meet its debt service obligations for interest and required principal payments. Although not currently anticipated, the Company may have a future deficiency of earnings to cover fixed charges. Under such circumstances, the Company expects that, based upon current operations, it will be able to meet required principal and interest payments on the New Notes. 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 New Notes. SUBORDINATION The New Notes will be subordinate to all Senior Indebtedness, which includes the Senior Notes and borrowings under the Amended and Restated Credit Agreement. In the event of a bankruptcy, liquidation or reorganization of the Company, the assets of the Company will be available to pay obligations on the New Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the New Notes. In addition, the Company may not pay principal or premium, if any, or interest on the New Notes if certain Senior Indebtedness is not paid when due or any other default on such Senior Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms, unless in either case, such amount has been paid in full or the default has been cured or waived and such acceleration has been rescinded. In addition, if any default occurs with respect to certain Senior Indebtedness and certain other conditions are satisfied, the Company may not make any payments on the New Notes for a designated period of time. As of June 30, 1996, after giving pro forma effect 12 15 to the Offering, application of the net proceeds therefrom and borrowings under the Amended and Restated Credit Agreement, the Company would have had approximately $160 million of Senior Indebtedness outstanding. See "Description of Certain Indebtedness" and "Description of the Notes -- Subordination." HOLDING COMPANY STRUCTURE The Company will be the sole obligor on the New Notes. 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 Senior Notes, the New 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 Senior Notes or the New Notes will be subject to the prior claims of creditors of Aircraft Braking Systems and Engineered Fabrics, including the claims of the lenders (collectively, the "Lenders") under the Amended and Restated Credit Agreement and the claims of trade creditors. As of June 30, 1996, after giving pro forma effect to the Offering, application of the net proceeds therefrom and borrowings under the Amended and Restated Credit Agreement, the aggregate amount of obligations, including trade payables and other liabilities, of the Company's subsidiaries to which the New Notes would effectively be subordinated, would have been approximately $252 million. See "Description of the Notes" and "Capitalization." 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 the borrowers under the Amended and Restated Credit Agreement. Aircraft Braking Systems and Engineered Fabrics have secured their obligations under the Amended and Restated Credit Agreement by pledging all of their inventory and accounts receivables and certain other tangible assets. The New Notes will not be secured. CERTAIN COLLECTIVE BARGAINING MATTERS All of Aircraft Braking Systems' hourly employees are represented by the United Auto Workers' Union. In 1991, Aircraft Braking Systems' collective bargaining agreement with the United Auto Workers' Union expired and a new collective bargaining agreement was not ratified by the employees of Aircraft Braking Systems but was implemented by Aircraft Braking Systems unilaterally. As a result, all employees that would have otherwise been covered by such agreement have been employed since that time by Aircraft Braking Systems without any collective bargaining agreement. The Company believes that Aircraft Braking Systems will be able to negotiate, without material disruptions to its business, a satisfactory new collective bargaining agreement with its employees and discussions regarding this matter are currently ongoing with union representatives. However, there can be no assurance that a satisfactory agreement will be reached with any of its employees or that the current discussions regarding such agreement will not be accompanied by material disruptions to its business. LITIGATION Aircraft Braking Systems has been purchasing substantially all of the carbon for its carbon brakes from Hitco Technologies, Inc. ("Hitco ") under supply arrangements. The contracts and commitments between Aircraft Braking Systems and Hitco are now the subject of litigation. During fiscal year 1996, Hitco threatened to interrupt deliveries of carbon unless prices were renegotiated. Hitco claimed that Aircraft Braking Systems breached the supply arrangements by electing to begin to expand its own carbon manufacturing facilities. Hitco has been preliminarily enjoined from refusing to supply Aircraft Braking Systems with carbon pursuant to the existing contracts and purchase orders. A loss of carbon supply for the carbon brakes manufactured by Aircraft Braking Systems would have a material, adverse affect on the Company's business and financial condition. Because of the injunction obtained in the litigation with Hitco, 13 16 the Company does not anticipate that its supply of carbon from Hitco will be interrupted prior to the first quarter of calendar year 1997. See "Business -- Legal Proceedings." INTERESTS OF BLS AND THE LEHMAN INVESTORS Bernard L. Schwartz ("BLS"), the Chairman of the Board and Chief Executive Officer of the Company, owns 27.12% of the capital stock of the Company and has operating control of the Company by reason of certain stockholder arrangements. 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 Space & Communications Ltd. ("Loral Space"), which owns 22.5% of the capital stock of the Company. BLS and certain other executive officers of Loral Space 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." Certain merchant banking partnerships (collectively, the "Lehman Investors") controlled by Lehman Brothers Holdings Inc. ("LBH") own 48.17% of the Company's capital stock. 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. IMPACT OF AIR TRANSPORT ACTIVITY; DELIVERY OF NEW AIRCRAFT During fiscal year 1996, 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 Financial Condition and Results of Operations" 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. SIGNIFICANT CUSTOMER Sales to the United States government (the "Government") or to prime contractors or subcontractors of the Government were approximately 16%, 14% and 15% of the Company's total sales for the fiscal years ended March 31, 1996, 1995 and 1994, respectively. The loss of all or a substantial portion of such sales could have an adverse effect on the Company's income and cash flow. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Government Contracts." LACK OF PUBLIC MARKET FOR THE NEW NOTES The New Notes will constitute a new class of securities with no established trading market. The Company does not intend to list the New Notes on any national securities exchange or to seek the admission thereof to trading in the Nasdaq Stock Market's National Market. The Old Notes are designated for trading in the Private Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market. The Company has been advised by the Initial Purchasers that the Initial Purchasers currently intend to make a market in the New Notes. The Initial Purchasers are not obligated to do so, however, and any market-making activities with 14 17 respect to the New Notes may be discontinued at any time without notice. In addition, such market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act, and may be limited during the pendency of any Shelf Registration Statement. Accordingly, no assurance can be given that an active public or other market will develop for the New Notes or as to the liquidity of the trading market for the New Notes. If a trading market does not develop or is not maintained, holders of the New Notes may experience difficulty in reselling the New Notes or may be unable to sell them at all. If a market for the New Notes develops, any such market may be discontinued at any time. If a public trading market develops for the New Notes, future trading prices of the New Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's financial condition and results of operations, and the market for similar notes. Depending on those and other factors, the New Notes may trade at a discount from their principal amount. THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Old Notes were sold by the Company on August 15, 1996 to the Initial Purchasers, who placed the Old Notes with institutional investors and a limited number of accredited investors. In connection therewith, the Company and the Initial Purchasers entered into the Registration Rights Agreement, which provides that (i) the Company will file an Exchange Offer Registration Statement with the Commission on or prior to 30 days after the Issuance Date, (ii) the Company will use its best efforts to have the Exchange Offer Registration Statement declared effective by the Commission on or prior to 90 days after the Issuance Date, (iii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company will commence the Exchange Offer and use its best efforts to issue on or prior to 30 business days after the date on which the Exchange Offer Registration Statement was declared effective by the Commission, New Notes in exchange for all Old Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file the Shelf Registration Statement (as described below), the Company will use its best efforts to file the Shelf Registration Statement with the Commission on or prior to 30 days after such filing obligation arises (and in any event within 120 days after the Issuance Date) and to cause the Shelf Registration to become effective by the Commission as promptly as possible after such obligation arises. Promptly after the effectiveness of the Registration Statement, the Company will offer, pursuant to this Prospectus, to the Holders of the Old Notes the opportunity to exchange their Old Notes for a like principal amount of New Notes, to be issued without a restrictive legend and which may, generally, be reoffered and resold by the holder without restrictions or limitations under the Securities Act. The term "Holder" with respect to the Exchange Offer means any person in whose name Old Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder. The Company has not requested, and does not intend to request, an interpretation by the staff of the Commission with respect to whether the New Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for sale, resold or otherwise transferred by any holder without compliance with the registration and prospectus delivery provisions of the Securities Act. Instead, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any holder of such New Notes (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 promulgated under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such Holder's business, such Holder has no arrangement or understanding with any person to participate in the distribution of such New Notes and neither such Holder nor any other such person is engaging in or intends to engage in a distribution of such New Notes. Because the Commission has not considered the Exchange Offer in the context of a no-action letter, there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer. Any Holder who is an affiliate of the Company or who tenders in the Exchange Offer for the purpose of participating in a distribution of the New Notes cannot rely on such interpretations by the staff of the 15 18 Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale transaction. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (other than Old Notes acquired directly from the Company). The Company has agreed that, for a period of one year after the date of this Prospectus, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." If (i) the Company is not required to file the Exchange Offer Registration Statement or permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy or (ii) any holder of Transfer Restricted Securities (as defined below) notifies the Company within the specified time period that (A) it is prohibited by law or Commission policy from participating in the Exchange Offer or (B) that it may not resell the New Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales or (C) that it is a broker-dealer and owns Old Notes acquired directly from the Company or an affiliate of the Company, the Company will file with the Commission a Shelf Registration Statement to cover resales of the Old Notes by the holders thereof who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. The Company will use its best efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. For purposes of the foregoing, "Transfer Restricted Securities" means each Old Note until (i) the date on which such Old Note has been exchanged by a person other than a broker-dealer for a New Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of an Old Note for a New Note, the date on which such New Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Old Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Old Note is distributed to the public pursuant to Rule 144 under the Act. If (a) the Company fails to file any of the Registration Statements required by the Registration Rights Agreement on or before the date specified for such filing, (b) any of such Registration Statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"), (c) the Company fails to consummate the Exchange Offer within 30 business days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement or (d) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (d) above a "Registration Default"), then the Company will pay liquidated damages to each holder of Old Notes ("Liquidated Damages"), with respect to the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to $.05 per week per $1,000 principal amount of Old Notes held by such holder. The amount of the Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of Old Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages of $.50 per week per $1,000 principal amount of Old Notes. All accrued Liquidated Damages will be paid by the Company on each interest payment date to the Global Note Holder in cash. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. Holders of Old Notes will be required to make certain representations to the Company (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer and will be required to 16 19 deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Old Notes included in the Shelf Registration Statement and benefit from the provisions set forth above. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, all of the provisions of the Registration Rights Agreement, a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The Old Notes are designated for trading in the PORTAL market. To the extent Old Notes are tendered and accepted in the Exchange Offer, the principal amount of outstanding Old Notes will decrease with a resulting decrease in the liquidity in the market therefor. Following the consummation of the Exchange Offer, Holders of Old Notes who were eligible to participate in the Exchange Offer but who did not tender their Old Notes will not be entitled to certain rights under the Registration Rights Agreement and such Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for the Old Notes could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in integral multiples of $1,000. The form and terms of the New Notes will be identical in all material respects to the form and terms of the Old Notes, except that the New Notes have been registered under the Securities Act and therefore will not bear legends restricting their transfer and will not contain certain provisions providing for an increase in the interest rate on the Old Notes under certain circumstances relating to the Registration Rights Agreement, which provisions will terminate upon the consummation of the Exchange Offer. The New Notes will evidence the same debt as the Old Notes and will be entitled to the benefits of the Indenture under which the Old Notes were, and the New Notes will be, issued. As of the date of this Prospectus, $140,000,000 aggregate principal amount of the Old Notes are outstanding. The Company has fixed the close of business on , 1996 as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus, together with the Letter of Transmittal, will initially be sent. As of such date, there were registered Holders of the Old Notes. Holders of the Old Notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law (the "DGCL") or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder. The Company shall be deemed to have accepted validly tendered Old Notes when, as and if the Company has given oral notice (confirmed in writing) or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering Holders for the purpose of the exchange of Old Notes. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, any such unaccepted Old Notes will be returned, without expense, to the tendering Holder thereof as promptly as practicable after the Expiration Date. Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange 17 20 of Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1996, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral notice (confirmed in writing) or written notice and will make a public announcement thereof prior to 9:00 a.m., New York City time, on the next business day after each previously scheduled expiration date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Old Notes, to extend the Exchange Offer or, if any of the conditions set forth below under "The Exchange Offer -- Conditions" shall not have been satisfied, to terminate the Exchange Offer, by giving oral notice (confirmed in writing) or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by a public announcement thereof. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered Holders, and the Company will extend the Exchange Offer for a period of five to 10 business days, depending upon the significance of the amendment and the manner of disclosure to the registered Holders, if the Exchange Offer would otherwise expire during such five- to 10-business-day period. Without limiting the manner in which the Company may choose to make public announcement of any delay, extension, termination or amendment of the Exchange Offer, the Company shall have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. INTEREST ON THE NEW NOTES The New Notes will bear interest from August 15, 1996, the date of original issuance of the Old Notes. No interest will be paid on the Old Notes accepted for exchange. PROCEDURES FOR TENDERING The tender of Old Notes by a Holder thereof pursuant to one of the procedures set forth below and the acceptance thereof by the Company will constitute a binding agreement between such Holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. This Prospectus, together with the Letter of Transmittal, will first be sent on or about , 1996, to all Holders of Old Notes known to the Company and the Exchange Agent. Only a Holder of the Old Notes may tender such Old Notes in the Exchange Offer. A Holder who wishes to tender any Old Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, or a facsimile thereof, including any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In addition, either (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the Old Notes, Letter of Transmittal and other required documents must be received by the Exchange Agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. 18 21 THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED AND PROPER INSURANCE BE OBTAINED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered Holder promptly and instruct such registered Holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such beneficial owner's own behalf, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering such beneficial owner's Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such beneficial owner's name or obtain a properly completed bond power from the registered Holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined herein) unless the Old Notes tendered pursuant thereto are tendered (i) by a registered Holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 promulgated under the Exchange Act (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered Holder of any Old Notes listed therein, such Old Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered Holder as such registered Holder's name appears on such Old Notes. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Although the Company intends to notify Holders of defects or irregularities with respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that the Company determines are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. By tendering, each Holder will represent to the Company, among other things, that (i) the New Notes acquired by the Holder and any beneficial owners of Old Notes pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such New Notes, (ii) neither the Holder nor such beneficial owner has an arrangement with any person to participate in the distribution of such New 19 22 Notes, (iii) neither the Holder nor such beneficial owner nor any such other person is engaging in or intends to engage in a distribution of such New Notes and (iv) neither the Holder nor any such other person is an "affiliate," as defined under Rule 405 promulgated under the Securities Act, of the Company. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (other than Old Notes acquired directly from the Company), may participate in the Exchange Offer but may be deemed an "underwriter" under the Securities Act and, therefore, must acknowledge in the Letter of Transmittal that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "Plan of Distribution." BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at one of the addresses set forth below under "-- Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the Holder, the certificate number(s) of such Old Notes and the principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Old Notes, or a Book-Entry Confirmation, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Old Notes in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS To withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be 20 23 withdrawn (including the certificate number or numbers and principal amount of such Old Notes), (iii) be signed by the Holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Old Notes register the transfer of such Old Notes into the name of the persons withdrawing the tender and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing Holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such Holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company in its sole discretion, which determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no New Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under "-- Procedures for Tendering" at any time prior to the Expiration Date. Any Old Notes which have been tendered but which are not accepted for payment due to withdrawal, rejection of tender or termination of the Exchange Offer will be returned as soon as practicable to the Holder thereof without cost to such Holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the BookEntry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes). CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange New Notes for, any Old Notes, and may terminate the Exchange Offer as provided herein before the acceptance of such Old Notes, if: (a) the Exchange Offer shall violate applicable law or any applicable interpretation of the staff of the Commission; or (b) any action or proceeding is instituted or threatened in any court or by any governmental agency that might materially impair the ability of the Company to proceed with the Exchange Offer or any material adverse development has occurred in any existing action or proceeding with respect to the Company; or (c) any governmental approval has not been obtained, which approval the Company shall deem necessary for the consummation of the Exchange Offer. If the Company determines in its sole discretion that any of the conditions are not satisfied, the Company may (i) refuse to accept any Old Notes and return all tendered Old Notes to the tendering Holders (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility), (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of Holders to withdraw such Old Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Old Notes which have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered Holders, and the Company will extend the Exchange Offer for a period of five to 10 business days, depending upon the significance of the waiver and the manner of disclosure to the registered Holders, if the Exchange Offer would otherwise expire during such five- to 10-business-day period. 21 24 EXCHANGE AGENT Fleet National Bank has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: If by Mail or Overnight Mail: If by Hand: Fleet National Bank Fleet National Bank Corporate Trust Operations Corporate Trust Operations 777 Main Street CTMO0224 777 Main Street, Lower Level Hartford, Connecticut 06115 Hartford, Connecticut 06115 By Telecopier: Confirm By Telephone: (860) 986-7908 (860) 986-1271
FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing New Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered Holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered Holder or any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. ACCOUNTING TREATMENT The New Notes will be recorded at the same carrying value as the Old Notes, which is face value, as reflected in the Company's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized. The expenses of the Exchange Offer and the unamortized expenses related to the issuance of the Old Notes will be amortized over the term of the New Notes. USE OF PROCEEDS The Company will not receive any proceeds from the Exchange Offer. The net proceeds to the Company from the Offering were approximately $135 million after deducting expenses payable by the Company in connection with the Offering. The Company used such proceeds, together with borrowings under the Amended and Restated Credit Agreement, to redeem $170 million aggregate principal amount of 13 3/4% Debentures, for an aggregate purchase price, inclusive of related fees and expenses, of approximately $175 million. The net proceeds of the Offering were irrevocably deposited with the trustee under the 13 3/4% Debenture Indenture immediately following the closing of the Offering for the sole purpose of effecting the redemption. Concurrently with such deposit, the Company sent a notice to the holders of the 13 3/4% Debentures to the effect that such 13 3/4% Debentures would be redeemed 30 days after the date of such notice. 22 25 CAPITALIZATION The following table sets forth as of June 30, 1996 the actual capitalization of the Company and the capitalization of the Company as adjusted to give effect to the sale of the Old Notes and the application of the net proceeds therefrom (after deduction of discounts and commissions payable to the Initial Purchasers and estimated Offering expenses), together with borrowings under the Amended and Restated Credit Agreement. The table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
AS OF JUNE 30, 1996 ---------------------- ACTUAL AS ADJUSTED -------- ----------- (DOLLARS IN THOUSANDS) Long-term debt (including current portion): Existing Revolving Credit Agreement(a)........................ $ 10,000 $ -- Amended and Restated Credit Agreement(b)...................... -- 60,000 11 7/8% Senior Secured Notes due 2003......................... 100,000 100,000 13 3/4% Senior Subordinated Debentures due 2001(c)............ 179,657 -- 10 3/8% Senior Subordinated Notes due 2004.................... -- 140,000 -------- -------- Total long-term debt...................................... 289,657 300,000 -------- -------- Stockholders' deficiency........................................ (34,387) (43,588)(d) -------- -------- Total capitalization.................................. $255,270 $ 256,412 ======== ========
- --------------- (a) Refers to the Revolving Credit Agreement dated as of April 27, 1989, as amended and restated, among Aircraft Braking Systems, Engineered Fabrics, Manufacturers Hanover Trust Company (a predecessor by merger of The Chase Manhattan Bank), as agent for a syndicate of banks, and such banks. The Existing Revolving Credit Agreement will be amended and restated as the Amended and Restated Credit Agreement concurrently with the Offering. (b) The Amended and Restated Credit Agreement will provide for a term loan facility in an aggregate principal amount of $40 million and a revolving credit facility in an aggregate principal amount of $70 million. (c) As of June 30, 1996, approximately $179.7 million aggregate principal amount of 13 3/4% Debentures were outstanding. On August 1, 1996, the Company redeemed approximately $9.7 million aggregate principal amount of its 13 3/4% Debentures. The Company used cash on hand and borrowings under the Existing Revolving Credit Agreement to finance such redemption. (d) Gives effect to the write-off of unamortized financing costs and redemption premiums relating to the redemption of the 13 3/4% Debentures. 23 26 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following table sets forth selected consolidated financial information for the Company for the three months ended June 30, 1996 and June 30, 1995 and for each of the fiscal years in the five-year period ended March 31, 1996. The selected historical financial data for the Company for each year in the five-year period ended March 31, 1996 have been derived from the Company's audited consolidated financial statements. The audited consolidated financial statements of the Company for each of the years in the three-year period ended March 31, 1996 are included elsewhere in this Prospectus, together with the report thereon of Deloitte & Touche LLP, independent auditors. The historical financial data for the three months ended June 30, 1996 and June 30, 1995 have been derived from the Company's unaudited financial statements which, in the opinion of management of the Company, contain all adjustments necessary for a fair presentation of this information. The historical data with respect to the results of operations for the three months ended June 30, 1996 should not be regarded as necessarily indicative of the results that may be expected for the entire year. This historical data should be read in conjunction with the consolidated financial statements and notes thereto of the Company and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
THREE MONTHS ENDED JUNE 30, YEARS ENDED MARCH 31, ------------------- ---------------------------------------------------------- 1996 1995 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Net sales.................................. $ 71,537 $ 62,293 $264,736 $238,756 $226,131 $277,107 $295,490 Cost of sales.............................. 44,835 43,582 180,435 164,697 159,751 199,002 209,552 -------- -------- -------- -------- -------- -------- -------- Gross margin............................. 26,702 18,711 84,301 74,059 66,380 78,105 85,938 Independent research and development....... 3,225 1,822 9,767 8,363 12,858 11,417 14,130 Selling, general and administrative expenses................................. 5,814 5,147 22,564 19,208 22,421 24,154 24,047 Amortization............................... 2,601 2,615 10,415 10,411 10,884 10,258 10,306 -------- -------- -------- -------- -------- -------- -------- Operating income......................... 15,062 9,127 41,555 36,077 20,217 32,276 37,455 Interest expense, net(a)................... 9,572 10,426 41,048 46,250 51,953 53,486 52,179 -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes, extraordinary charge and cumulative effect of accounting changes.................................. 5,490 (1,299) 507 (10,173) (31,736) (21,210) (14,724) Income taxes............................... (220) -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- Income (loss) before extraordinary charge and cumulative effect of accounting changes.................................. 5,270 (1,299) 507 (10,173) (31,736) (21,210) (14,724) Extraordinary charge....................... -- -- (1,913)(b) -- -- (2,477)(c) (992)(c) Cumulative effect of accounting changes.... -- -- -- -- (2,305)(d) (73,540)(e) -- -------- -------- -------- -------- -------- -------- -------- Net income (loss)........................ $ 5,270 $ (1,299) $ (1,406) $(10,173) $(34,041) $(97,227) $(15,716) ======== ======== ======== ======== ======== ======== ======== BALANCE SHEET DATA (AT END OF PERIOD): Working capital............................ $ 38,457 $ 51,210 $ 36,327 $ 48,025 $ 53,091 $ 70,028 $ 77,606 Total assets............................... 422,199 429,567 416,037 429,074 446,880 489,968 518,938 Long-term debt(b)(f)....................... 289,657 310,000 294,000 310,000 381,421 379,478 388,571 Stockholders' deficiency(e)(f)............. (34,387) (36,061) (39,701) (34,748) (90,355) (51,868) 48,331 OTHER DATA (FOR THE PERIOD): EBITDA(g).................................. 19,849 13,932 60,476 54,920 40,744 52,138 56,956 Capital expenditures....................... 4,268 622 10,418 2,824 3,127 4,670 3,986 Depreciation and amortization.............. 4,787 4,805 18,921 18,843 20,527 19,862 19,501 Ratio of earnings to fixed charges(h)...... 1.53x 1.01x
- --------------- (a) Interest expense, net includes, for the three months ended June 30, 1996 and 1995 and the years ended March 31, 1996, 1995, 1994, 1993 and 1992, non-cash interest expense (including amortization of deferred financing costs and the interest associated with the Convertible Debentures) of $388,000, $375,000, $1,561,000, $5,432,000, $9,923,000, $8,789,000 and $8,680,000, respectively. (b) On December 28, 1995, the Company redeemed $30,000,000 principal amount of the 13 3/4% Debentures. In connection therewith, the Company recorded an extraordinary charge of $1,913,000. See Note 7 to the consolidated financial statements. (c) The extraordinary charges of $2,477,000 and $992,000 relate to the accelerated amortization of unamortized financing costs associated with the prepayment in full of the Company's senior term loan in fiscal year 1993 and the partial prepayment of such senior term loan in fiscal year 1992. (d) Represents the 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. (e) Includes the cumulative effect of accounting change for SFAS No. 106 and the change in method of accounting for certain overhead costs in inventory. (f) On September 2, 1994, the Company retired the $65,400,000 principal amount of its Convertible Debentures held by Loral Corporation in exchange for $12,760,000 in cash and 22.5% of the Company's capital stock. As a result, the Company's stockholders' equity was increased by $65,400,000 and long- term debt was reduced by an equal amount. See Note 9 to the consolidated financial statements. (g) EBITDA represents operating income plus depreciation and amortization. While EBITDA should not be construed as a substitute for operating income or as a better indicator of liquidity than cash flows from operating activities, which are determined in accordance with generally accepted accounting principles, EBITDA is included herein to provide additional information with respect to the ability of the Company to meet its future debt service, capital expenditures and working capital requirements. EBITDA is not necessarily a measure of the Company's ability to fund its cash needs. EBITDA is included herein because the Company believes that certain investors find it be a useful tool for measuring the ability to service debt. (h) 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 $1,299,000, $10,173,000, $31,736,000, $21,210,000 and $14,724,000 for the three months ended June 30, 1995 and the fiscal years ended March 31, 1995, 1994, 1993 and 1992, respectively. Non-cash charges included in the ratio of earnings to fixed charges and deficiency of earnings available to cover fixed charges for the three months ended June 30, 1996 and 1995 and the fiscal years ended March 31, 1996, 1995, 1994, 1993 and 1992 are $5,175,000, $5,180,000, $20,482,000, $24,275,000, $30,450,000, $28,651,000 and $28,181,000, respectively. Non-cash charges consist of depreciation, amortization and non-cash interest on the Convertible Debentures and amortization of deferred financing costs. 24 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 approximately 32,000 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. Research, development and design expenditures are charged to operations when incurred. Original wheel and brake equipment supplied to aircraft manufacturers at or below the cost of production ("Program Investments") are charged to operations when delivered to the aircraft manufacturers. 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, 1996, the Company spent an aggregate of $108 million for research, development, design and Program Investments. As a result of these efforts, the Company has been selected as a supplier of wheels and carbon brakes on the Airbus A-321, the sole supplier of wheels, carbon brakes and anti-skid systems on the McDonnell Douglas MD-90, the sole supplier of wheels and brakes for the Canadair Regional Jet, the Saab 2000, and the Lear 60 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 revenue opportunities for the Company. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1995 Sales. Sales for the first three months of fiscal year 1997 totaled $71.5 million reflecting an increase of $9.2 million or 14.8% compared with $62.3 million for the same period in the prior year. This increase was primarily due to higher sales of wheels and brakes for commercial transport aircraft of $6.7 million, primarily on the DC-9, DC-10 and MD-90 programs. General aviation and military sales were also higher by $1.9 million and $0.6 million, respectively, on various programs. Operating Income. Operating income increased 65.0% to $15.1 million or 21.1% of sales for the first three months of fiscal year 1997 compared with $9.1 million or 14.7% of sales for the same period in the prior year. Operating margins increased primarily due to the overhead absorption effect relating to the higher sales volume and lower shipments of original equipment to airframe manufacturers at or below the cost of production. Interest Expense, Net. Interest expense, net decreased by $0.9 million for the first three months of fiscal year 1997 compared with the same period in the prior year. This decrease was primarily due to the redemption of $30 million principal amount of the 13 3/4% Debentures on December 28, 1995. FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995 Sales. Sales for fiscal year 1996 totaled $264.7 million reflecting an increase of $26.0 million or 10.9% compared with the prior year. This increase was due to higher commercial sales of wheels and brakes for commercial transport aircraft of $16.6 million, primarily on the DC-9, DC-10, MD-80, MD-90 and Fo-100 programs, partially offset by lower general aviation sales of $4.7 million on various aircraft. Military sales increased $14.1 million, primarily on the F-16 program. Gross Margin. The gross margin for fiscal year 1996 was 31.8% compared with 31.0% for fiscal year 1995. This increase was primarily due to operating efficiencies and the overhead absorption effect relating to 25 28 the higher sales volume, partially offset by higher shipments of original equipment to airframe manufacturers at or below the cost of production. Independent Research and Development. Independent research and development costs were $9.8 million in fiscal year 1996 compared with $8.4 million in fiscal year 1995 or 3.7% and 3.5% of sales for fiscal years 1996 and 1995, respectively. This increase was primarily due to higher costs relating to carbon research and development. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $3.4 million in fiscal year 1996 compared with fiscal year 1995. This increase was primarily due to a provision made against accounts receivable during fiscal year 1996, higher performance related incentive compensation and foreign tax related expenses. The provision against accounts receivable was primarily for two of the Company's customers (Fokker Aviation and Business Express) who filed for bankruptcy during fiscal year 1996. Interest Expense, Net. Net interest expense decreased $5.2 million in fiscal year 1996 compared with the prior year. This decrease was due to the retirement of the Convertible Debentures on September 2, 1994 and the redemption of $30 million principal amount of the 13 3/4% Debentures on December 28, 1995. 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 incurrence 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. 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 Convertible Debentures on September 2, 1994 and due to a lower average principal balance on the senior revolving loan (the "Existing Revolving Loan") outstanding pursuant to the Existing Revolving Credit Agreement. See "Description of Certain Indebtedness." 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. LIQUIDITY AND FINANCIAL RESOURCES The Company's primary source of funds for conducting its business activities and servicing its indebtedness has been cash generated from operations and borrowing under the Existing Revolving Loan. The Company's long-term indebtedness decreased from $310 million at March 31, 1995 to $294 million at March 31, 1996 and $289.7 million at June 30, 1996. This decrease was due to the redemption of $30 million principal amount of the Company's 13 3/4% Debentures on December 28, 1995. The Company used cash on 26 29 hand and borrowings from the Existing Revolving Loan to redeem the 13 3/4% Debentures. In connection therewith, the Company recorded an extraordinary charge of $1.913 million, consisting of redemption premiums and the write-off of unamortized financing costs. In May 1996, the Company redeemed $343,000 principal amount of the 13 3/4% Debentures. On August 1, 1996, the Company redeemed approximately $9.7 million aggregate principal amount of the 13 3/4% Debentures. The Company used cash on hand and borrowings under the Existing Revolving Credit Agreement to finance such redemptions. The Company used the net proceeds from the Offering, together with borrowings under the Amended and Restated Credit Agreement, to redeem the remaining $170 million outstanding principal amount of the 13 3/4% Debentures on September 14, 1996. Upon completion of the Offering, the Company recorded an extraordinary charge of approximately $9.2 million for the write-off of unamortized financing costs and redemption premiums relating to such redemption. On September 2, 1994, the Company retired the $65.4 million principal amount of 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 the Company's capital stock. The cash portion of this transaction was funded with the proceeds from the sale of capital stock to the Company's principal stockholders. As a result, the Company's stockholders' equity was increased by $65.4 million and long-term debt was reduced by an equal amount. The Company's liquidity needs will arise primarily from debt service on the indebtedness represented by the Notes, the Senior Notes and the Amended and Restated Credit Agreement, and from the funding of its capital expenditures and Program Investments. As of June 30, 1996, after giving pro forma effect to the Offering, application of the net proceeds therefrom and borrowings under the Amended and Restated Credit Agreement, the Company would have had outstanding approximately $310 million of indebtedness, primarily consisting of $140 million principal amount of the Notes, $100 million principal amount of Senior Notes and $70 million in borrowings under the Amended and Restated Credit Agreement. See "Risk Factors -- Highly Leveraged Position." Principal and interest payments under the Amended and Restated Credit Agreement and interest payments on the New Notes and the Senior Notes will represent significant liquidity requirements for the Company. Borrowings under the Amended and Restated Credit Agreement will bear interest at floating rates based upon the interest rate option elected by the Company and are expected to be repayable over a six-year period in quarterly installments commencing in June 1997. See "Description of Certain Indebtedness". The Company believes that it will have adequate resources to meet its cash requirements through funds generated from operations and borrowings under the Amended and Restated Credit Agreement. CONTINGENCY Aircraft Braking Systems has been purchasing substantially all of the carbon for its carbon brakes from Hitco under supply arrangements. The contracts and commitments between Aircraft Braking Systems and Hitco are now the subject of litigation. During fiscal year 1996, Hitco threatened to interrupt deliveries of carbon unless prices were renegotiated. Hitco claimed that Aircraft Braking Systems breached the supply arrangements by electing to begin to expand its own carbon manufacturing facilities. Hitco has been preliminarily enjoined from refusing to supply Aircraft Braking Systems with carbon pursuant to the existing contracts and purchase orders. It is anticipated that Hitco's obligation to continue to supply carbon will terminate by the later of December 1996 or such time as the alleged breaches of contract by Hitco are remedied. The Company has commenced a major expansion of its existing carbon manufacturing facility in Akron, Ohio, which will provide a five-fold increase in the Company's own carbon production capacity. The project is expected to be completed during the first quarter of calendar year 1997 and, when fully operational, will provide the Company with sufficient capacity to meet substantially all, if not all, of its requirements for carbon brake production at the current level of business. The Company has made arrangements for an alternate supplier of carbon in the interim. A loss of carbon supply for the carbon brakes manufactured by Aircraft Braking Systems would have a material, adverse affect on the Company's business and financial condition. Because of the injunction obtained in the litigation with Hitco, the Company does not anticipate that its 27 30 supply of carbon from Hitco will be interrupted prior to the first quarter of calendar year 1997. See "Business -- Legal Proceedings." CAPITAL EXPENDITURES The Company had additions to fixed assets of $10.4 million and $2.8 million for the fiscal years ended 1996 and 1995, respectively. The increase during fiscal year 1996 as compared with fiscal year 1995 was primarily due to construction of a 21,000 square foot expansion to the carbon manufacturing building at the Company's Akron, Ohio facility. Capital spending for fiscal year 1997 is expected to be approximately $15.0 million which will principally be used for the completion of this new carbon facility. INFLATION A majority of the Company's sales are conducted through annually established price lists and long-term contracts. The effect of inflation on the Company's sales and earnings is minimal because the selling prices of such price lists and contracts, 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 PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for 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 has determined the effect of SFAS No. 121, upon adoption, to be immaterial to its results of operations and financial position. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which encourages (but does not require) adoption of the fair value method of accounting for stock-based compensation plans. Entities may continue to measure compensation costs for those plans using the intrinsic method of accounting, but must make pro forma disclosures about the impact on results of operations as if the fair value method of accounting had been applied. The Company is currently evaluating the impact, if any, of SFAS No. 123. 28 31 BUSINESS GENERAL The Company, 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. The Company 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, 1996, approximately $233.0 million, or 88%, of the Company's total revenues were derived from sales made by Aircraft Braking Systems. In addition, through its other wholly owned subsidiary, Engineered Fabrics, the Company is the leading worldwide manufacturer of aircraft fuel tanks, supplying approximately 90% of the worldwide general aviation and commercial transport market and over 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, 1996, approximately $31.7 million, or 12%, 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 to refine existing braking systems, develop new technologies and design 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. 29 32 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 during the first half 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, governments have 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. Aircraft Braking Systems' 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 braking systems produced by Aircraft Braking Systems are either carbon or steel-based. While steel-based systems typically are sold for less than carbon-based systems, such systems generally require more frequent replacement because their steel brake pads tend to wear more quickly. Aircraft Braking Systems' commercial transport fleet continued to grow during fiscal year 1996, 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 Aircraft Braking Systems to produce replacement parts for these refurbished aircraft over this period. Airlines such as Northwest Airlines and USAir have 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, 1996, Aircraft Braking Systems' products had been installed on approximately 32,000 commercial transport, general aviation and military aircraft. Commercial transport aircraft include the DC-9, DC-10, Fokker Fo-100, Fokker F-28, Canadair Regional Jet and Saab 340 on all of which Aircraft Braking Systems is the sole-source supplier. In addition, Aircraft Braking Systems supplies spare parts for the McDonnell Douglas 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 Airbus A-321, Airbus A-319, McDonnell Douglas MD-90, Saab 2000 and Lear 60. 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 12 MD-90s out of a total order of 31. Other customers for the MD-90 include Japan Air System and Saudi Arabia, which has announced orders for 29 of these aircraft. McDonnell Douglas has booked orders for over 130 MD-90 aircraft. It is anticipated that this program will result in approximately 500 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. Airbus has booked orders for over 160 A-321 aircraft. Of the 48 aircraft delivered to date, Aircraft Braking Systems has provided wheels and brakes for 40 of these aircraft. 30 33 Aircraft Braking Systems' 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 in the axle and driven by 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 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 Aircraft Braking Systems 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 and brakes and anti-skid systems to total sales of the Company:
FISCAL YEARS ENDED MARCH 31, ---------------------- 1996 1995 1994 ---- ---- ---- Wheels and brakes............................................... 80% 80% 76% Anti-skid systems............................................... 8 7 10 -- -- -- Total................................................. 88% 87% 86% == == ==
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 over half of the domestic military market. Recent programs awarded to Engineered Fabrics include new production or replacement parts programs for the U.S. Navy's F-18 C/D and E/F aircraft and F-15 and F-16 aircraft. During the fiscal year ended March 31, 1996, Engineered Fabrics was selected by the U.S. Army to equip its new stealth RAH-66 Comanche helicopter with fuel tanks. Other helicopter programs which have been awarded to Engineered Fabrics include the McDonnell Douglas MD-600 and Bell 412 platforms. Engineered Fabrics has also been awarded the Bell/Boeing V-22 Osprey program. For the fiscal year ended March 31, 1996, approximately $31.8 million, or 12%, 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, 1996, sales of fuel tanks accounted for approximately 70% of Engineered 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. Engineered Fabrics 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. Engineered Fabrics also competes in the nitrile-designed aircraft fuel tank market and won a three-year requirements contract in 1996 to supply nitrile fuel tanks to the U.S. Navy for its F-14 aircraft. 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. Engineered Fabrics 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. 31 34 SALES AND CUSTOMERS The Company sells its products to more than 175 airlines, airframe manufacturers, governments and distributors within each of the commercial transport, general aviation and military aircraft markets. Sales to the Government represented approximately 16%, 14% and 15% of total sales for the fiscal years ended March 31, 1996, 1995 and 1994, 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:
FISCAL YEARS ENDED MARCH 31, ---------------------- 1996 1995 1994 ---- ---- ---- Commercial transport.......................................... 61% 61% 60% Military (U.S. and foreign)................................... 23 19 22 General aviation.............................................. 16 20 18 --- --- --- Total............................................... 100% 100% 100% === === ===
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 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-2 (formerly the FS-X), F-4, F-14, F-15, F-16, F-18, F-117A, A-10, B-1B, B2 and the C-130. Substantially all of the Company's military products are sold to the Department of Defense, foreign governments or to airframe manufacturers including the Lockheed Martin Corporation ("Lockheed Martin"), McDonnell Douglas, Boeing, Sikorsky, Bell, Saab and AIDC. In March 1996 the Company commenced wheel and brake deliveries to Lockheed Martin for the upgraded C-130J aircraft. Brake Control Systems manufactured for the military are used on the F-16, F-117A, B-2, Panavia Toronado, British Aerospace Hawk, JAS-39 Jaguar and IDF 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, Raytheon Aircraft, Learjet, 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 A/T series of aircraft, the Lear series 20, 30, 31A, 50 and 60 and the Gulfstream G-I, G-II and G-III. 32 35 The following table is a summary of the principal aircraft platforms equipped with the Company's Aircraft Braking Systems products: COMMERCIAL Airbus: A330/A340 A321 A310/A320 Alenia: ATR-42-300 ATR-42-400/500 Boeing: B707-320 B/C Canadair: Regional Jet CASA: C-212-200 DeHavilland: DHC-8-400 Dornier: DO228-202 DO228-212 Fokker: F-27 F-28 Fokker-50 Fokker-100/70 Lockheed: L-100 L-1011 McDonnell Douglas: DC-3/4/6/8 DC-9- 10/15/20/30 DC-9-40/50 DC-10-10/15 DC-10-30/40 MD-11 MD-80 MD-81/82/87 MD-83/88 MD-90 Series Mitsubishi: YS-11 Saab: SAAB 340A/B SAAB 2000
MILITARY Aerospatiale: SA-360/365 AIDC: IDF BAE: Jaguar Hawk Beech: T-1A Boeing: E-3A/6A/8A Canadair: CT-114 CASA: C-101A Cessna: A-37 A/T-37 DeHavilland: DHC-5 Fairchild: A-10A Hawker: Siddely Buccaneer Siddely 1182 Lockheed Martin: F-117A C-130 Series C-141 A/B F-16A/B/C/D McDonnell Douglas: F-4C/D/E/G A-4 Series C-9A/B KC-10A Northrop Grumman: F-5E/F B-2 F-14A/A+/D E-2C Series OV-1 A-6 Series Panavia: Tornado Pilatus: PC-6 Rockwell: T-2 T-33 B-1B T-39 Saab: J-35 AJ/JA-37 JAS-39 Sikorsky: SH-60 S-70 UH-60 CH-53 Vought: A-7A/B/E Westland: W30 Lynx GENERAL AVIATION Aerospatiale: SN601 AMD Falcon: 10/100/20/200/50 50EX Beech: 90/99/100/200 1900/1900D Starship Jet 400/400A/T Bell: 206/212/230/412 Boeing: Model 324 414/421/441 Canadair: CL600/601/ 601-3A/601-3R CL604 Cessna: Citation I/II 310/401/402 Commander: 690,1121,1123 DeHavilland: DHC-4/6 Dornier: DO-27/28 Fairchild: Metro III Metro 23 Gulfstream: I/II/IIB/III/IV IAI: 1124/1125 (Astra) Galaxy Lear: 23/24/25/31/ 35/31A/55/ 55C/60 Piper: PA31P, T Sabreliner: 40/60/65/ 70/75/80 Swearington: SJ-30-1/-2
33 36 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:
FISCAL YEARS ENDED MARCH 31, ---------------------- 1996 1995 1994 ---- ---- ---- Domestic sales.................................................. 59 % 62 % 63 % Foreign sales................................................... 41 38 37 --- --- --- Total................................................. 100 % 100 % 100 % === === ===
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, 1996, the Company employed approximately 156 engineers (of whom 31 held advanced degrees); approximately 29 of such engineers (including 14 holding advanced degrees) devoted all or part of their efforts 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, 1996, 1995 and 1994 were $9.8 million, $8.4 million and $12.9 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 competitors for fuel tanks are American Fuel Cell & Coated Fabrics Company and Aerazur of France. BACKLOG Backlog at June 30, 1996 and 1995 amounted to approximately $143.1 million and $146.1 million, respectively. Backlog consists of firm orders for the Company's products which have not been shipped. Approximately 77% of total Company backlog at June 30, 1996 is expected to be shipped during the fiscal year ended March 31, 1997, 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 June 30, 1996, approximately 29% was directly or indirectly for end use by the Government, substantially all of which was for use by the Department of Defense. For certain risks associated with Government contracts, see "-- Government Contracts." 34 37 GOVERNMENT CONTRACTS For the fiscal years ended March 31, 1996, 1995 and 1994, approximately 16%, 14%, and 15%, 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 has been purchased from Hitco pursuant to supply arrangements. The Company is in litigation with Hitco concerning the respective obligations of the Company and Hitco under supply contracts and purchase orders. The Company is in the process of expanding its existing carbon manufacturing facility as well as developing an alternative supplier such that upon termination of the Hitco contract adequate supplies of carbon will be available to meet demand. 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. PERSONNEL At March 31, 1996, the Company had 1,160 full-time employees, of which 834 were employed by Aircraft Braking Systems (383 hourly and 451 salaried employees) and 326 were employed by Engineered Fabrics (203 hourly and 123 salaried employees). All of Aircraft Braking Systems' hourly employees are represented by the United Auto Workers' Union and all of Engineered Fabrics' hourly employees are represented by the United Textile Workers' Union. 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 35 38 Arrangements." Aircraft Braking Systems' facility is located in Akron, Ohio, and consists of approximately 754,000 square feet of manufacturing, engineering and office space. The Company is currently expanding this facility by an additional 21,000 square feet, to be used for the production of carbon materials. 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 manufacturing facilities owned by Aircraft Braking Systems are part of a larger complex formerly owned and operated by Loral Corporation and now owned by Lockheed Martin. Aircraft Braking Systems and Lockheed Martin have various occupancy and service arrangements to provide for shared easements and services (including utility, sewer, and steam). In addition to the 754,000 square feet owned by Aircraft Braking Systems, the Company leases space within the Lockheed Martin complex of approximately 433,000 square feet. Aircraft Braking Systems is subject to annual occupancy payments to Lockheed Martin. During the fiscal year ended March 31, 1996, Aircraft Braking Systems made occupancy payments to Loral Corporation of $1.5 million. Certain access easements and agreements regarding water, sanitary sewer, storm sewer, gas, electricity and telecommunication are perpetual. In addition, Lockheed Martin and Aircraft Braking Systems equally control Valley Association Corporation, an Ohio corporation, which was formed to establish a single entity to deal with the City of Akron and utility companies concerning governmental and utility services which are furnished to Lockheed Martin's and Aircraft Braking Systems' facilities. LEGAL PROCEEDINGS On December 15, 1995, Aircraft Braking Systems commenced an action in the Court of Common Pleas, Summit County, Ohio against Hitco after Hitco threatened to breach existing supply contracts unless prices were renegotiated. Hitco has been the principal supplier of the carbon used by Aircraft Braking Systems for its carbon brakes. Hitco claimed that Aircraft Braking Systems breached the supply arrangements by electing to begin to expand its own carbon production facility. The Aircraft Braking Systems' complaint, as amended, seeks damages in excess of $47 million, injunctive relief and specific performance requiring Hitco to perform its obligations pursuant to existing contracts and purchase orders. Hitco has counterclaimed in the matter seeking, among other things, damages up to $130 million for the alleged breach by Aircraft Braking Systems of alleged long-term contracts to purchase carbon. The Ohio court has issued a preliminary injunction ordering Hitco to perform its obligations pursuant to existing contracts and purchase orders without a change in the terms thereof. Hitco is presently seeking to have the injunction vacated or modified, and/or a declaratory judgment issued terminating Hitco's obligation to supply Aircraft Braking Systems at prices previously pertaining. In a related action, Hitco commenced suit in Superior Court, Los Angeles County, California against Aircraft Braking Systems seeking substantially the same relief as it asserted in the Ohio action, and the California case has been stayed. Trial of the Ohio action is presently scheduled for January 1997 and discovery has been ongoing. Aircraft Braking Systems intends to vigorously seek dismissal of the California action and to proceed in the Ohio case to maintain the preliminary injunction and otherwise to protect Aircraft Braking Systems' carbon supply as well as to seek damages from Hitco. Based upon the court's opinion to date, advice of counsel and its own assessment of the matters in dispute, the Company does not expect the outcome of the litigation to be unfavorable to Aircraft Braking Systems. Aircraft Braking Systems has defended 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 alleged infringement by Aircraft Braking Systems of two Goodrich patents related to the structure and method of overhaul of aircraft brake assemblies. On November 10, 1994, the court dismissed the plaintiff's claims and 36 39 held that the patents were invalid and that the Company's brake assemblies did not infringe the patents. This decision was also upheld on appeal. 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 the Company's management, the ultimate liability, if any, will not have a material adverse effect on the Company. ENVIRONMENTAL MATTERS The Company's manufacturing operations are subject to various environmental laws and regulations administered by federal, state and local agencies. The Company continually assesses its obligations and compliance with respect to these requirements. Based upon these assessments, the Company believes that its manufacturing facilities are in substantial compliance with all applicable existing federal, state and local environmental laws and regulations. New environmental protection laws that will be effective in 1997 and thereafter, may require the installation of air pollution and wastewater treatment control equipment at the Company's manufacturing facilities. However, the Company does not believe that its environmental expenditures, if any, will have a material adverse effect on its financial condition or results of operations. 37 40 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS 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.
NAME AGE POSITION(S) --------------------------------------------------- --- ---------------------------- Bernard L. Schwartz*............................... 70 Chairman of the Board and Chief Executive Officer Herbert R. Brinberg*............................... 70 Director Ronald H. Kisner*.................................. 47 Director John R. Paddock*................................... 42 Director James A. Stern**................................... 45 Director A. Robert Towbin**................................. 61 Director Alan H. Washkowitz**............................... 56 Director Donald E. Fogelsanger.............................. 71 President Kenneth M. Schwartz................................ 45 Executive Vice President Dirkson R. Charles................................. 32 Chief Financial Officer
- --------------- * Designated as director by BLS pursuant to the Stockholders Agreement (as defined). ** Designated as director by 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 Space since April 1996. From 1972 to April 1996 Mr. Schwartz was Chairman and Chief Executive Officer of Loral Corporation. Mr. Schwartz is Chairman and Chief Executive Officer of Globalstar Telecommunications Limited, Vice Chairman of the Board of Directors of Lockheed Martin, a Director of Reliance Group Holdings, Inc. and certain subsidiaries, a Director of First Data Corporation and a 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. 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's wife is the niece of Bernard L. Schwartz. 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 President of the Georgia Psychological Association (1993-1994), 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. Currently, he is visiting Associate Professor of Psychology at Emory, and holds positions as Adjunct Clinical Assistant Professor in the Department of Psychiatry at Emory, and is Adjunct Professor of Psychology at Georgia Institute of Technology. Dr. Paddock's wife is the daughter of Bernard L. Schwartz. Mr. Stern is Chairman of The Cypress Group L.L.C., 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, 38 41 Inc. from 1982 to 1984. Mr. Stern is also a director of Infinity Broadcasting Corporation, R.P. Scherer Corp., Noel Group Inc., Lear Corporation and Cinemark USA, Inc. Mr. Towbin joined Unterberg Harris in September of 1995 as a Managing Director. From January 1994 to September 1995, he was President and Chief Executive Officer of the Russian-American Enterprise Fund and Vice Chairman of its successor fund, The U.S. Russia Investment Fund. Mr. Towbin was a Managing Director at Lehman Brothers High Technology Investment Banking Group from January 1987 until January of 1994. 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 is also a Director of Bradley Real Estate Trust, Columbus New Millennium Fund, Gerber Scientific, Inc. and Globalstar Telecommunications Limited. 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 is also a director of Illinois Central Corporation and Lear Corporation. Mr. Fogelsanger has been President of the Company since January 1996. From April 1989 to January 1996, Mr. Fogelsanger was the President of Aircraft Braking Systems. From 1987 to 1989 he was President of Loral Corporation's Aircraft Braking Systems Division. From January 1986 to March 1987 he was Vice President and General Manager of the ABS division of Goodyear Aerospace Corporation ("Goodyear Aerospace"). 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. Mr. Kenneth M. Schwartz has been Executive Vice President of the Company since January 1996. From June 1989 to January 1996, Mr. Schwartz held the positions of Chief Financial Officer, Treasurer and Secretary. Previously he was the Corporate Director of Internal Audit for Loral Corporation 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 LLP. Kenneth M. Schwartz is the nephew of Bernard L. Schwartz. Mr. Charles has been Chief Financial Officer of the Company since May 1996. From May 1993 to May 1996, Mr. Charles was the Controller of the Company. Previously he was the Manager of Accounting and Financial Planning. Prior to employment with the Company in 1989, Mr. Charles held various other positions with the accounting firm of Arthur Andersen & Co. LLP, which he joined in 1984. EXECUTIVE OFFICERS OF AIRCRAFT BRAKING SYSTEMS AND ENGINEERED FABRICS 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
NAME AGE POSITION ------------------------------------------ --- ---------------------------------------- Ronald E. Welsch.......................... 61 President Frank P. Crampton......................... 52 Vice President -- Marketing Richard W. Johnson........................ 52 Vice President -- Finance and Controller James J. Williams......................... 40 Vice President -- Manufacturing
39 42 Engineered Fabrics
NAME AGE POSITION ------------------------------------------ --- ---------------------------------------- Roger C. Martin........................... 59 President Terry L. Lindsey.......................... 51 Vice President -- Marketing Anthony G. McCann......................... 36 Vice President -- Operations John A. Skubina........................... 41 Vice President -- Finance
Mr. Welsch has been President of Aircraft Braking Systems since January 1996. From November 1994 to January 1996, Mr. Welsch held the positions of Executive Vice President and Chief Operating Officer. From September 1993 to November 1994, he was Executive Vice President. 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. 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'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. 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. 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 Corporation's Aircraft Braking Systems Division. Prior to this assignment, he had spent 22 years with Goodyear Aerospace, including one year as the Controller of the wheel and brake division. Mr. Johnson joined Goodyear Aerospace in 1966. He became Manager of Accounting in 1979 for the Centrifuge Equipment Division of Goodyear Aerospace after holding various positions in the Defense Systems Division. Mr. Williams was named Vice President of Manufacturing at Aircraft Braking Systems in May 1992. He had been Director of Manufacturing since joining Aircraft Braking Systems in September 1989. Previously from April 1985 to August 1989 he was Branch Manager of Refurbishment Operations at United Technologies responsible for the refurbishment process of the Solid Rocket Boosters on the Shuttle Program. Mr. Williams started his aviation career in 1975 in the Air Force as a Hydraulic Systems Specialist. He was Superintendent, Manufacturing at Fairchild Republic Company from 1979 to 1983, followed by Manager, B-1B Manufacturing Operations at Rockwell International Corporation from 1983 to 1985. Mr. Martin has been President of Engineered Fabrics 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 Corporation and the Company for the past 34 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. Lindsey has served as Vice President of Business Development since 1989. He has been with Goodyear Aerospace, Loral Corporation and the Company 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. Mr. McCann has been Vice President of Operations at Engineered Fabrics since June 1993. Prior to that, he was Manager of Production Support from April 1990 to June 1993. He joined Engineered Fabrics 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. 40 43 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 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. 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.
LONG-TERM ANNUAL COMPENSATION COMPENSATION ----------------- ------------------------------ OPTIONS LTIP ALL OTHER FISCAL SALARY BONUS GRANTED PAYOUTS COMPENSATION(A) NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($) ($) - ------------------------------------ ------ --------- ------- ------- ------- --------------- Bernard L. Schwartz................. 1996 1,770,500(b) -- -- -- -- Chairman of the Board and Chief 1995 1,779,500(b) -- -- -- -- Executive Officer of the Company 1994 1,859,800(b) -- -- -- -- Kenneth M. Schwartz................. 1996 321,815(b) 115,000 -- 13,333 4,196 Executive Vice President of the 1995 283,600(b) 105,000 -- -- 3,565 Company 1994 176,418 37,500 -- -- 3,404 Donald E. Fogelsanger............... 1996 196,000 125,000 -- 13,333 22,829 President of the Company 1995 198,538 120,000 -- -- 19,442 1994 185,000 -- -- -- 18,949 Ronald E. Welsch(c)................. 1996 172,000 70,000 -- 10,000 38,533 President of Aircraft Braking Systems 1995 162,769 78,000 -- -- 3,806 1994 90,359 -- 500 -- 2,026 Roger C. Martin..................... 1996 136,674 55,000 -- 8,333 11,489 President of Engineered Fabrics 1995 132,767 55,500 -- -- 10,520 Corporation 1994 127,000 -- -- -- 10,545
- --------------- (a) Includes the following: (i) Company contributions to individual 401(k) plan accounts for fiscal years 1996, 1995 and 1994, respectively: Mr. K. Schwartz -- $3,996, $3,375 and $3,225; Mr. Fogelsanger -- $4,050, $3,475 and $2,719; Mr. Welsch -- $4,050, $3,446 and $1,848; Mr. Martin -- $4,050, $3,110 and $3,161; (ii) the value of supplemental life insurance programs for fiscal years 1996, 1995 and 1994, respectively: Mr. K. Schwartz -- $200, $190 and $179; Mr. Fogelsanger -- $18,779, $15,967 and $16,230; Mr. Welsch -- $1,107, $360 and $178; Mr. Martin -- $7,439, $7,410 and $7,384; and (iii) $33,376 paid to Mr. Welsch for moving expenses incurred in connection with his employment. (b) 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 Space 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 $100,000 of the aggregate advisory fee be paid to Mr. K. Schwartz, which is included in his fiscal years 1996 and 1995 salaries. (c) Compensation for fiscal year 1994 for Mr. Welsch reflects less than a full year, as his employment date was September 8, 1993. 41 44 OPTION GRANTS IN LAST FISCAL YEAR There were no grants of stock options by the Company, during fiscal year 1996, to the named executive officers. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS VALUES
VALUE OF NUMBER OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FY-END (#) FY-END ($)(1) SHARES ------------- ------------- ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE - ----------------------------------------- ------------ ------------ ------------- ------------- Bernard L. Schwartz...................... 0 0 0 0/0 Kenneth M. Schwartz...................... 0 0 1,125/375 0/0 Donald E. Fogelsanger.................... 0 0 2,250/250 0/0 Ronald E. Welsch......................... 0 0 125/375 0/0 Roger C. Martin.......................... 0 0 1,250/250 0/0
- --------------- (1) None of the Company's stock is currently publicly traded. All options were granted at book value computed as of March 13, 1989. 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. The following awards were earned for the individuals named in the Summary Compensation Table during fiscal years 1996 and 1995, respectively: Mr. K. Schwartz, $45,000 and $40,000; Mr. Fogelsanger, $50,000 and $40,000; Mr. Welsch, $36,000 and $30,000; and Mr. Martin, $27,000 and $25,000. THE RETIREMENT PLAN The Company established, effective May 1, 1989, as amended, the K & F Industries Retirement Plan for Salaried Employees (the "Plan"), a defined benefit pension plan. The Company has received a favorable determination letter from the Internal Revenue Service that the Plan is a qualified plan under the Internal Revenue Code. The terms of the 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 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 the sum of (i) 2.4% times years of continuous service up to 10; (ii) 1.8% times additional years of such service up to 20; (iii) 1.2% times additional years of such service up to 30; and (iv) 0.6% times all additional such service above 30 years. 42 45 Effective January 1, 1990, the Plan was amended for eligible employees of the Company and Aircraft Braking Systems to provide an annual benefit equal to (i) the accrued benefit described above as of December 31, 1989; (ii) 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; (iii) for each year of continuous service on and after January 1, 1990, a contributory benefit of (a) 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, and (b) 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 (iii) 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 (i) completed at least 30 years of continuous service, (ii) attained age 55 and completed at least 10 years of continuous service or (iii) 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. The individuals named in the Summary Compensation Table also participate in a supplemental plan which generally makes up for certain reductions in such benefits caused by Internal Revenue Code limitations. Estimated annual benefits upon retirement for these individuals who are participants in the amended plan of the Company and Aircraft Braking Systems and the supplemental plan, are $200,000 for Mr. Schwartz; $109,000 for Mr. Fogelsanger; and $32,000 for Mr. Welsch. BLS does not participate in either plan. The retirement benefits have been computed on the assumption that (i) employment will be continued until normal retirement at age 65; (ii) current levels of creditable compensation and the Social Security Wage Base will continue without increases or adjustments throughout the remainder of the computation period; and (iii) participation in the contributory portion of the plan will continue at current levels. The Company has a similar plan at Engineered Fabrics in which Mr. Martin participates. Estimated annual benefits for Mr. Martin are $83,000 using assumptions (i), (ii) and (iii) above. For purposes of eligibility, vesting and benefit accrual, participants receive credit for years of service with Loral Corporation 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, 1996. Non-equity 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, 1996. 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 Space 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. 43 46 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. OWNERSHIP OF CAPITAL STOCK The following table sets forth the ownership of the capital stock of the Company as of June 1, 1996.
NUMBER OF NUMBER OF NUMBER OF SHARES SHARES SHARES PERCENTAGE OF CLASS A OF CLASS B OF PREFERRED OWNERSHIP OF COMMON STOCK COMMON STOCK STOCK(a) CAPITAL STOCK(b) ------------ ------------ ------------ ---------------- Bernard L. Schwartz....................... 553,343(c) -- -- 27.12% *Lehman Brothers Merchant Banking Portfolio Partnership L.P.(d)........... -- -- 478,387 23.45 *Lehman Brothers Offshore Investment Partnership L.P.(e)..................... -- -- 129,745 6.36 *Lehman Brothers Offshore Investment Partnership -- Japan L.P.(e)............ -- -- 49,348 2.42 *Lehman Brothers Capital Partners II, L.P.(f)................................. -- -- 325,156 15.94 CBC Capital Partners, Inc................. 1 -- 44,999 2.21 Loral Space & Communications Ltd. ........ -- 458,994 -- 22.50 ------- ------- ------- ------ Total................................ 553,344 458,994 1,027,635 100.00% ======= ======= ======= ======
- --------------- * Collectively referred to as the "Lehman Investors." (a) The preferred stock is convertible into Class A common stock on a one-for-one basis. (b) Assumes that the preferred stock has been converted into voting common stock. (c) 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. (d) LB I Group Inc. is the general partner of the limited partnership and is an indirect, wholly owned subsidiary of LBH. (e) Lehman Brothers Offshore Partners Ltd. is the general partner of the limited partnership and is an indirect, wholly owned subsidiary of LBH. (f) LBH is the general partner of the limited partnership. The limited partnership is a fund for employees of LBH and its affiliates. STOCKHOLDERS AGREEMENT The Company, BLS, the Lehman Investors, CBC Capital Partners, Inc. and Loral Space (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 44 47 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 seven 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 (iii) one director as long as they own any Common Equivalents. If and for so long as Loral Space and its affiliates own any shares of voting common stock, at the request of Loral Space, the number of members of the Board of Directors shall be increased to nine, Loral Space 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 recapitalization, (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 March 13, 1989 may not be amended without the consent of the Lehman Investors designated director for so long as the Lehman Investors or their 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. 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. 45 48 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 Space. Prior to that he was Chairman and Chief Executive Officer of Loral Corporation. 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. In May 1996, the Company purchased $343,000 principal amount of 13 3/4% Debentures from A. Robert Towbin, who is a member of the Board of Directors of the Company, at a price of 103.65% of the principal thereof plus accrued interest. The Company has agreed to pay Ronald H. Kisner, a member of the Board of Directors of the Company, a monthly retainer of $6,000 during fiscal year 1997 for legal services. On September 2, 1994, the Company retired the $65.4 million principal amount of Convertible Debentures held by Loral Corporation. 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 Space 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. The Company has a bonus plan pursuant to which the Company's Board of Directors awards bonuses to BLS and other advisors ranging from 5% to 10% of earnings in excess of $50 million before interest, taxes and amortization. Bonuses earned under this plan were $200,000 in the aggregate in fiscal year 1996. 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. No payments were made during the three years ended March 31, 1996. Pursuant to agreements between the Company and Loral Corporation, the parties provided services to each other and shared 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 Corporation were as favorable to the Company as could have been obtained from unaffiliated parties. Billings from Loral Corporation were $3.6 million, $3.0 million and $3.0 million in fiscal years 1996, 1995 and 1994, respectively. Billings to Loral Corporation were $2.7 million, $0.2 million and $1.1 million in fiscal years 1996, 1995 and 1994. Purchases from Loral Corporation were $2.2 million, $1.9 million and $4.2 million in fiscal years 1996, 1995 and 1994. Included in accounts receivable and accounts payable at March 31, 1996 is $3.5 million and $2.3 million. Included in accounts receivable and accounts payable at March 31, 1995 is $0.7 million and $1.8 million. The Company will continue these arrangements and reimburse Loral Space for real property occupancy, benefits administration and legal services. On April 22, 1996, Lockheed Martin acquired the defense electronics and systems integration businesses of Loral Corporation which included the Akron, Ohio facility. The various occupancy and service agreements affecting the Akron, Ohio, facility will remain in full force and effect. The Company will continue to reimburse Lockheed Martin for real property occupancy, and costs relating to shared easements and services. 46 49 DESCRIPTION OF THE NOTES GENERAL The Old Notes were, and the New Notes will be, issued pursuant to an Indenture (the "Indenture") between the Company and Fleet National Bank, as trustee (the "Trustee"), in a private transaction that is not subject to the registration requirements of the Securities Act. See "Notice to Investors." The terms of the New Notes are identical in all material respects to the Old Notes, except that the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain provisions providing for the payment of Liquidated Damages under certain circumstances relating to the Registration Rights Agreement, which provisions will terminate upon the consummation of the Exchange Offer. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. A copy of the proposed form of Indenture and Registration Rights Agreement is available as set forth under "-- Available Information." The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." The Notes rank senior to or pari passu in right of payment with all subordinated Indebtedness of the Company. The Notes are subordinated in right of payment to all Senior Indebtedness of the Company, including all obligations of the Company under the Amended and Restated Credit Agreement and the Senior Notes. The operations of the Company are conducted through its Subsidiaries and, therefore, the Company is dependent upon the cash flow of its Subsidiaries to meet its obligations, including its obligations under the Notes. The Notes are effectively subordinated to all indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Company's Subsidiaries. Any right of the Company to receive assets of any of its Subsidiaries upon the latter's liquidation or reorganization (and the consequent right of the Holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that Subsidiary's creditors, except to the extent that the Company is itself recognized as a creditor of such Subsidiary, in which case the claims of the Company would still be subordinate to any security in the assets of such Subsidiary and any indebtedness of such Subsidiary senior to that held by the Company. PRINCIPAL, MATURITY AND INTEREST The Notes are limited in aggregate principal amount to $140 million and will mature on September 1, 2004. Interest on the Notes accrues at the rate of 10 3/8% per annum and is payable semi-annually in arrears, in cash on March 1 and September 1, commencing on March 1, 1997, to Holders of record on the immediately preceding February 15 and August 15. Interest on the Notes accrues from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium, if any, and interest on the Notes is payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of Notes; provided that all payments with respect to Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes are issued in denominations of $1,000 and integral multiples thereof. 47 50 OPTIONAL REDEMPTION The Notes are not redeemable at the Company's option prior to September 1, 2000. Thereafter, the Notes are subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on September 1 of the years indicated below:
YEAR PERCENTAGE ---------------------------------------------------------- ---------- 2000...................................................... 105.188% 2001...................................................... 103.458% 2002...................................................... 101.729% ------- 2003 and thereafter....................................... 100.000% =======
Notwithstanding the foregoing, at any time on or prior to August 15, 1999, the Company may redeem up to an aggregate of $49 million in principal amount of Notes at a redemption price of 110.375% of the principal amount thereof, in each case plus accrued and unpaid interest thereon to the redemption date, with the net proceeds of an initial public offering of common stock of the Company; provided that at least $91 million in aggregate principal amount of Notes remain outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 45 days of the date of the closing of such initial public offering of common stock of the Company. SELECTION AND NOTICE If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. MANDATORY REDEMPTION Except as set forth below under "Repurchase at the Option of Holders," the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. REPURCHASE AT THE OPTION OF HOLDERS Change of Control Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon to the date of purchase (the "Change of Control Payment Date"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the 48 51 Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Indenture provides that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Indebtedness or obtain the requisite consents, if any, under all agreements governing outstanding Senior Indebtedness to permit the repurchase of the Notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The Amended and Restated Credit Agreement limits the ability of the Company to purchase any Notes and also provides that certain change of control events with respect to the Company would constitute a default thereunder. In addition, the Senior Notes restrict the ability of the Company to purchase or redeem the Notes. Any future credit agreements or other agreements relating to Senior Indebtedness to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Amended and Restated Credit Agreement and the Senior Note Indenture. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. Asset Sales The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 70% of the consideration therefor received by the Company or such Subsidiary is in the form of cash or Cash Equivalents; provided that the amount of (x) any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet), of the Company or any Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets and (y) any notes, securities or other obligations received by the Company or any such Subsidiary from such transferee that are immediately (subject to normal settlement periods) converted by the Company or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. The Company may apply such Net Proceeds, at its option, within 360 days after the receipt of any Net Proceeds from an Asset Sale, (a) to permanently reduce Senior Indebtedness or (b) to invest in the business or businesses of the Company or any of its Subsidiaries or any business directly related to any business then 49 52 conducted by the Company or any of its Subsidiaries or any business related to the aircraft industry or used for working capital purposes. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Revolving Indebtedness or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10 million, the Company will be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. SUBORDINATION The payment of principal of, premium, if any, and interest on the Notes is subordinated in right of payment as set forth in the Indenture, to the prior payment in full of all Senior Indebtedness, whether outstanding on the date of the Indenture or thereafter. 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 Indebtedness (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 Notes, or to acquire or redeem any of the Notes for cash or property (except that, if there is no Senior Indebtedness outstanding under the Senior Notes, Holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Indebtedness and any securities issued in exchange for such securities). Before any payment may be made by, or on behalf of, the Company of the principal of, premium, if any, or interest on the Notes 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 Notes or the Trustee on their behalf would be entitled, but for the subordination provisions of the 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 Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their representatives or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all such Senior Indebtedness 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 Indebtedness. If any default in the payment of any principal of or interest on any Senior Indebtedness outstanding under the Senior Notes, any Specified Senior Indebtedness or any Designated Senior Indebtedness 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 Notes or to redeem or acquire any of the Notes for cash or property or otherwise (except, in each case, if there is no Senior Indebtedness outstanding under the Senior Notes, payments made in such subordinated securities). If any event of default occurs and is continuing under any Designated Senior Indebtedness other than a default in payment of the principal of or interest on any Designated Senior Indebtedness (or if such an event of default would occur upon any payment of any kind or character with 50 53 respect to the Notes), as such event of default is defined in such Designated Senior Indebtedness, 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 Indebtedness (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, or other amounts owing with respect to the Notes, or (y) acquire any of the Notes for cash or property or otherwise (except, if there is no Senior Indebtedness outstanding, under the Senior Notes, in each case, payments made in such subordinated securities). At the expiration of such Blockage Period, the Company shall, as set forth in the 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 with 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 Indebtedness 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 Indebtedness (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. The Indenture further requires that the Company promptly notify holders of Senior Indebtedness if payment of the Notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, Holders of Notes may recover less ratably than creditors of the Company who are holders of Senior Indebtedness. As of June 30, 1996, after giving pro forma effect to the Offering, application of the net proceeds therefrom and borrowings under the Amended and Restated Credit Agreement, the principal amount of Senior Indebtedness outstanding would have been approximately $160 million. The Indenture limits, subject to certain financial tests, the amount of additional Indebtedness, including Senior Indebtedness, that the Company and its subsidiaries can incur. See " -- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." No Senior Subordinated Debt. The Indenture provides that the Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Indebtedness and senior in any respect in right of payment to the Notes. CERTAIN COVENANTS Restricted Payments The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock), dividends or distributions payable to the Company or any Subsidiary of the Company or dividends or distributions payable by a Subsidiary of the Company to its shareholders on a pro rata basis); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any direct or indirect parent of the Company (other than any such Equity Interests owned by the Company); (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes, except at stated maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and 51 54 (b) with respect to Restricted Payments described in clauses (i) and (ii) of the immediately preceding paragraph, the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries after the date of the Indenture (including the Restricted Payments permitted by the next paragraph, but excluding Restricted Payments permitted by clauses (ii), (iii) and (iv) of the next paragraph), is less than the sum of (i) an amount equal to the difference (but not less than zero) between (A) Cumulative Operating Cash Flow and (B) the product of 1.3 times Cumulative Total Interest Expense, plus (ii) 100% of 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 set forth in an Officers' Certificate delivered to the Trustee, received by the Company from the issue or sale since the date of the Indenture of Equity Interests of the Company or of debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or debt securities issued subsequent to the date of the Indenture that have been converted into Disqualified Stock), plus (iii) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment, plus (iv) $15 million. The foregoing provisions do not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption or repurchase of pari passu or subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness or the substantially concurrent issuance (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iv) investments, loans or advances to joint ventures of the Company or any of its Subsidiaries in an aggregate amount at any time not to exceed $20 million; and (v) the repurchase of shares of, or options to purchase shares of, the Company's common stock or the common stock of Loral Space held by employees of the Company (other than any member of the BLS Group) 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 such common stock in an aggregate amount not to exceed $2 million in any fiscal year; provided that the amount available in any given fiscal year shall be increased by the excess, if any, of (A) $2 million over (B) the amount used pursuant to this clause (v) in the immediately preceding fiscal year. The amount of all Restricted Payments (other than cash) shall be the fair market value (as determined in good faith by the Board of Directors, which determination shall be conclusive and evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed, which calculations may be based upon the Company's latest available financial statements. 52 55 Incurrence of Indebtedness and Issuance of Preferred Stock The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) or Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company or any of its Subsidiaries may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and the Company's subsidiaries may issue shares of Preferred Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued would have been at least 1.7 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four-quarter period; The foregoing provisions do not apply to: (i) the incurrence by the Company or its Subsidiaries of Indebtedness and letters of credit pursuant to the Amended and Restated Credit Agreement (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company or its Subsidiaries thereunder) in an aggregate principal amount not to exceed $110 million, less the aggregate amount of all proceeds of Assets Sales that have been applied since the date of the Indenture to permanently reduce the outstanding amount of such Indebtedness pursuant to the covenant described above under the caption "-- Asset Sales;" (ii) Existing Indebtedness; (iii) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, Indebtedness that was permitted by the Indenture to be incurred; (iv) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Subsidiaries; provided, however, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be; (v) Indebtedness under Guarantees in respect of obligations of joint ventures of the Company or any of its Subsidiaries in an aggregate principal amount not to exceed $20 million at any one time; (vi) (A) Indebtedness 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 Indebtedness is secured by a Lien on the property, plant or equipment so purchased or constructed and such Indebtedness does not exceed the value of such 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) Indebtedness incurred in connection with any lease financing transaction in conjunction with the acquisition of new property; provided that such lease financing transaction is consummated within 60 days of such acquisition (whether such lease will be treated as an operating or capital lease in accordance with GAAP) and the aggregate of the Indebtedness 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 53 56 shall be increased by the excess, if any, of (a) $30 million over (b) Consolidated Capital Expenditures for the immediately preceding two years; (vii) obligations incurred in the ordinary course of business under (A) trade letters of credit which are to be repaid in full not more than one year after the date on which such Indebtedness is originally incurred to finance the purchase of goods by the Company or a Subsidiary of the Company; (B) standby letters of credit issued for the purpose of supporting (1) workers' compensation liabilities of the Company or any of its Subsidiaries as required by law, (2) obligations with respect to leases of the Company or any of its Subsidiaries, (3) performance, payment, deposit or surety obligations of the Company or any of its Subsidiaries or (4) 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; (C) performance bonds and surety bonds, and refinancings thereof; and (D) Guarantees of Indebtedness incurred in the ordinary course of business of suppliers, licensees, franchisees, or customers in an aggregate amount not to exceed $5 million; (viii) Indebtedness to repurchase shares, or cancel options to the purchase shares, of the Company's common stock or the common stock of Loral Space held by employees of the Company (other than any member of the BLS Group) or any of its Subsidiaries pursuant to the forms of agreements under which such employees purchase shares of the Company's common stock; (ix) the incurrence by the Company or any of its Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding; and (x) the incurrence by the Company or any of its Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any other clause of this paragraph) in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $25 million. Notwithstanding the foregoing, the accretion or amortization of original issue discount under any Indebtedness, the payment of interest in additional Indebtedness or the accretion of the liquidation preference of Disqualified Stock or preferred stock, shall not be deemed an incurrence of Indebtedness, Disqualified Stock or preferred stock; provided, however, that such accretion or amortization or payment of interest is included in Fixed Charges. Liens The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. Dividend and Other Payment Restrictions Affecting Subsidiaries The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or advances to the Company or any of its Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) the Amended and Restated Credit Agreement as in effect as of the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive with respect to such dividend and other payment restrictions than those contained in the Amended and Restated Credit Agreement as in effect on the date of the Indenture, (b) the Indenture and the Notes, (c) applicable law, (d) any instrument 54 57 governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred, (e) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, or (g) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. Merger, Consolidation, or Sale of Assets The Indenture provides that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock." Transactions with Affiliates The Indenture provides that the Company will not, and will not permit any of its Subsidiaries to directly or indirectly enter into any transaction involving aggregate consideration in excess of $1,000,000 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 disinterested and 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 of $5 million, if the Company does not have any disinterested and 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 55 58 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 does not apply to (a) any transaction between the Company or any Affiliate thereof and any Lehman Investor, including, without limitation, the payment of fees to any Lehman Investor 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 Subsidiaries or between any of its Subsidiaries, (e) any transaction between the Company or any of its Subsidiaries and Loral Space as required by the Acquisition Agreement or (f) any Restricted Payment not otherwise prohibited by the "Restricted Payments" covenant. Payments for Consent The Indenture provides that neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Reports The Indenture provides that, whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company will furnish to the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any Old Notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company for 45 days after notice to comply with any of its other agreements in the Indenture or the Notes; (iv) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10 million or more; 56 59 (v) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $10 million, which judgments are not paid, discharged or stayed for a period of 60 days; and (vi) certain events of bankruptcy or insolvency with respect to the Company or any of its Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided, that so long as the Amended and Restated Credit Agreement is in effect, such declaration shall not become effective until the earlier of (i) five days after receipt of notice of such acceleration by the Agent and the Company or (ii) an acceleration of obligations under the Amended and Restated Credit Agreement. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to September 1, 2000 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to September 1, 2000, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in 57 60 connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes. 58 61 AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes, (vii) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption "-- Repurchase at the Option of Holders") or (viii) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 of the Indenture (which relate to subordination) or any of the related definitions will require the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of Notes. Notwithstanding the foregoing, without the consent of any Holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. 59 62 BOOK-ENTRY, DELIVERY AND FORM Except as set forth in the next paragraph, the Notes will initially be issued in the form of one Global Note (the "Global Note"). The Global Note will be deposited with, or on behalf of, The Depository Trust Company (the "Depositary") and registered in the name of Cede & Co., as nominee of the Depositary (such nominee being referred to herein as the "Global Note Holder"). Notes that are issued as described below under "-- Certificated Securities" will be issued in the form of registered definitive certificates (the "Certificated Securities"). Upon the transfer of Certificated Securities, such Certificated Securities may, unless the Global Note has previously been exchanged for Certificated Securities, be exchanged for an interest in the Global Note representing the principal amount of Notes being transferred. The Depositary is a limited-purpose trust company that was created to hold securities for its participating organizations (collectively, the "Participants" or the "Depositary's Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic book-entry changes in accounts of its Participants. The Depositary's Participants include securities brokers and dealers (including the Initial Purchasers), banks and trust companies, clearing corporations and certain other organizations. Access to the Depositary's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants" or the "Depositary's Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Persons who are not Participants may beneficially own securities held by or on behalf of the Depositary only thorough the Depositary's Participants or the Depositary's Indirect Participants. The Company expects that pursuant to procedures established by the Depositary (i) upon deposit of the Global Note, the Depositary will credit the accounts of Participants with portions of the principal amount of the Global Note and (ii) ownership of the Notes evidenced by the Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depositary (with respect to the interests of the Depositary's Participants), the Depositary's Participants and the Depositary's Indirect Participants. Prospective purchasers are advised that the laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer Notes evidenced by the Global Note will be limited to such extent. So long as the Global Note Holder is the registered owner of any Notes, the Global Note Holder will be considered the sole Holder under the Indenture of any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the Global Note will not be considered the owners or Holders thereof under the Indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the Trustee thereunder. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records of the Depositary or for maintaining, supervising or reviewing any records of the Depositary relating to the Notes. Payments in respect of the principal of, premium, if any, and interest on any Notes registered in the name of the Global Note Holder on the applicable record date will be payable by the Trustee to or at the direction of the Global Note Holder in its capacity as the registered Holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the persons in whose names Notes, including the Global Note, are registered as the owners thereof for the purpose of receiving such payments. Consequently, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of Notes. The Company believes, however, that it is currently the policy of the Depositary to immediately credit the accounts of the relevant Participants with such payments, in amounts proportionate to their respective holdings of beneficial interests in the relevant security as shown on the records of the Depositary. Payments by the Depositary's Participants and the Depositary's Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practice and will be the responsibility of the Depositary's Participants or the Depositary's Indirect Participants. 60 63 Certificated Securities Subject to certain conditions, any person having a beneficial interest in the Global Note may, upon request to the Trustee, exchange such beneficial interest for Notes in the form of Certificated Securities. Upon any such issuance, the Trustee is required to register such Certificated Securities in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof). In addition, if (i) the Company notifies the Trustee in writing that the Depositary is no longer willing or able to act as a depositary and the Company is unable to locate a qualified successor within 90 days or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in the form of Certificated Securities under the Indenture, then, upon surrender by the Global Note Holder of its Global Note, Notes in such form will be issued to each person that the Global Note Holder and the Depositary identify as being the beneficial owner of the related Notes. Neither the Company nor the Trustee will be liable for any delay by the Global Note Holder or the Depositary in identifying the beneficial owners of Notes and the Company and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the Global Note Holder or the Depositary for all purposes. Same-Day Settlement and Payment The Indenture requires that payments in respect of the Notes represented by the Global Note (including principal, premium, if any, and interest) be made by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. With respect to Certificated Securities, the Company will make all payments of principal, premium, if any, and interest, by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder's registered address. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Amended and Restated Credit Agreement" means that certain Credit Agreement, dated as of August 14, 1996, by and among Aircraft Braking Systems, Engineered Fabrics, Lehman Commercial Paper Inc., as documentation agent, The Chase Manhattan Bank, as administrative agent, and the lenders named therein, providing for up to $110 million of borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time with the same or different lenders. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets (including, without limitation, by way of a sale and leaseback, other than a sale and leaseback of Aircraft Braking Systems' carbon 61 64 manufacturing facilities so long as the present value of the rental obligations of the Company and its Subsidiaries thereunder do not exceed $15 million) other than sales of inventory in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "-- Change of Control" and/or the provisions described above under the caption "-- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $5 million or (b) for net proceeds in excess of $5 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Subsidiary or by a Subsidiary to the Company or to another Subsidiary, (ii) an issuance of Equity Interests by a Subsidiary to the Company or to another Subsidiary, and (iii) a Restricted Payment that is permitted by the covenant described above under the caption "-- Restricted Payments" will not be deemed to be Asset Sales. "Bank" means any financial institution extending credit under the Amended and Restated Credit Agreement. "BLS" means Bernard L. Schwartz. "BLS Group" means (i) BLS's spouse and descendants (collectively, "relatives"); (iii) a trust of which there are no beneficiaries other than BLS and the relatives of BLS; (iv) a partnership of which there are no other partners other than BLS or the relatives of BLS; (v) a corporation of which there are no stockholders other than BLS or relatives of BLS; and (vi) any other Affiliate of BLS. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than twelve months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having a rating of at least A-3 from Moody's Investors Service, Inc. or P-3 from Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) other than the Permitted Investors, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than the Permitted Investors, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the voting stock of the Company or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. For purposes of this definition, any transfer of an Equity Interest of an entity that was formed for the purpose of acquiring voting stock of the Company will be 62 65 deemed to be a transfer of such portion of such voting stock as corresponds to the portion of the equity of such entity that has been so transferred. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash charges were deducted in computing such Consolidated Net Income, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Interest Expense" of any Person for any period means interest expense (including amortization of original issue discount and non-cash interest payments or accruals and the interest portion of Capitalized Leases) of such Person and its Consolidated Subsidiaries, all as determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations 63 66 and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Cumulative Operating Cash Flow" means, for the period beginning June 30, 1996 through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, Operating Cash Flow for the Company and its Consolidated Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Cumulative Total Interest Expense" means, for the period beginning June 30, 1996 through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, Consolidated Interest Expense for the Company and its Consolidated Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Designated Senior Indebtedness" means (i) Indebtedness under the Amended and Restated Credit Agreement and (ii) if there is no Indebtedness outstanding or active commitments to issue Indebtedness under the Amended and Restated Credit Agreement, any other Indebtedness constituting Senior Indebtedness 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 Indebtedness as "Designated Senior Indebtedness." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock so long as it is a debt security). "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Amended and Restated Credit Amendment) in existence on the date of the Indenture, including the Notes, until such amounts are repaid. "Fixed Charges" means, with respect to any Person for any period, the sum of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. 64 67 "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Indebtedness" means, without duplication, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that an acquisition of assets, Equity Interests or other securities by the Company for consideration consisting of common equity securities of the Company shall not be deemed to be an Investment. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such 65 68 that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of. "Lehman Brothers" means Lehman Brothers Inc. "Lehman Investor" means (i) Lehman Brothers, (ii) any Affiliate of Lehman Brothers and (iii) any merchant banking limited partnership affiliated with Lehman Brothers or any Affiliate of Lehman Brothers. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Loral Space" means Loral Space & Communications Ltd. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale, and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Operating Cash Flow" of any Person means, for any period, the sum of (a) Net Income of such Person and its consolidated Subsidiaries for such period, plus (b) provision for taxes based on income or profits included in computing Net Income of such Person for such period, plus (c) Consolidated Interest Expense of such Person for such period, plus (d) other non-cash charges deducted from consolidated revenues in determining Net Income of such Person for such period, in each case, determined on a consolidated basis in accordance with GAAP. "Permitted Investments" means (a) any Investment in the Company or in a Wholly Owned Subsidiary of the Company; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Subsidiary of the Company; (d) any Investment in common stock of Loral Space, provided that such common stock is awarded to employees of the Company or any of its Subsidiaries (either directly or indirectly pursuant to options or similar arrangements) as compensation in the ordinary course of business and provided further that the aggregate amount of such Investments does not exceed $2 million in any fiscal year and (e) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales." 66 69 "Permitted Investor" means (i) any Person that is a member of the BLS Group or a Lehman Investor or (ii) Loral Space or any Subsidiary thereof. "Permitted Liens" means (i) Liens on assets of the Company or its Subsidiaries that secure Senior Indebtedness permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens existing on the date of the Indenture and any extensions or renewals thereof, provided that such Liens do not extend to or cover any other property or assets of the Company or any Subsidiary; (vi) statutory Liens or landlords and carriers', warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like Liens arising in the ordinary course of business; (vii) Liens for taxes, assessments, government charges or claims which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor; (viii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (ix) Liens created or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (x) easements, rights-of-way, restrictions and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any Significant Subsidiary incurred in the ordinary course of business; (xi) any attachment or judgment Lien, unless the judgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; (xii) any other Liens imposed by operation of law which do not materially affect the Company's ability to perform its obligations under the Notes and the Indenture; (xiii) rights of banks to set off deposits against debts owed to said bank; (xiv) Liens upon specific items of inventory or other goods and proceeds of the Company or its Subsidiaries securing the Company's or any Subsidiary's obligations in respect of bankers' acceptances issued or created for the account of any such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (xv) Liens securing reimbursement obligations with respect to letters of credit which encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xvi) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xvii) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or one of its Subsidiaries relating to such property or assets and (xviii) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $5 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Subsidiary. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith and any associated redemption premium); (ii) except in the case of Permitted Refinancing Indebtedness incurred to refinance the Senior Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is 67 70 subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Senior Notes on terms at least as favorable to the Holders of Senior Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Restricted Investment" means an Investment other than a Permitted Investment. "Senior Indebtedness" means (i) all Indebtedness and other monetary obligations (whether now existing or hereafter incurred) of the Company on, under or in respect of, the Amended and Restated Credit Agreement 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 Indebtedness of the Company (other than the Notes), whether presently outstanding or hereafter created, incurred or assumed, unless such Indebtedness, 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 Notes and (iii) any Hedging Obligations; provided that the term Senior Indebtedness shall not include (a) any Indebtedness of the Company which when incurred and without respect to any election under Section 11(b) of the Bankruptcy Code, was without recourse to the Company, (b) any Indebtedness of the Company to any of its Subsidiaries or Affiliates, (c) any Indebtedness of the Company not otherwise permitted by the covenants described under the captions "Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" and "-- Subordination -- No Senior Subordinated Debt," (d) Indebtedness to any employee of the Company, (e) any liability for taxes and (f) trade payables. "Senior Notes" means the Company's 11 7/8 Senior Secured Notes due 2003. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Specified Senior Indebtedness" means any Indebtedness constituting Senior Indebtedness 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 Indebtedness as "Specified Senior Indebtedness." "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "13 3/4% Debentures" means the Company's 13 3/4% Senior Subordinated Debentures due 2001. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person. 68 71 DESCRIPTION OF CERTAIN INDEBTEDNESS The following is a summary of certain indebtedness of the Company and its subsidiaries that will be available or outstanding upon completion of the Offering and is qualified in its entirety by reference to the definitive agreements and instruments governing such indebtedness, copies of which are available upon request from the Company. THE AMENDED AND RESTATED CREDIT AGREEMENT General. Aircraft Braking Systems and Engineered Fabrics (each, a "Borrower" and together, the "Borrowers") and the Lenders entered into the Amended and Restated Credit Agreement on August 14, 1996 on the terms and subject to the conditions set forth below. The Amended and Restated Credit Agreement provides for a term loan facility (the "Term Loan Facility") in an aggregate principal amount of $40 million and a revolving credit facility (the "Revolving Loan Facility") in an aggregate principal amount of $70 million. The Amended and Restated Credit Agreement is secured by a lien on the inventory, accounts receivable and certain other tangible assets of the Borrowers. The Term Loan Facility is repayable over a six-year period in quarterly installments commencing in June 1997. The Company is required to make mandatory prepayments in the event of certain asset sales, upon the incurrence of additional indebtedness, the issuance of certain securities and from excess cash flow. The ability of the Borrowers to borrow under the Revolving Credit Facility is based on the sum the "Borrowing Base" of stated percentages of their eligible accounts receivable and eligible inventory; provided that until September 30, 1998 the Borrowers will be able to borrow 120% of the Borrowing Base. Up to $15 million of the Revolving Credit Facility is available for standby and commercial letters of credit. The Revolving Credit Facility commitment will terminate on August 14, 2001. Borrowings under the Amended and Restated Credit Agreement bear interest, at the option of the Borrowers, at a rate equal to (a) the highest of (i) the publicly announced prime rate of The Chase Manhattan Bank ("Chase Manhattan"), (ii) the secondary market rate for three-month certificates of deposit plus 1% and (iii) the federal funds rate plus 1/2 of 1%, plus an applicable margin, initially 1.75% per annum or (b) the rate at which eurodollar deposits for one, two, three or six months (as elected by the Borrowers) are offered by Chase Manhattan in the interbank eurodollar market plus an applicable margin, initially 2.25% per annum. Overdue amounts under the Amended and Restated Credit Agreement will bear interest at a rate equal to the rate then in effect with respect to such borrowings, plus 2% per annum. The Company paid to Chase Manhattan and Lehman Commercial Paper Inc. ("LCP") a commitment fee for the period from the date of the commitment letter to the closing of the Amended and Restated Credit Agreement in an amount equal to 0.50% per annum on $110 million and certain upfront fees. In addition, the Company will pay to the Lenders a quarterly commitment fee initially equal to 0.50% per annum of the unused portion of the Amended and Restated Credit Agreement; provided that such commitment fee will decrease to 3/8 of 1% per annum if the Company's consolidated leverage ratio is less than 3.50 to 1.00. The Company will pay a commission on all outstanding letters of credit of 2.50% per annum of the face amount of each letter of credit. The Amended and Restated Credit Agreement contains customary representations and warranties, covenants and conditions to borrowing. There can be no assurance that the conditions to borrowing under the Amended and Restated Credit Agreement will be satisfied. The Amended and Restated Credit Agreement contains a number of negative covenants which restrict the Company's subsidiaries from, among other things, incurring other indebtedness, entering into merger or consolidation transactions, disposing of all or substantially all of its assets, making certain restricted payments (other than dividends and such restricted payments by subsidiaries of the Company to the Company to enable the Company to make payments in respect of certain indebtedness and to make certain capital expenditures), creating any liens on the Borrowers' assets, creating guarantee obligations and material lease obligations and entering into sale and leaseback transactions and transactions with affiliates. In addition, the Amended and Restated Credit Agreement limits the ability of the Company to redeem the Senior Notes. 69 72 The Amended and Restated Credit Agreement also requires the maintenance of certain quarterly financial and operating ratios, including: (i) a consolidated cash interest coverage ratio, (ii) a subsidiary interest coverage ratio and (iii) a consolidated leverage ratio. Capital expenditures will be limited to $20 million in fiscal 1997 and $10 million in any fiscal year thereafter. In addition, the Amended and Restated Credit Agreement requires the Company to maintain a minimum consolidated adjusted net worth of not less than an amount equal to the sum of $22 million and 50% of annual consolidated net income. The Amended and Restated Credit Agreement also contains customary events of default, including default upon the nonpayment of principal, interest, fees or other amounts or the occurrence of a change of control. SENIOR NOTES General. $100,000,000 aggregate principal amount of the Company's Senior Notes were issued pursuant to 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:
JUNE REDEMPTION PRICES ------------------------------------------- ----------------- 1997....................................... 105.28% 1998....................................... 103.96% 1999....................................... 102.64% 2000....................................... 101.32% 2001 and thereafter........................ 100.00%
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 13 3/4% Debentures and will rank senior in right of collateral and payment to the Notes. The Senior Notes will be effectively subordinated to borrowings under the Amended and Restated Credit Agreement, 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 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, subject to certain exceptions 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 70 73 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. Certain Covenants; Limitation on Restricted Payments. Under the Senior Note Indenture, subject to certain exceptions 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 13 3/4% 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, received by the Company from the issuance or sale 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. 71 74 PLAN OF DISTRIBUTION Based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 promulgated under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business, such holder has no arrangement with any person to participate in the distribution of such New Notes and neither such holder nor any such other person is engaging in or intends to engage in a distribution of such New Notes. Accordingly, any holder who is an affiliate of the Company or any holder using the Exchange Offer to participate in a distribution of the New Notes will not be able to rely on such interpretations by the staff to the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale transaction. Notwithstanding the foregoing, each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with any resale of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities (other than Old Notes acquired directly from the Company.) The Company has agreed that, for a period of one year from the date of this Prospectus, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 1996 (90 days from the date of this Prospectus), all dealers effecting transactions in the New Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker-dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver, and by delivering, a prospectus as required, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of one year from the date of this Prospectus, the Company will send a reasonable number of additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company will pay all the expenses incident to the Exchange Offer (which shall not include the expenses of any holder in connection with resales of the New Notes). The Company has agreed to indemnify the Initial Purchasers and any broker-dealers participating in the Exchange Offer against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the Notes offered hereby will be passed upon for the Company by O'Sullivan Graev & Karabell, LLP, New York, New York. EXPERTS The consolidated financial statements as of March 31, 1996 and 1995 and for the years ended March 31, 1996, 1995 and 1994, included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report dated May 22, 1996 appearing herein and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 72 75 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS K & F INDUSTRIES, INC. AND SUBSIDIARIES
PAGE ---- Consolidated Balance Sheets as of June 30, 1996 and March 31, 1996.................... F-2 Consolidated Statements of Operations for the three months ended June 30, 1996 and 1995................................................................................ F-3 Consolidated Statements of Cash Flows for the three months ended June 30, 1996 and 1995................................................................................ F-4 Notes to Consolidated Financial Statements............................................ F-5 Independent Auditors' Report.......................................................... F-8 Consolidated Balance Sheets as of March 31, 1996 and 1995............................. F-9 Consolidated Statements of Operations for the years ended March 31, 1996, 1995 and 1994................................................................................ F-10 Consolidated Statements of Stockholders' Deficiency for the years ended March 31, 1996, 1995 and 1994................................................................. F-11 Consolidated Statements of Cash Flows for the years ended March 31, 1996, 1995 and 1994................................................................................ F-12 Notes to Consolidated Financial Statements............................................ F-13
F-1 76 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, MARCH 31, 1996 1996 ------------- ------------- (UNAUDITED) ASSETS: Current Assets: Cash and cash equivalents................................... $ 6,966,000 $ 2,412,000 Accounts receivable, net.................................... 35,865,000 35,228,000 Inventory................................................... 65,586,000 63,332,000 Other current assets........................................ 456,000 832,000 ------------ ------------ Total current assets.......................................... 108,873,000 101,804,000 ------------ ------------ Property, plant and equipment................................. 129,392,000 125,124,000 Less, accumulated depreciation and amortization............. 62,266,000 60,080,000 ------------ ------------ 67,126,000 65,044,000 ------------ ------------ Deferred charges, net of amortization......................... 23,467,000 24,082,000 Cost in excess of net assets acquired, net of amortization.... 200,591,000 202,119,000 Intangible assets, net of amortization........................ 22,142,000 22,988,000 ------------ ------------ $ 422,199,000 $ 416,037,000 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY: Current Liabilities: Accounts payable, trade..................................... $ 14,634,000 $ 12,485,000 Interest payable............................................ 11,419,000 8,217,000 Other current liabilities................................... 44,363,000 44,775,000 ------------ ------------ Total current liabilities..................................... 70,416,000 65,477,000 ------------ ------------ Postretirement benefit obligation other than pensions......... 74,875,000 75,390,000 Other long-term liabilities................................... 21,638,000 20,871,000 Senior revolving loan......................................... 10,000,000 14,000,000 11 7/8% senior secured notes due 2003......................... 100,000,000 100,000,000 13 3/4% senior subordinated debentures due 2001............... 179,657,000 180,000,000 Stockholders' Deficiency: Preferred stock, $.01 par value-authorized, 1,050,000 shares; issued and outstanding, 1,027,635 shares (liquidation preference of $60,110,000).................. 10,000 10,000 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 5,000 Common stock, Class A, $.01 par value-authorized, 2,100,000 shares; issued and outstanding, 553,344 shares........... 6,000 6,000 Additional paid-in capital.................................. 155,350,000 155,350,000 Deficit..................................................... (178,779,000) (184,049,000) Adjustment to equity for minimum pension liability.......... (10,572,000) (10,572,000) Cumulative translation adjustment........................... (407,000) (451,000) ------------ ------------ Total stockholders' deficiency................................ (34,387,000) (39,701,000) ------------ ------------ $ 422,199,000 $ 416,037,000 ============ ============
See notes to consolidated financial statements. F-2 77 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED --------------------------- JUNE 30, JUNE 30, 1996 1995 ----------- ----------- Sales............................................................. $71,537,000 $62,293,000 Costs and expenses................................................ 53,874,000 50,551,000 Amortization...................................................... 2,601,000 2,615,000 ----------- ----------- Operating income.................................................. 15,062,000 9,127,000 Interest and investment income.................................... 48,000 219,000 Interest expense.................................................. (9,620,000) (10,645,000) ----------- ----------- Income (loss) before income taxes................................. 5,490,000 (1,299,000) Income taxes...................................................... (220,000) -- ----------- ----------- Net income (loss)................................................. $ 5,270,000 $(1,299,000) =========== ===========
See notes to consolidated financial statements. F-3 78 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED --------------------------- JUNE 30, JUNE 30, 1996 1995 ----------- ----------- Cash flow from operating activities: Net income (loss)............................................... $ 5,270,000 $(1,299,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................................ 4,787,000 4,805,000 Non-cash interest expense -- amortization of deferred financing charges.................................................... 388,000 375,000 Changes in assets and liabilities: Accounts receivable, net................................... (619,000) 114,000 Inventory.................................................. (2,228,000) (3,406,000) Other current assets....................................... 376,000 101,000 Accounts payable, interest payable, and other current liabilities............................................... 4,939,000 1,592,000 Postretirement benefit obligation other than pensions...... (515,000) (608,000) Other long-term liabilities................................ 767,000 822,000 ----------- ----------- Net cash provided by operating activities....................... 13,165,000 2,496,000 ----------- ----------- Cash flows from investing activities: Capital expenditures............................................ (4,268,000) (622,000) Deferred charges................................................ -- 26,000 ----------- ----------- Net cash used in investing activities........................... (4,268,000) (596,000) ----------- ----------- Cash flows from financing activities: Payments of senior revolving loan............................... (7,000,000) -- Borrowings under senior revolving loan.......................... 3,000,000 -- Payment of senior subordinated debentures....................... (343,000) -- Deferred charges -- financing costs............................. -- (300,000) ----------- ----------- Net cash used in financing activities........................... (4,343,000) (300,000) ----------- ----------- Net increase in cash and cash equivalents......................... 4,554,000 1,600,000 Cash and cash equivalents, beginning of period.................... 2,412,000 8,493,000 ----------- ----------- Cash and cash equivalents, end of period.......................... $ 6,966,000 $10,093,000 =========== =========== Supplemental cash flow information: Cash interest paid during period................................ $ 6,231,000 $ 6,020,000 =========== ===========
See notes to consolidated financial statements. F-4 79 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying unaudited consolidated financial statements have been prepared by K & F Industries, Inc. and Subsidiaries (the "Company") pursuant to the rules of the Securities and Exchange Commission ("SEC") and, in the opinion of the Company, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules. The Company believes that the disclosures made are adequate to make the information presented not misleading. The consolidated statement of operations for the three months ended June 30, 1996 is not necessarily indicative of the results to be expected for the full year. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes thereto included elsewhere in this Prospectus. 2. Redemption of Debt In May 1996, the Company redeemed $343,000 principal amount of its 13 3/4% Senior Subordinated Debentures due 2001 (the "13 3/4% Debentures") from A. Robert Towbin, who is a member of the Board of Directors of the Company, at a price of 103.65% of the principal amount thereof plus accrued interest. In May 1996, the 13 3/4% Debentures were callable at a price of 103.75% of the principal amount. In July 1996, the Company called $9,657,000 principal amount of its 13 3/4% Debentures at a price of 102.5% of the principal amount thereof, effective August 1, 1996. The Company intends to redeem the remaining $170 million principal balance of its 13 3/4% Debentures in September 1996. The Company plans to offer $140 million of Senior Subordinated Notes due 2004 (the "New Notes") and amend and restate its credit agreement (the "Amended Credit Agreement") to provide for a $110 million facility. The proceeds from the sale of the New Notes and borrowings under the Amended Credit Agreement will be used to fund the redemption of the 13 3/4% Debentures. The Company would record an extraordinary charge of approximately $9.2 million for the write-off of unamortized financing costs and redemption premiums relating to the redemption of the 13 3/4% Debentures upon completion of the above contemplated transaction. 3. Recently Adopted Financial Accounting Pronouncements Effective April 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 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 adoption of SFAS No. 121 did not have a material effect on the Company's financial position or results of operations. Effective April 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages (but does not require) adoption of the fair value based method of accounting for stock-based compensation plans. Entities may continue to measure compensation costs for those plans using the intrinsic value based method of accounting, but must make pro forma disclosures of net income (loss) as if the accounting provisions of SFAS No. 123 had been adopted. The Company has elected to continue the intrinsic value method of accounting for stock-based compensation plans and provide the required pro forma disclosures. As a result, the adoption of SFAS No. 123 had no effect on the Company's financial position or results of operations. F-5 80 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. Receivables are summarized as follows:
JUNE 30, MARCH 31, 1996 1996 ----------- ----------- Accounts receivable, principally from commercial customers............................................... $34,666,000 $32,704,000 Accounts receivable, on U. S. Government and other long-term contracts..................................... 2,809,000 4,136,000 Allowances................................................ (1,610,000) (1,612,000) ----------- ----------- $35,865,000 $35,228,000 =========== ===========
5. Inventory consists of the following:
JUNE 30, MARCH 31, 1996 1996 ----------- ----------- Raw materials and work-in-process......................... $42,141,000 $39,656,000 Finished goods............................................ 9,809,000 11,364,000 Inventoried costs related to U.S. Government and other long-term contracts............................................... 13,636,000 12,312,000 ----------- ----------- $65,586,000 $63,332,000 =========== ===========
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 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. 6. Other current liabilities consist of the following:
JUNE 30, MARCH 31, 1996 1996 ----------- ----------- Accrued payroll costs..................................... $14,770,000 $15,756,000 Accrued taxes............................................. 7,337,000 7,783,000 Accrued costs on long-term contracts...................... 6,054,000 5,195,000 Accrued warranty costs.................................... 7,117,000 8,023,000 Postretirement benefit obligation other than pensions..... 2,000,000 2,000,000 Other..................................................... 7,085,000 6,018,000 ----------- ----------- $44,363,000 $44,775,000 =========== ===========
7. Contingencies On December 15, 1995, the Company's Aircraft Braking Systems subsidiary commenced an action in the Court of Common Pleas, Summit County, Ohio against Hitco Technologies, Inc. ("Hitco") after Hitco threatened to breach existing supply contracts unless prices were renegotiated. Hitco claimed that Aircraft Braking Systems breached the supply arrangements by electing to begin to expand its own carbon production facility. The Aircraft Braking Systems' complaint, as amended, seeks damages in excess of $47 million, injunctive relief and specific performance requiring Hitco to perform its obligations pursuant to existing contracts and purchase orders. Hitco has counterclaimed in the matter seeking, among other things, damages F-6 81 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) up to $130 million for the alleged breach by Aircraft Braking Systems of alleged long-term contracts to purchase carbon. The Ohio court has issued a preliminary injunction ordering Hitco to perform its obligations pursuant to existing contracts and purchase orders without change in terms. Hitco is presently seeking to have the injunction vacated or modified, and/or a declaratory judgment terminating Hitco's obligation to supply Aircraft Braking Systems at prices previously pertaining. In a related action, Hitco commenced suit in Superior Court, Los Angeles County, California against Aircraft Braking Systems seeking substantially the same relief as is asserted in the Ohio action, and the California case has been stayed. Trial of the Ohio action is presently scheduled for January 1997 and discovery has been ongoing. Aircraft Braking Systems intends to vigorously seek dismissal of the California action and to proceed in the Ohio case to maintain the preliminary injunction and otherwise to protect Aircraft Braking Systems' carbon supply as well as to seek damages from Hitco. Based upon the court's opinion to date, advice of counsel and its own assessment of the matters in dispute, the Company does not expect the outcome of the litigation to be unfavorable to Aircraft Braking Systems. Aircraft Braking Systems has been purchasing substantially all of the carbon for its carbon brakes from Hitco under supply arrangements. It is anticipated that Hitco's obligation to continue to supply carbon will terminate by the latter of December 1996 or such time as the alleged breaches of contract by Hitco are remedied. The Company has commenced a major expansion of its existing carbon manufacturing facility in Akron, Ohio, which is expected to be completed during the first quarter of calendar year 1997 and, when fully operational, will provide the Company with sufficient capacity to meet substantially all, if not all, of its requirements for brake production at the current level of business. The Company is also developing an alternate supplier for carbon. While a loss of carbon supply for the carbon brakes manufactured by Aircraft Braking Systems would have a material, adverse effect on the Company's business and financial condition, because of the injunction obtained in the litigation with Hitco, and based on the development of an alternate supply source and the expansion of the Company's existing carbon facility, management does not believe that the Company's supply of carbon will be interrupted so as to cause a material disruption to the Company's business. There are various lawsuits and claims pending against the Company incidental to its business. Although the final results in such suits andeve proceedings cannot be predicted with certainty, in the opinion of the Company's management, the ultimate liability, if any, will not have a material adverse effect on the Company. F-7 82 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, 1996 and 1995, and the related consolidated statements of operations, stockholders' deficiency, and cash flows for each of the three years in the period ended March 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1996 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP New York, New York May 22, 1996 F-8 83 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, -------------------------- 1996 1995 ----------- ----------- ASSETS Current Assets: Cash and cash equivalents....................................... $ 2,412,000 $ 8,493,000 Accounts receivable, net........................................ 35,228,000 33,548,000 Inventory....................................................... 63,332,000 61,767,000 Other current assets............................................ 832,000 1,106,000 ------------ ------------ Total current assets.................................... 101,804,000 104,914,000 ------------ ------------ Property, Plant and Equipment -- Net.............................. 65,044,000 63,132,000 Deferred Charges -- Net of amortization of $9,452,000 and $6,975,000...................................................... 24,082,000 26,508,000 Cost in Excess of Net Assets Acquired -- Net of amortization of $42,257,000 and $36,148,000..................................... 202,119,000 208,228,000 Intangible Assets -- Net of amortization of $24,035,000 and $20,645,000..................................................... 22,988,000 26,292,000 ----------- ------------ Total Assets...................................................... $416,037,000 $429,074,000 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities: Accounts payable................................................ $ 12,485,000 $ 10,345,000 Interest payable................................................ 8,217,000 8,771,000 Other current liabilities....................................... 44,775,000 37,773,000 ------------ ------------ Total current liabilities............................... 65,477,000 56,889,000 ------------ ------------ Postretirement Benefit Obligation Other Than Pensions............. 75,390,000 77,717,000 Other Long-Term Liabilities....................................... 20,871,000 19,216,000 Long-Term Debt.................................................... 294,000,000 310,000,000 Commitments and Contingencies (Notes 12 and 13) Stockholders' Deficiency: Preferred stock, $.01 par value -- authorized, 1,050,000 shares; issued and outstanding, 1,027,635 shares (liquidation preference of $60,110,000)................................... 10,000 10,000 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 5,000 Common stock, Class A, $.01 par value -- authorized, 2,100,000 shares; issued and outstanding, 553,344 shares............... 6,000 6,000 Additional paid-in capital...................................... 155,350,000 155,350,000 Deficit......................................................... (184,049,000) (182,643,000) Adjustment to equity for minimum pension liability.............. (10,572,000) (7,192,000) Cumulative translation adjustment............................... (451,000) (284,000) ------------ ------------ Total stockholders' deficiency.......................... (39,701,000) (34,748,000) ------------ ------------ Total Liabilities and Stockholders' Deficiency.................... $416,037,000 $429,074,000 ============ ============
See notes to consolidated financial statements. F-9 84 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, --------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Net sales........................................... $264,736,000 $238,756,000 $226,131,000 Cost of sales....................................... 180,435,000 164,697,000 159,751,000 ------------ ------------ ------------ Gross margin........................................ 84,301,000 74,059,000 66,380,000 Independent research and development................ 9,767,000 8,363,000 12,858,000 Selling, general and administrative expenses........ 22,564,000 19,208,000 22,421,000 Amortization........................................ 10,415,000 10,411,000 10,884,000 ------------ ------------ ------------ Operating income.................................... 41,555,000 36,077,000 20,217,000 Interest expense, net of interest income of $722,000, $374,000 and $96,000.................... 41,048,000 46,250,000 51,953,000 ------------ ------------ ------------ Income (loss) before income taxes, extraordinary charge and cumulative effect of change in accounting principle.............................. 507,000 (10,173,000) (31,736,000) Income taxes........................................ -- -- -- ------------ ------------ ------------ Income (loss) before extraordinary charge and cumulative effect of change in accounting principle......................................... 507,000 (10,173,000) (31,736,000) Extraordinary charge from early extinguishment of debt.............................................. (1,913,000) -- -- Cumulative effect of change in method of accounting for the discounting of certain liabilities........ -- -- (2,305,000) ------------ ------------ ------------ Net loss............................................ $ (1,406,000) $(10,173,000) $(34,041,000) ============ ============ ============
See notes to consolidated financial statements. F-10 85 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY YEARS ENDED MARCH 31, 1996, 1995 AND 1994
CLASS B CLASS A ADJUSTMENT PREFERRED STOCK COMMON STOCK COMMON STOCK TO EQUITY FOR ------------------ ---------------- ---------------- ADDITIONAL MINIMUM CUMULATIVE SHARES SHARES SHARES PAID-IN PENSION TRANSLATION ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT LIABILITY ADJUSTMENT -------- ------- ------- ------ ------- ------ ----------- ------------ ------------- ---------- Balance, April 1, 1993........ 899,999 $9,000 -- $ -- 484,616 $5,000 $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........ 899,999 9,000 -- -- 484,616 5,000 89,986,000 (172,470,000) (7,467,000) (418,000) Net loss.... (10,173,000) Conversion of subordinated convertible debentures... 458,994 5,000 52,602,000 Issuance of preferred stock..... 127,636 1,000 10,799,000 Issuance of common stock..... 68,728 1,000 1,963,000 Pension adjustment... 275,000 Cumulative translation adjustment... 134,000 --------- ------- ------- ------ ------- ------ ------------ -------------- -------------- ---------- Balance, March 31, 1995........ 1,027,635 10,000 458,994 5,000 553,344 6,000 155,350,000 (182,643,000) (7,192,000) (284,000) Net loss.... (1,406,000) Pension adjustment... (3,380,000) Cumulative translation adjustment... (167,000) --------- ------- ------- ------ ------- ------ ------------ -------------- -------------- ---------- Balance, March 31, 1996........ 1,027,635 $10,000 458,994 $5,000 553,344 $6,000 $155,350,000 $(184,049,000) $(10,572,000) $(451,000) ========= ======= ======= ====== ======= ====== ============ ============== ============== ==========
See notes to consolidated financial statements. F-11 86 K & F INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, ----------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Cash Flows From Operating Activities: Net loss........................................ $(1,406,000) $(10,173,000) $(34,041,000) Adjustments to reconcile net loss to net cash provided by operating activities: Cumulative effect of change in accounting for the discounting of certain liabilities..... -- -- 2,305,000 Depreciation................................. 8,506,000 8,432,000 9,643,000 Amortization................................. 10,415,000 10,411,000 10,884,000 Non-cash interest expense-convertible debentures................................. -- 3,950,000 8,443,000 Non-cash interest expense-amortization of deferred financing charges................. 1,561,000 1,482,000 1,480,000 Provision for losses on accounts receivable................................. 1,548,000 63,000 450,000 Extraordinary charge from early extinguishment of debt..................... 1,913,000 -- -- Changes in assets and liabilities: Accounts receivable........................ (3,296,000) (767,000) 16,797,000 Inventory.................................. (1,664,000) 5,919,000 9,638,000 Other current assets....................... 274,000 90,000 (137,000) Accounts payable........................... 2,140,000 1,317,000 (5,298,000) Interest payable........................... (554,000) (47,000) (438,000) Other current liabilities.................. 7,002,000 2,791,000 (2,692,000) Postretirement benefit obligation other than pensions........................... (2,327,000) (2,433,000) (4,090,000) Other long-term liabilities................ (1,811,000) (3,682,000) (3,981,000) ------------ ------------ ------------ Net cash provided by operating activities............................ 22,301,000 17,353,000 8,963,000 ------------ ------------ ------------ Cash Flows From Investing Activities: Capital expenditures............................ (10,418,000) (2,824,000) (3,127,000) Deferred charges................................ (538,000) (363,000) 74,000 ------------ ------------ ------------ Net cash used in investing activities... (10,956,000) (3,187,000) (3,053,000) ------------ ------------ ------------ Cash Flows From Financing Activities: Payments of senior revolving loan............... (9,000,000) (20,000,000) (43,500,000) Borrowings under senior revolving loan.......... 23,000,000 10,000,000 37,000,000 Payments of senior subordinated debentures...... (30,000,000) -- -- Premiums paid on early extinguishment of debt... (1,126,000) -- -- Payment of subordinated convertible debentures................................... -- (12,764,000) -- Proceeds from issuance of common and preferred stocks....................................... -- 12,764,000 -- Proceeds from sale and lease back transaction... -- -- 1,996,000 Deferred charges -- financing costs............. (300,000) -- -- ------------ ------------ ------------ Net cash used in financing activities... (17,426,000) (10,000,000) (4,504,000) ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents..................................... (6,081,000) 4,166,000 1,406,000 Cash and cash equivalents, beginning of year...... 8,493,000 4,327,000 2,921,000 ------------ ------------ ------------ Cash and cash equivalents, end of year............ $ 2,412,000 $ 8,493,000 $ 4,327,000 ============ ============ ============ Supplemental Information: Interest paid during the year................... $40,763,000 $41,239,000 $42,564,000 ============ ============ ============ Supplemental disclosure of non-cash financing activities: See Note 9 for a discussion of non-cash financing activities.
See notes to consolidated financial statements. F-12 87 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 sells its products to airframe manufacturers and commercial airlines throughout the world and to the United States and certain foreign governments. The Company's activities are conducted through its two wholly owned subsidiaries, Aircraft Braking Systems Corporation ("Aircraft Braking Systems"), which derived approximately 88% of the Company's total revenues during fiscal year 1996 and Engineered Fabrics Corporation (collectively, the "Subsidiaries"), which derived approximately 12% of the Company's total revenues during fiscal year 1996. 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. 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 ($7.7 million and $9.7 million, which is net of amortization (non-cash interest expense) of $6.9 million and $5.4 million in fiscal years 1996 and 1995, respectively), and program participation costs ($14.5 million and $15.4 million, which is net of amortization of $1.8 million and $1.0 million, in fiscal years 1996 and 1995, 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. 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. F-13 88 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 1996, 1995 and 1994 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 16%, 14% and 15% of total sales for the fiscal years ended March 31, 1996, 1995 and 1994, 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, 1996 or 1995. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 year ended March 31, 1994 was not material. Accounting Pronouncements -- In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for 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. This new standard is effective for fiscal years beginning after December 15, 1995. The Company has determined the effect of SFAS No. 121, upon adoption, to be immaterial to its results of operations and financial position. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which encourages (but does not require) adoption of the fair value method of accounting for stock-based compensation plans. Entities may continue to measure compensation costs for those plans using the intrinsic method of accounting, but must make pro forma disclosures about the impact on results of operations as if the fair value method of accounting had been applied. 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. 123. F-14 89 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACCOUNTS RECEIVABLE
MARCH 31, ------------------------- 1996 1995 ---------- ---------- Accounts receivable, principally from commercial customers............................................. $32,704,000 $30,036,000 Accounts receivable on U.S. Government and other long-term contracts............................. 4,136,000 3,871,000 Allowances.............................................. (1,612,000) (359,000) ----------- ----------- Total......................................... $35,228,000 $33,548,000 =========== ===========
4. INVENTORY
MARCH 31, ------------------------- 1996 1995 ---------- ---------- Raw materials and work-in-process....................... $39,656,000 $35,819,000 Finished goods.......................................... 11,364,000 15,500,000 Inventoried costs related to U.S. Government and other long-term contracts............................. 12,312,000 11,072,000 ----------- ----------- 63,332,000 62,391,000 Less: unliquidated progress payments received, principally related to long-term government contracts............................................. -- 624,000 ----------- ----------- Total......................................... $63,332,000 $61,767,000 =========== ===========
5. PROPERTY, PLANT AND EQUIPMENT
MARCH 31, --------------------------- 1996 1995 ----------- ----------- Land.................................................. $ 661,000 $ 661,000 Buildings and improvements............................ 29,148,000 27,232,000 Machinery, equipment, furniture and fixtures.......... 95,315,000 86,813,000 ------------ ------------ Total....................................... 125,124,000 114,706,000 Less: accumulated depreciation and amortization....... 60,080,000 51,574,000 ------------ ------------ Total....................................... $ 65,044,000 $63,132,000 ============ ============
6. OTHER CURRENT LIABILITIES
MARCH 31, -------------------------- 1996 1995 ----------- ----------- Accrued payroll costs................................... $15,756,000 $13,149,000 Accrued taxes........................................... 7,783,000 6,978,000 Accrued costs on long-term contracts.................... 5,195,000 6,477,000 Accrued warranty costs.................................. 8,023,000 5,248,000 Postretirement benefit obligation other than pensions... 2,000,000 2,000,000 Other................................................... 6,018,000 3,921,000 ----------- ----------- Total......................................... $44,775,000 $37,773,000 =========== ===========
F-15 90 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. LONG-TERM DEBT
MARCH 31, ---------------------------- 1996 1995 ------------ ------------ Senior revolving loan (a)............................. $ 14,000,000 $ -- 11 7/8% Senior Secured Notes due 2003 (b)............. 100,000,000 100,000,000 13 3/4% Senior Subordinated Debentures due 2001 (c)... 180,000,000 210,000,000 ------------ ------------ Total....................................... $294,000,000 $310,000,000 ============ ============
(a) Credit Agreement -- The Company has a Revolving Credit Agreement providing 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, 1996, the interest rate on borrowings under the Revolving Loan was 8.37%. As part of the total commitment, the Revolving Credit Agreement provides for the issuance of letters of credit not to exceed $11 million. As of March 31, 1996 and 1995, the Company had outstanding letters of credit of $5.8 million and $7.4 million, respectively. At March 31, 1996 and 1995, the Company had $40.6 million and $53.6 million, respectively, available to borrow under the Revolving Loan. The 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, 1996. (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 August 1, 1999 and $52.5 million on August 1, 2000. The Company may, at its option, receive credit against sinking fund payments for the principal amount of Subordinated Debentures acquired or redeemed by the Company. The Subordinated Debentures are currently callable at a premium of 3.75% of the face value, descending by 1.25% each year on August 1, until no premium is required after August 1, 1998. On December 28, 1995, the Company redeemed $30 million principal amount of the Subordinated Debentures at a redemption price of 103.75% of the principal amount thereof. The Company used cash on hand and borrowing from the Revolving Loan to redeem the Subordinated Debentures. In connection therewith, the Company recorded an extraordinary charge of $1.913 million, consisting of redemption premiums and the write-off of unamortized financing costs. The Company will apply this redemption to the August 1, 1999 mandatory sinking fund payment, reducing the requirement to $22.5 million. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of all financial instruments reported on the balance sheet at March 31, 1996 and 1995 approximate their fair value, except as discussed below. F-16 91 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The fair value of the Company's total debt based on quoted market prices or on current rates for similar debt with the same maturities, was approximately $311 million and $306 million at March 31, 1996 and 1995, 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. 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. The Company has a 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:
YEARS ENDED MARCH 31, ---------------------------- 1996 1995 1994 ------ ------ ------ Outstanding at beginning of year....................... 11,500 12,000 13,750 Granted................................................ -- -- 500 Canceled............................................... -- (500) (2,250) ------ ------ ------ Outstanding at end of year............................. 11,500 11,500 12,000 ------ ------ ------ Exercisable options outstanding........................ 9,625 8,938 6,563 ------ ------ ------ Available for future grant............................. 38,500 38,500 38,000 ====== ====== ======
F-17 92 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 hourly and salaried pension plans. 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:
YEARS ENDED MARCH 31, ---------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Service cost-benefits earned during the period.................................. $1,562,000 $1,590,000 $1,361,000 Interest cost on projected benefit obligation.............................. 4,901,000 4,224,000 4,033,000 Actual (return) loss on plan assets....... (9,940,000) 954,000 (3,683,000) Net amortization and deferral............. 6,988,000 (3,869,000) 809,000 ---------- ---------- ---------- Net pension cost.......................... $3,511,000 $2,899,000 $2,520,000 ========== ========== ==========
The table below sets forth the funded status of the plans as follows:
MARCH 31, --------------------------- 1996 1995 ----------- ----------- Actuarial present value of benefit obligation: Vested benefit obligation........................... $65,642,000 $51,770,000 ----------- ----------- Accumulated benefit obligation...................... $65,987,000 $52,189,000 Effect of projected future salary increases......... 2,113,000 860,000 ----------- ----------- Projected benefit obligation........................ 68,100,000 53,049,000 Plan assets at fair market value...................... 55,100,000 42,626,000 ----------- ----------- Unfunded projected benefit obligation................. 13,000,000 10,423,000 Unrecognized prior service cost....................... (2,185,000) (2,389,000) Unrecognized net loss................................. (12,685,000) (7,761,000) Adjustment for minimum liability...................... 12,757,000 9,290,000 ----------- ----------- Accrued pension cost recognized in the consolidated balance sheet....................................... $10,887,000 $ 9,563,000 =========== ===========
Statement of Financial Accounting Standards No. 87 requires recognition in the balance sheet of an additional minimum pension liability for under funded 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, 1996, the Company's additional minimum liability was $12,757,000 with a corresponding equity reduction of $10,572,000 and intangible asset of $2,185,000. 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. 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:
YEARS ENDED MARCH 31, ---------------------- 1996 1995 1994 ---- ---- ---- Discount rate................................................ 7.50% 8.50% 7.75% Rate of increase in compensation levels...................... 4.50 4.50 4.50 Expected long-term rate of return on assets.................. 9.50 9.50 9.50
F-18 93 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 $687,000, $532,000 and $568,000 for the fiscal years ended March 31, 1996, 1995 and 1994, 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. 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. Net periodic postretirement benefit cost included the following components:
YEARS ENDED MARCH 31, ----------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Service cost-benefits attributed to service during the period...................................... $ 619,000 $ 400,000 $ 458,000 Interest cost on accumulated postretirement benefit obligation.............................. 3,474,000 3,543,000 2,749,000 Net amortization and deferral..................... (4,332,000) (3,732,000) (4,677,000) ------------ ------------ ------------ Net periodic postretirement benefit cost.......... $ (239,000) $ 211,000 $(1,470,000) ============ ============ ============
Presented below are the total obligations and amounts recognized in the Company's consolidated balance sheets, inclusive of the current portion:
MARCH 31, -------------------------- 1996 1995 ----------- ----------- Accumulated postretirement benefit obligation: Retirees...................................................... $ 30,172,000 $ 28,066,000 Fully eligible active plan participants....................... 2,838,000 2,983,000 Other active plan participants................................ 16,304,000 12,653,000 ------------ ------------ Total accumulated postretirement benefit obligation............. 49,314,000 43,702,000 Unrecognized net loss........................................... (14,105,000) (10,843,000) Unrecognized prior service cost related to plan amendments...... 42,181,000 46,858,000 ------------ ------------ Accrued postretirement benefit costs............................ $ 77,390,000 $ 79,717,000 ============ ============
The assumed annual rate of increase in the per capita cost of covered health care benefits was 12.2% in fiscal year 1996 and will be 11.2% in fiscal year 1997. 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, 1996 by $5,000,000 and the aggregate of the service and interest cost components of net postretirement benefit cost for the fiscal year F-19 94 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ended March 31, 1996 by $900,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation as of March 31, 1996 and 1995 was 7.50% and 8.50%, respectively. 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:
YEAR ENDING MARCH 31, AMOUNT ------------------------------------------------- --------- 1997............................................. $4,268,000 1998............................................. 4,298,000 1999............................................. 4,334,000 2000............................................. 4,090,000 2001............................................. 2,854,000 Thereafter....................................... 5,491,000
Rental expense was $4,758,000, $4,641,000 and $4,190,000 for the fiscal years ended March 31, 1996, 1995 and 1994, respectively. 13. CONTINGENCIES On December 15, 1995, the Company's Aircraft Braking Systems subsidiary commenced an action in the Court of Common Pleas, Summit County, Ohio against Hitco Technologies, Inc. ("Hitco") after Hitco threatened to breach existing supply contracts unless prices were renegotiated. Hitco claimed that Aircraft Braking Systems breached the supply arrangements by electing to begin to expand its own carbon production facility. The Aircraft Braking Systems' complaint, as amended, seeks damages in excess of $47 million, injunctive relief and specific performance requiring Hitco to perform its obligations pursuant to existing contracts and purchase orders. Hitco has counterclaimed in the matter seeking, among other things, damages up to $130 million for the alleged breach by Aircraft Braking Systems of alleged long-term contracts to purchase carbon. The Ohio court has issued a preliminary injunction ordering Hitco to perform its obligations pursuant to existing contracts and purchase orders without change in terms. Hitco is presently seeking to have the injunction vacated or modified, and/or a declaratory judgment terminating Hitco's obligation to supply Aircraft Braking Systems at prices previously pertaining. In a related action, Hitco commenced suit in Superior Court, Los Angeles County, California against Aircraft Braking Systems seeking substantially the same relief as is asserted in the Ohio action, and the California case has been stayed. Trial of the Ohio action is presently scheduled for January 1997 and discovery has been ongoing. Management intends to vigorously seek dismissal of the California action and to proceed in the Ohio case to maintain the preliminary injunction and otherwise to protect Aircraft Braking Systems' carbon supply as well as to seek damages from Hitco. Based upon the court's opinion to date, advice of counsel and its own assessment of the matters in dispute, management does not expect the outcome of the litigation to be unfavorable to the Company. Aircraft Braking Systems has been purchasing substantially all of the carbon for its carbon brakes from Hitco under supply arrangements. It is anticipated that Hitco's obligation to continue to supply carbon will terminate by the latter of December 1996 or such time as the alleged breaches of contract by Hitco are remedied. A loss of carbon supply for the carbon brakes manufactured by Aircraft Braking Systems would have a material, adverse effect on the Company's business and financial condition. The Company has commenced a major expansion of its existing carbon manufacturing facility in Akron, Ohio, which is expected to be completed during the first quarter of calendar year 1997 and, when fully operational, will provide the F-20 95 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Company with sufficient capacity to meet substantially all, if not all, of its requirements for brake production at the current level of business. 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 The components of the net deferred tax benefit are as follows:
MARCH 31, 1996 MARCH 31, 1995 -------------- -------------- Tax net operating loss carryforwards................ $ 42,321,000 $ 42,280,000 Temporary differences: Postretirement and other employee benefits........ 35,861,000 38,746,000 Intangibles....................................... 29,106,000 32,237,000 Program participation costs....................... (6,348,000) (6,215,000) Other............................................. 7,165,000 7,656,000 ------------ ------------ Deferred tax benefit................................ 108,105,000 114,704,000 Valuation allowance................................. (108,105,000) (114,704,000) ------------ ------------ Net deferred tax benefit............................ $ 0 $ 0 ============ ============
Realization of any deferred tax benefit is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. The amount of the deferred tax asset considered realizable could be increased at such time when future taxable income is projected during the carryforward period. 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 $51 million and $57 million, respectively. The Company's effective tax rate of zero percent differs from the federal statutory rate (benefit of 35%) due to the partial-utilization of tax net operating losses of $4.0 million and non-recognition of temporary differences. The Company has tax net operating loss carryforwards of approximately $111 million at March 31, 1996. The tax net operating losses expire from 2005 through 2011, with $12 million of carryforwards expiring in 2005. 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 Space & Communications Ltd. ("Loral Space"). Prior to that he was Chairman and Chief Executive Officer of Loral Corporation. 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. In May 1996, K & F purchased $343,000 principal amount of the Company's Subordinated Debentures from A. Robert Towbin, who is a member of the Board of Directors of the Company, at a price of 103.65% of the principal thereof plus accrued interest. F-21 96 K & F INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company has agreed to pay Ronald H. Kisner, who is a member of the Board of Directors of the Company, a monthly retainer of $6,000 during fiscal year 1997 for legal services. The Company has a bonus plan pursuant to which the Company's Board of Directors awards bonuses to BLS and other advisors ranging from 5% to 10% of earnings in excess of $50 million before interest, taxes and amortization. Bonuses earned under this plan were $200,000 in fiscal year 1996. On September 2, 1994, K & F retired the $65.4 million principal amount of Convertible Debentures held by Loral Corporation. (See Note 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. No payments were made during the three years ended March 31, 1996. Pursuant to agreements between K & F and Loral Corporation, the parties provided 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 Corporation were as favorable to the Company as could have been obtained from unaffiliated parties. Billings from Loral Corporation were $3.6 million, $3.0 million and $3.0 million in fiscal years 1996, 1995 and 1994, respectively. Billings to Loral Corporation were $2.7 million, $.2 million and $1.1 million in fiscal years 1996, 1995 and 1994. Purchases from Loral Corporation were $2.2 million, $1.9 million and $4.2 million in fiscal years 1996, 1995 and 1994. Included in accounts receivable and accounts payable at March 31, 1996 is $3.5 million and $2.3 million. Included in accounts receivable and accounts payable at March 31, 1995 is $.7 million and $1.8 million. K & F will continue these arrangements and reimburse Loral Space for real property occupancy, benefits administration and legal services. On April 22, 1996, Lockheed Martin acquired the defense electronics and systems integration businesses of Loral Corporation which included the Akron, Ohio, facility. The various occupancy and service agreements affecting the Akron, Ohio, facility will remain in full force and effect. K & F will continue to reimburse Lockheed Martin for real property occupancy, and costs relating to shared easements and services. F-22 97 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE NOTES OFFERED HEREBY NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. --------------------------- TABLE OF CONTENTS
PAGE ----- Available Information................. 2 Prospectus Summary.................... 3 Risk Factors.......................... 10 The Exchange Offer.................... 15 Use of Proceeds....................... 22 Capitalization........................ 23 Selected Consolidated Financial Information......................... 24 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 25 Business.............................. 29 Management............................ 38 Ownership of Capital Stock............ 44 Certain Transactions.................. 46 Description of the Notes.............. 47 Description of Certain Indebtedness... 69 Plan of Distribution.................. 72 Legal Matters......................... 72 Experts............................... 72 Index to Consolidated Financial Statements.......................... F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ $140,000,000 K & F INDUSTRIES, INC. 10 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2004 --------------------------- PROSPECTUS --------------------------- , 1996 - ------------------------------------------------------ - ------------------------------------------------------ 98 ITEM 20. 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 indemnification of its officers and directors to the full extent authorized by law. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits. 2.01 -- Agreement for Sale and Purchase of Assets dated March 26, 1989 between Loral Corporation and the Company(1) 3.01 -- Amended and Restated Certificate of Incorporation of the Company(7) 3.02 -- Amended and Restated By-Laws of the Company(6) *4.01 -- Indenture dated as of August 15, 1996 for the Notes (including the form of New Note as Exhibit A thereto) between the Company and Fleet National Bank, as trustee 4.02 -- Indenture dated as of June 1, 1992 for the 11 7/8% Senior Secured Notes due 2003 (including the form of Senior Note) between The Bank of New York, as trustee(5) 4.03 -- Pledge Agreement dated as of June 10, 1992 between the Company and The Bank of New York, as collateral trustee(5) **5.01 -- Opinion of O'Sullivan Graev & Karabell, LLP 10.01 -- Securities Purchase Agreement dated as of April 27, 1989, among the Company, BLS and LBH(1) 10.02 -- Assumption Agreement dated as of April 27, 1989(1) 10.03 -- Shared Services Agreement dated April 27, 1989, among Loral, the Company, Aircraft Braking Systems Corporation and Engineered Fabrics Corporation(1) 10.04 -- Director Advisory Agreement dated as of April 27, 1989, between the Company and BLS(1) 10.05 -- Non-Competition Agreement dated as of April 27, 1989, between the Company and BLS(1) 10.06 -- K & F Industries, Inc. Retirement Plan for Salaried Employees(5) 10.07 -- K & F Industries, Inc. Savings Plan for Salaried Employees(5) 10.08 -- Goodyear Aerospace Corporation Supplemental Unemployment Benefits Plan for Salaried Employees Plan A(1) 10.09 -- The Loral Systems Group Release and Separation Allowance Plan(1) 10.10 -- Letter Agreement dated April 27, 1989, between the Company and Shearson Lehman Brothers Inc.(1) 10.11 -- K & F Industries, Inc. 1989 Stock Option Plan(2) 10.12 -- K & F Industries, Inc. Executive Deferred Bonus Plan(2) 10.13 -- Securities Purchase Agreement dated as of July 22, 1991, among the Company, BLS and the Lehman Investors(4) 10.14 -- Securities Purchase Agreement among the Company, BLS and the Lehman Investors dated September 2, 1994(6)
II-1 99 10.15 -- Amended and Restated Stockholders Agreement dated as of September 2, 1994 by and among the Company, BLS, the Lehman Investors, CBC Capital Partners, Inc. and Loral(6) 10.16 -- Agreement dated as of September 2, 1994 between the Company and Loral(6) 10.17 -- Amendment of Stockholders Agreement dated November 8, 1994(6) 10.18 -- Securities Conversion Agreement among the Company and the Converting Stockholders, dated November 8, 1994(6) 10.19 -- K & F Industries, Inc. Supplemental Executive Retirement Plan(8) *10.20 -- Amended and Restated Credit Agreement dated as of August 14, 1996 among ABS, EFC, the Lenders (as defined therein), Lehman Commercial Paper, Inc., as Documentation Agent and Chase Securities Inc., individually and as agent for the Lenders ("Chase"). *10.21 -- Amended and Restated Security Agreement dated as of August 14, 1996 between ABS and Chase. *10.22 -- Amended and Restated Security Agreement dated as of August 14, 1996 between EFC and Chase. *10.23 -- Revolving Credit Note dated as of August 14, 1996 executed by each of ABS and EFC in favor of NBD Bank. *10.24 -- Facility A Notes dated as of August 14, 1996 executed by each of ABS and EFC in favor of NBD Bank. *10.25 -- Amended and Restated K & F Agreement dated as of August 14, 1996 between the Company and Chase. *10.26 -- Amended and Restated Subordination Agreement dated as of August 14, 1996 between ABS and Chase. *10.27 -- Amended and Restated Subordination Agreement dated as of August 14, 1996 between EFC and Chase. *10.28 -- Purchase Agreement dated August 12, 1996 among the Company, Lehman Brothers Inc. and Chase Securities Inc. *10.29 -- Registration Rights Agreement dated as of August 15, 1996 among the Company, Lehman Brothers Inc. and Chase Securities Inc. *12.01 -- Statement of computation of ratio of earnings (deficiency) to fixed charges 21.01 -- Subsidiaries of the Registrant(1) 23.01 -- Consent of O'Sullivan Graev and Karabell (included in Exhibit 5) *23.02 -- Consent of Deloitte & Touche LLP *24.01 -- Powers of Attorney (included on signature page) *25.01 -- Statement of Eligibility and Qualifications under the Trust Indenture Act of 1939 of Fleet National Bank as Trustee **99.1 -- Form of Letter of Transmittal **99.2 -- Form of Notice of Guaranteed Delivery **99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees **99.4 -- Form of Letter to Clients **99.5 -- Form of Exchange Agent Agreement between the the Company and First Trust of New York, National Association, as Exchange Agent
- --------------- (1) Previously filed as an exhibit to the Company's Registration Statement on Form S-1, No. 33-29035 and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1990 and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1991 and incorporated herein by reference. II-2 100 (4) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991 and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Registration Statement on Form S-1, No. 33-47028 and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference. * Filed herewith. ** To be filed by Amendment. (b) Financial Statement Schedules: All schedules are omitted because they are not applicable or the required information is shown in financial statements or notes thereto. ITEM 22. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the DGCL, the Certificate of Incorporation and By-laws, 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 Securities 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 Securities Act and will be governed by the final adjudication of such issue. The Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, 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 the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (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. (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. II-3 101 The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a 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 this registration statement as of that time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, 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 the time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. The undersigned Registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act. II-4 102 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 29th day of August, 1996. K & F INDUSTRIES, INC. By: /s/ KENNETH M. SCHWARTZ ------------------------------------ Kenneth M. Schwartz Executive Vice President We the undersigned directors and officers of K & F Industries, Inc. do hereby constitute and appoint KENNETH M. SCHWARTZ and DIRKSON R. CHARLES, our true and lawful attorneys and agents, 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 attorneys and agents, 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 Registration Statement, 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 attorneys and agents shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacity and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------- --------------------------------------- ---------------- /s/ BERNARD L. SCHWARTZ Chairman of the Board, Chief August 29, 1996 - ------------------------------------- Executive Officer and Director Bernard L. Schwartz (principal executive officer) /S/ KENNETH M. SCHWARTZ Executive Vice President (principal August 29, 1996 - ------------------------------------- financial and accounting officer) Kenneth M. Schwartz /s/ HERBERT R. BRINBERG Director August 29, 1996 - ------------------------------------- Herbert R. Brinberg /s/ RONALD H. KISNER Director August 29, 1996 - ------------------------------------- Ronald H. Kisner /s/ JOHN R. PADDOCK Director August 29, 1996 - ------------------------------------- John R. Paddock /s/ JAMES A. Director August 29, 1996 STERN - ------------------------------------- James A. Stern /s/ A. ROBERT TOWBIN Director August 29, 1996 - ------------------------------------- A. Robert Towbin /s/ ALAN H. WASHKOWITZ Director August 29, 1996 - ------------------------------------- Alan H. Washkowitz
II-5 103 EXHIBIT INDEX 2.01 -- Agreement for Sale and Purchase of Assets dated March 26, 1989 between Loral Corporation and the Company(1) 3.01 -- Amended and Restated Certificate of Incorporation of the Company(7) 3.02 -- Amended and Restated By-Laws of the Company(6) *4.01 -- Indenture dated as of August 15, 1996 for the Notes (including the form of New Note as Exhibit A thereto) between the Company and Fleet National Bank, as trustee 4.02 -- Indenture dated as of June 1, 1992 for the 11 7/8% Senior Secured Notes due 2003 (including the form of Senior Note) between The Bank of New York, as trustee(5) 4.03 -- Pledge Agreement dated as of June 10, 1992 between the Company and The Bank of New York, as collateral trustee(5) **5.01 -- Opinion of O'Sullivan Graev & Karabell, LLP 10.01 -- Securities Purchase Agreement dated as of April 27, 1989, among the Company, BLS and LBH(1) 10.02 -- Assumption Agreement dated as of April 27, 1989(1) 10.03 -- Shared Services Agreement dated April 27, 1989, among Loral, the Company, Aircraft Braking Systems Corporation and Engineered Fabrics Corporation(1) 10.04 -- Director Advisory Agreement dated as of April 27, 1989, between the Company and BLS(1) 10.05 -- Non-Competition Agreement dated as of April 27, 1989, between the Company and BLS(1) 10.06 -- K & F Industries, Inc. Retirement Plan for Salaried Employees(5) 10.07 -- K & F Industries, Inc. Savings Plan for Salaried Employees(5) 10.08 -- Goodyear Aerospace Corporation Supplemental Unemployment Benefits Plan for Salaried Employees Plan A(1) 10.09 -- The Loral Systems Group Release and Separation Allowance Plan(1) 10.10 -- Letter Agreement dated April 27, 1989, between the Company and Shearson Lehman Brothers Inc.(1) 10.11 -- K & F Industries, Inc. 1989 Stock Option Plan(2) 10.12 -- K & F Industries, Inc. Executive Deferred Bonus Plan(2) 10.13 -- Securities Purchase Agreement dated as of July 22, 1991, among the Company, BLS and the Lehman Investors(4) 10.14 -- Securities Purchase Agreement among the Company, BLS and the Lehman Investors dated September 2, 1994(6)
104 10.15 -- Amended and Restated Stockholders Agreement dated as of September 2, 1994 by and among the Company, BLS, the Lehman Investors, CBC Capital Partners, Inc. and Loral(6) 10.16 -- Agreement dated as of September 2, 1994 between the Company and Loral(6) 10.17 -- Amendment of Stockholders Agreement dated November 8, 1994(6) 10.18 -- Securities Conversion Agreement among the Company and the Converting Stockholders, dated November 8, 1994(6) 10.19 -- K & F Industries, Inc. Supplemental Executive Retirement Plan(8) *10.20 -- Amended and Restated Credit Agreement dated as of August 14, 1996 among ABS, EFC, the Lenders (as defined therein), Lehman Commercial Paper, Inc., as Documentation Agent and Chase Securities Inc., individually and as agent for the Lenders ("Chase"). *10.21 -- Amended and Restated Security Agreement dated as of August 14, 1996 between ABS and Chase. *10.22 -- Amended and Restated Security Agreement dated as of August 14, 1996 between EFC and Chase. *10.23 -- Revolving Credit Note dated as of August 14, 1996 executed by each of ABS and EFC in favor of NBD Bank. *10.24 -- Facility A Notes dated as of August 14, 1996 executed by each of ABS and EFC in favor of NBD Bank. *10.25 -- Amended and Restated K & F Agreement dated as of August 14, 1996 between the Company and Chase. *10.26 -- Amended and Restated Subordination Agreement dated as of August 14, 1996 between ABS and Chase. *10.27 -- Amended and Restated Subordination Agreement dated as of August 14, 1996 between EFC and Chase. *10.28 -- Purchase Agreement dated August 12, 1996 among the Company, Lehman Brothers Inc. and Chase Securities Inc. *10.29 -- Registration Rights Agreement dated as of August 15, 1996 among the Company, Lehman Brothers Inc. and Chase Securities Inc. *12.01 -- Statement of computation of ratio of earnings (deficiency) to fixed charges 21.01 -- Subsidiaries of the Registrant(1) 23.01 -- Consent of O'Sullivan Graev and Karabell (included in Exhibit 5) *23.02 -- Consent of Deloitte & Touche LLP *24.01 -- Powers of Attorney (included on signature page) *25.01 -- Statement of Eligibility and Qualifications under the Trust Indenture Act of 1939 of Fleet National Bank as Trustee **99.1 -- Form of Letter of Transmittal **99.2 -- Form of Notice of Guaranteed Delivery **99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees **99.4 -- Form of Letter to Clients **99.5 -- Form of Exchange Agent Agreement between the the Company and First Trust of New York, National Association, as Exchange Agent
- --------------- (1) Previously filed as an exhibit to the Company's Registration Statement on Form S-1, No. 33-29035 and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1990 and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1991 and incorporated herein by reference. 105 (4) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991 and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Registration Statement on Form S-1, No. 33-47028 and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 and incorporated herein by reference. * Filed herewith. ** To be filed by Amendment. EX-4.01 2 AGREEMENT FOR SALE AND PURCHASE OF ASSETS 1 EXHIBIT 4.1 ----------------- K & F INDUSTRIES, INC. 10 3/8% SENIOR SUBORDINATED NOTES DUE 2004 ----------------- INDENTURE Dated as of August 15, 1996 ----------------- ----------------- FLEET NATIONAL BANK ----------------- Trustee 2 CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section 310 (a)(1).................................................................... 7.10 (a)(2).................................................................... 7.10 (a)(3) ................................................................... N.A. (a)(4).................................................................... N.A. (a)(5).................................................................... 7.10 (b) ...................................................................... 7.10 (c) ...................................................................... N.A. 311 (a) ...................................................................... 7.11 (b) ...................................................................... 7.11 (c) ...................................................................... N.A. 312 (a)....................................................................... 2.05 (b)....................................................................... 11.03 (c) ...................................................................... 11.03 313 (a) ...................................................................... 7.06 (b)(1) ................................................................... N.A. (b)(2) ................................................................... 7.06 (c) ...................................................................... 7.06;11.02 (d)....................................................................... 7.06 314 (a) ...................................................................... 4.03;4.04 (b) ...................................................................... N.A (c)(1) ................................................................... 11.04 (c)(2) ................................................................... 11.04 (c)(3) ................................................................... N.A. (d)....................................................................... N.A. (e) . .................................................................... 11.05 (f)....................................................................... N.A. 315 (a)....................................................................... 7.02,11.02 (b)....................................................................... 7.05,11.02 (c) . .................................................................... 7.01 (d)....................................................................... 7.01 (e)....................................................................... 6.11 316 (a)(last sentence) ....................................................... 2.09 (a)(1)(A)................................................................. 6.05 (a)(1)(B) ................................................................ 6.04 (a)(2). .................................................................. N.A. (b) ...................................................................... 6.07 (c) ...................................................................... N.A. 317 (a)(1) ................................................................... 6.08 (a)(2).................................................................... 6.09 (b) ...................................................................... 2.04 318 (a)....................................................................... 11.01 (b)....................................................................... N.A. (c)....................................................................... 11.01 N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture. AS\KF\INDENTU 3 TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions.............................................. 1 Section 1.02. Other Definitions........................................ 13 Section 1.03. Incorporation by Reference of Trust Indenture Act........ 13 Section 1.04. Rules of Construction.................................... 14 ARTICLE 2 THE NOTES Section 2.01. Form and Dating.......................................... 14 Section 2.02. Execution and Authentication............................. 14 Section 2.03. Registrar and Paying Agent............................... 15 Section 2.04. Paying Agent to Hold Money in Trust...................... 15 Section 2.05. Holder Lists............................................. 16 Section 2.06. Transfer and Exchange.................................... 16 Section 2.07. Replacement Notes........................................ 21 Section 2.08. Outstanding Notes........................................ 21 Section 2.09. Treasury Notes........................................... 21 Section 2.10. Temporary Notes.......................................... 22 Section 2.11. Cancellation............................................. 22 Section 2.12. Defaulted Interest....................................... 22 ARTICLE 3 REDEMPTION AND PREPAYMENT Section 3.01. Notices to Trustee....................................... 23 Section 3.02. Selection of Notes to Be Redeemed........................ 23 Section 3.03. Notice of Redemption..................................... 23 Section 3.04. Effect of Notice of Redemption........................... 24 Section 3.05. Deposit of Redemption Price.............................. 24 Section 3.06. Notes Redeemed in Part................................... 24 Section 3.07. Optional Redemption...................................... 25 Section 3.08. Mandatory Redemption..................................... 25 Section 3.09. Offer to Purchase by Application of Excess Proceeds...... 25 ARTICLE 4 COVENANTS Section 4.01. Payment of Notes......................................... 27 Section 4.02. Maintenance of Office or Agency.......................... 27 Section 4.03. Reports.................................................. 28 Section 4.04. Compliance Certificate................................... 28 Section 4.05. Taxes.................................................... 29 Section 4.06. Stay, Extension and Usury Laws........................... 29 Section 4.07. Restricted Payments...................................... 29 i 4 Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries............................................. 30 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.................................................... 31 Section 4.10. Asset Sales.............................................. 33 Section 4.11. Transactions with Affiliates............................. 34 Section 4.12. Liens.................................................... 34 Section 4.13. Offer to Repurchase Upon Change of Control............... 34 Section 4.14. Payments For Consent..................................... 36 Section 4.15. No Senior Subordinated Debt.............................. 36 ARTICLE 5 SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets................. 36 Section 5.02. Successor Corporation Substituted........................ 37 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default........................................ 37 Section 6.02. Acceleration............................................. 38 Section 6.03. Other Remedies........................................... 39 Section 6.04. Waiver of Past Defaults.................................. 39 Section 6.05. Control by Majority...................................... 40 Section 6.06. Limitation on Suits...................................... 40 Section 6.07. Rights of Holders of Notes to Receive Payment............ 40 Section 6.08. Collection Suit by Trustee............................... 40 Section 6.09. Trustee May File Proofs of Claim......................... 41 Section 6.10. Priorities............................................... 41 Section 6.11. Undertaking for Costs.................................... 41 ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee........................................ 42 Section 7.02. Rights of Trustee........................................ 43 Section 7.03. Individual Rights of Trustee............................. 43 Section 7.04. Trustee's Disclaimer..................................... 43 Section 7.05. Notice of Defaults....................................... 44 Section 7.06. Reports by Trustee to Holders of the Notes............... 44 Section 7.07. Compensation and Indemnity............................... 44 Section 7.08. Replacement of Trustee................................... 45 Section 7.09. Successor Trustee by Merger, etc......................... 46 Section 7.10. Eligibility; Disqualification............................ 46 Section 7.11. Preferential Collection of Claims Against Company........ 46 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance............................................... 46 Section 8.02. Legal Defeasance and Discharge........................... 46 ii 5 Section 8.03. Covenant Defeasance................................... 47 Section 8.04. Conditions to Legal or Covenant Defeasance............ 47 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions......... 48 Section 8.06. Repayment to the Company.............................. 49 Section 8.07. Reinstatement......................................... 49 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes................... 49 Section 9.02. With Consent of Holders of Notes...................... 50 Section 9.03. Compliance with Trust Indenture Act................... 51 Section 9.04. Revocation and Effect of Consents..................... 51 Section 9.05. Notation on or Exchange of Notes...................... 51 Section 9.06. Trustee to Sign Amendments, etc....................... 52 ARTICLE 10 SUBORDINATION Section 10.01. Notes Subordinated to Senior Indebtedness............. 52 Section 10.02 No Payment on Notes in Certain Circumstances.......... 52 Section 10.03 Payment Over of Proceeds Upon Dissolution, Etc........ 53 Section 10.04 Subrogation........................................... 54 Section 10.05 Obligations of the Company Unconditional.............. 54 Section 10.06 Notice to Trustee..................................... 55 Section 10.07 Reliance on Judicial Order or Certificate of Liquidating Agent..................................... 55 Section 10.08 Trustee's Relation to Senior Indebtedness............. 56 Section 10.09 Subordination Rights Not Impaired by Acts of Omissions of the Company or holders of Senior Indebtedness.......................................... 56 Section 10.10. Holders of Notes Authorize Trustee to Effectuate Subordination of the Notes............................ 56 Section 10.11. Article 10 Not to Prevent Events of Default........... 57 Section 10.12. Trustee's Compensation Not Prejudiced................. 57 ARTICLE 11 MISCELLANEOUS Section 11.01. Trust Indenture Act Controls.......................... 57 Section 11.02. Notices............................................... 57 Section 11.03. Communication by Holders of Notes with Other Holders of Notes...................................... 58 Section 11.04. Certificate and Opinion as to Conditions Precedent.... 58 Section 11.05. Statements Required in Certificate or Opinion......... 59 Section 11.06. Rules by Trustee and Agents........................... 59 Section 11.07. No Personal Liability of Directors, Officers, Employees and Stockholders............................ 59 Section 11.08. Governing Law......................................... 59 Section 11.09. No Adverse Interpretation of Other Agreements......... 59 iii 6 Section 11.10. Successors............................................... 60 Section 11.11. Severability............................................. 60 Section 11.12. Counterpart Originals.................................... 60 Section 11.13. Table of Contents, Headings, etc......................... 60 iv 7 EXHIBITS Exhibit A FORM OF NOTE Exhibit B CERTIFICATE OF TRANSFEROR v 8 INDENTURE dated as of August 15, 1996 among K & F Industries, Inc., a Delaware corporation (the "Company") and Fleet National Bank, a national banking association, as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 10 3/8% Series A Senior Subordinated Notes due 2004 (the "Series A Notes") of the Company and the 10 3/8% Series B Senior Subordinated Notes due 2004 of the Company (the "Series B Notes" and, together with the Series A Notes, the "Notes"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Acquisition Agreement" means the agreement between the Company and Loral Corporation by which the Company purchased substantially all of the assets and the assumption of certain liabilities of Aircraft Braking Systems and Engineered Fabrics. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Aircraft Braking Systems" means Aircraft Braking Systems Corporation, a Delaware corporation and a Wholly Owned Subsidiary of the Company. "Amended and Restated Credit Agreement" means that certain credit agreement, dated as of August 14, 1996, by and among the Aircraft Braking Systems, Engineered Fabrics, Lehman Commercial Paper Inc., as Documentation Agent, The Chase Manhattan Bank, as Administrative Agent, and the lenders named therein, providing for up to $110 million of borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time with the same or different lenders. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets (including, without limitation, by way of a sale and leaseback, other than a sale and leaseback of Aircraft Braking 9 Systems' carbon manufacturing facilities so long as the net present value of the rental obligations of the Company and its Subsidiaries thereunder do not exceed $15 million) other than sales of inventory in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole shall be governed by Section 4.13 and Article 5 hereof and not Section 4.10 hereof), and (ii) the issue or sale by the Company or any of its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $5 million or (b) for net proceeds in excess of $5 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Subsidiary or by a Subsidiary to the Company or to another Subsidiary, (ii) an issuance of Equity Interests by a Subsidiary to the Company or to another Subsidiary, and (iii) a Restricted Payment that is permitted by Section 4.07 hereof will not be deemed to be Asset Sales. "Bank" means any financial institution extending credit under the Amended and Restated Credit Agreement. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "BLS" means Bernard L. Schwartz. "BLS Group" means (i) BLS's spouse and descendants (collectively, "relatives"); (ii) a trust of which there are no beneficiaries other than BLS and the relatives of BLS; (iii) a partnership of which there are no other partners other than BLS or the relatives of BLS; (iv) a corporation of which there are no stockholders other than BLS or relatives of BLS; and (v) any other Affiliate of BLS. "Board" means the Board of Directors, any managers or other similar governing entity of the Company, the members of which are, in each case, elected by the equity holders of the Company, including any duly authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "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 GAAP, is required to be capitalized on the balance sheet of that Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than twelve months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' 2 10 acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having a rating of at least A-3 from Moody's Investors Service, Inc. or P-3 from Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "Certificated Notes" means Notes that are in the form of the Notes attached hereto as Exhibit A, that do not include the information called for by footnote 1 thereof. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any person (as defined above), other than the Permitted Investors, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the voting stock of the Company or (iv) the first day on which a majority of the members of the Board of the Company are not Continuing Directors. For purposes of this definition, any transfer of an Equity Interest of an entity that was formed for the purpose of acquiring voting stock of the Company will be deemed to be a transfer of such portion of such voting stock as corresponds to the portion of the equity of such entity that has been so transferred. "Company" means K & F Industries, Inc., a Delaware corporation. "Consolidated Capital Expenditures" means, for any period, the aggregate of all expenditures incurred (whether paid in cash or accrued as liabilities) by the Company and its Consolidated Subsidiaries during such period that, in conformity with GAAP 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" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) Consolidated Interest Expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash charges were deducted in computing such Consolidated Net Income in 3 11 each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Interest Expense" of any Person for any period means interest expense (including amortization of original issue discount and non-cash interest payments or accruals and the interest portion of Capitalized Leases) of such Person and its Consolidated Subsidiaries, all as determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distribution by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transactions for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its Consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date hereof in the book value of any asset owned by such Person or a Consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Consolidated Subsidiary" of any Person means a Subsidiary which for financial reporting purposes is or, in accordance with GAAP, should be, accounted for by such Person as a consolidated subsidiary. "Continuing Directors" means, as of any date of determination, any member of the Board of the Company who (i) was a member of such Board on the date of this Indenture or (ii) was nominated for 4 12 election or elected to such Board with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 11.02 hereof or such other address as to which the Trustee may give notice to the Company. "Cumulative Operating Cash Flow" means, for the period beginning June 30, 1996 through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, Operating Cash Flow for the Company and its Consolidated Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Cumulative Total Interest Expense" means, for the period beginning June 30, 1996 through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, Consolidated Interest Expense for the Company and its Consolidated Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depositary" shall mean or include such successor. "Designated Senior Indebtedness" means (i) Indebtedness under the Amended and Restated Credit Agreement and (ii) if there is no Indebtedness outstanding or active commitments to issue Indebtedness under the Amended and Restated Credit Agreement, any other Indebtedness constituting Senior Indebtedness 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 Indebtedness as "Designated Senior Indebtedness." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable, or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. "Engineered Fabrics" means Engineered Fabrics Corporation, a Delaware corporation and a Wholly Owned Subsidiary of the Company. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock so long as it is a debt security). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Offer" means the offer that shall be made by the Company pursuant to the Registration Rights Agreement to exchange Series A Notes for Series B Notes. 5 13 "Exchange Offer Registration Statement" means the registration statement relating to the Exchange Offer to be filed by the Company pursuant to the Registration Rights Agreement. "Existing Indebtedness" means all Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Amended and Restated Credit Agreement) in existence on the date hereof, including the Notes, until such amounts are repaid. "Fixed Charges" means, with respect to any Person for any period, the sum of (i) the consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest of such Person and its Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges shall not be obligations of the referent Person or any of its Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time. 6 14 "Global Note" means a Note that contains the paragraph referred to in footnote 1 and the additional schedule referred to in footnote 2 to the form of the Note attached hereto as Exhibit A. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Holder" means a Person in whose name a Note is registered. "Indebtedness" means, without duplication, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. "Indenture" means this Indenture, as amended or supplemented from time to time. "Independent Financial Advisor" means a nationally recognized investment banking firm (i) which does not (and whose directors, officers, employees and Affiliates do not) have a direct or indirect material financial interest in the Company and (ii) which, in the sole judgment of the Board, is otherwise independent and qualified to perform the task for which such firm is being engaged. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that an acquisition of assets, Equity Interests or other securities by the Company for consideration consisting of common equity securities of the Company shall not be deemed to be an Investment. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interest of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of. 7 15 "Legal Holiday" means a Saturday, a Sunday or a day on which the Trustee or banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Lehman Brothers" means Lehman Brothers Inc. "Lehman Investor" means (i) Lehman Brothers, (ii) any Affiliate of Lehman Brothers and (iii) any merchant banking limited partnership affiliated with Lehman Brothers or any Affiliate of Lehman Brothers. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "Loral Space" means Loral Space & Communications Ltd. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale, and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Notes" means the Series A Notes and the Series B Notes. "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Obligations" means any principal, interest, penalties, fee, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. 8 16 "Offering" means the Offering of the Notes by the Company. "Officer" means, (a) with respect to any Person that is a corporation, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person and (b) with respect to any other Person, the individuals selected by the Board of such Person to perform functions similar to those of the officers listed in clause (a). "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the Chief Executive Officer, the Chief Financial Officer, the Treasurer or the principal accounting officer of the Company that meets the requirements of Section 11.05 hereof. "Operating Cash Flow" of any Person means, for any period, the sum of (a) Net Income of such Person and its consolidated Subsidiaries for such period, plus (b) provision for taxes based on income or profits included in computing Net Income of such Person for such period, plus (c) Consolidated Interest Expense of such Person for such period, plus (d) other non-cash charges deducted from consolidated revenues in determining Net Income of such Person for such period, in each case, determined on a consolidated basis in accordance with GAAP. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 11.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Permitted Investments" means (a) any Investments in the Company or in a Wholly Owned Subsidiary of the Company; (b) any Investments in Cash Equivalents; (c) any Investments by the Company or any Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Subsidiary of the Company; (d) any Investment in common stock of Loral Space, provided that such common stock is awarded to employees of the Company or any of its Subsidiaries (either directly or indirectly pursuant to options or similar arrangements) as compensation in the ordinary course of business and provided further that the aggregate amount of such Investments does not exceed $2 million in any fiscal year and (e) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance Section 4.10 hereof. "Permitted Investor" means (i) any Person that is a member of the BLS Group or a Lehman Investor or (ii) Loral Space or any Subsidiary thereof. "Permitted Liens" means (i) Liens on assets of the Company or its Subsidiaries that secure Senior Indebtedness permitted by the terms hereof to be incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens existing on the date hereof and any extensions or renewals thereof, provided that such Liens do not extend to or cover any other property or assets of the Company or any Subsidiary; (vi) statutory Liens or landlords', carriers', warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like Liens arising in the ordinary course of business; (vii) Liens for 9 17 taxes, assessments, government charges or claims which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, and if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor; (viii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (ix) Liens created or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (x) easements, rights-of-way, restrictions and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any Significant Subsidiary incurred in the ordinary course of business; (xi) any attachment or judgment Lien, unless the judgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; (xii) any other Liens imposed by operation of law which do not materially affect the Company's ability to perform its obligations under the Notes and the Indenture; (xiii) rights of banks to set off deposits against debts owed to said bank; (xiv) Liens upon specific items of inventory or other goods and proceeds of the Company or its Subsidiaries securing the Company's or any Subsidiary's obligations in respect of bankers' acceptances issued or created for the account of any such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (xv) Liens securing reimbursement obligations with respect to letters of credit which encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xvi) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xvii) Liens encumbering property of assets under construction arising from progress or partial payments by a customer of the Company or one of its Subsidiaries relating to such property or assets; and (xviii) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $5 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Subsidiary. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith and any associated redemption premium); (ii) except in the case of Permitted Refinancing Indebtedness incurred to refinance the Senior Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the holders of Senior Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. 10 18 "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Registration Rights Agreement" means the Registration Rights Agreement, dated as of August 15, 1996, by and among the Company, and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Reorganization Securities" means (i) shares of stock of the Company as reorganized or readjusted, (ii) any payment or distribution of securities of the Company or any other corporation authorized by an order or decree authorizing the payment in full of Senior Indebtedness and giving effect, and stating in such order or decree that effect is given, to the subordination of the Notes to the Senior Indebtedness, and made by a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy, insolvency or other similar law, (iii) securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which are subordinate, to at least the same extent as the Notes, to the payment of all Senior Indebtedness outstanding, provided that (x) if a new corporation results from such reorganization or readjustment, such corporation assumes the Senior Indebtedness and (y) the rights of the holders of the Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment, or (iv) if there is no Senior Indebtedness outstanding under the Senior Notes, any other securities subordinated at least to the same extent as the Notes to Senior Indebtedness and any securities issued in exchange for such securities. "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means an Investment other than a Permitted Investment. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Indebtedness" means (i) all Indebtedness and other monetary obligations (whether now existing or hereafter incurred or arising) of the Company on, under, in respect of, or arising under the Amended and Restated Credit Agreement 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 Indebtedness of the Company (other than the Notes), whether presently outstanding or hereafter created, incurred or assumed, unless such Indebtedness, 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 Notes and (iii) any Hedging Obligations; provided that the term Senior Indebtedness shall not include (a) any Indebtedness of the Company which when incurred and without respect to any election under Section 11(b) of the Bankruptcy Code, was without recourse to the Company, (b) any Indebtedness of the Company to any of its Subsidiaries or Affiliates, (c) any Indebtedness of the Company not otherwise 11 19 permitted by Sections 4.09 and 4.15 hereof; (d) Indebtedness to any employee of the Company, (e) any liability for taxes and (f) trade payables. "Senior Notes" means the Company's 11 7/8% Senior Secured Notes due 2003. "Senior Revolving Indebtedness" means revolving credit borrowings under the Amended and Restated Credit Agreement. "Series A Notes" means the 10 3/8% Senior Subordinated Notes due 2004 of the Company issued under the Indenture. "Series B Notes" means the 10 3/8% Senior Subordinated Notes due 2004 of the Company issued under the Indenture pursuant to the Exchange Offer. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Specified Senior Indebtedness" means any Indebtedness constituting Senior Indebtedness 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 Indebtedness as "Specified Senior Indebtedness." "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "13 3/4Debentures" means the Company's 13 3/4% Senior Subordinated Debentures due 2001. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Transfer Restricted Securities" means securities that bear or are required to bear the legend set forth in Section 2.06 hereof. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. 12 20 "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. OTHER DEFINITIONS. Defined in Term Section "Asset Sale Offer"............................................. 3.09 "Blockage Period".............................................. 10.02 "Calculation Date"............................................. 1.01 "Change of Control Offer"...................................... 4.14 "Change of Control Payment".................................... 4.14 "Change of Control Payment Date"............................... 4.14 "Covenant Defeasance".......................................... 8.03 "Default Notice"............................................... 10.02 "DTC".......................................................... 2.03 "Event of Default"............................................. 6.01 "Excess Proceeds".............................................. 4.10 "incur"........................................................ 4.09 "Legal Defeasance" ............................................ 8.02 "Maximum Amount"............................................... 4.09 "Offer Amount"................................................. 3.09 "Offer Period"................................................. 3.09 "Paying Agent"................................................. 2.03 "Purchase Date"................................................ 3.09 "Registrar".................................................... 2.03 "Restricted Payments".......................................... 4.07 SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Company and any successor obligor upon the Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. 13 21 SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2 THE NOTES SECTION 2.01. FORM AND DATING. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes issued in global form shall be substantially in the form of Exhibit A attached hereto (including the text referred to in footnotes 1 and 2 thereto). Notes issued in certificated form shall be substantially in the form of Exhibit A attached hereto (but without including the text referred to in footnote 1 thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. SECTION 2.02. EXECUTION AND AUTHENTICATION. One Officer of the Company shall sign the Notes for the Company by manual or facsimile signature. 14 22 If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers of the Company, authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Paying Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of and premium, if any, interest and Liquidated Damages, if any, on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. 15 23 SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). SECTION 2.06. TRANSFER AND EXCHANGE. (a) Transfer and Exchange of Certificated Notes. When Certificated Notes are presented by a Holder to the Registrar with a request: (x) to register the transfer of the Certificated Notes; or (y) to exchange such Certificated Notes for an equal principal amount of Certificated Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided, however, that the Certificated Notes presented or surrendered for register of transfer or exchange: (i) shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing; and (ii) in the case of a Certificated Note that is a Transfer Restricted Security, such request shall be accompanied by the following additional information and documents, as applicable: (A) if such Transfer Restricted Security is being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification to that effect from such Holder (in substantially the form of Exhibit B hereto); or (B) if such Transfer Restricted Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in accordance with Rule 144A under the Securities Act or pursuant to an exemption from registration in accordance with Rule 144 or Rule 904 under the Securities Act or pursuant to an effective registration statement under the Securities Act, a certification to that effect from such Holder (in substantially the form of Exhibit B hereto); or (C) if such Transfer Restricted Security is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect from such Holder (in substantially the form of Exhibit B hereto) and an Opinion of Counsel from such Holder or the transferee reasonably acceptable to the Company and to the Registrar to the effect that such transfer is in compliance with the Securities Act. 16 24 (b) Transfer of a Certificated Note for a Beneficial Interest in a Global Note. A Certificated Note may not be exchanged for a beneficial interest in a Global Note except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Certificated Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (i) if such Certificated Note is a Transfer Restricted Security, a certification from the Holder thereof (in substantially the form of Exhibit B hereto) to the effect that such Certificated Note is being transferred by such Holder to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in accordance with Rule 144A under the Securities Act or to an "Accredited Investor," (as defined in Rule 501(a)(1), (2), (3), (5) or (6) under the Securities Act) in accordance with Regulation D under the Securities Act; and (ii) whether or not such Certificated Note is a Transfer Restricted Security, written instructions from the Holder thereof directing the Trustee to make, or to direct the Note Custodian to make, an endorsement on the Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Global Note, in which case the Trustee shall cancel such Certificated Note in accordance with Section 2.11 hereof and cause, or direct the Note Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Note Custodian, the aggregate principal amount of Notes represented by the Global Note to be increased accordingly. If no Global Notes are then outstanding, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate a new Global Note in the appropriate principal amount. (c) Transfer and Exchange of Global Notes. The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture and the procedures of the Depositary therefor, which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. (d) Transfer of a Beneficial Interest in a Global Note for a Certificated Note. (i) Any Person having a beneficial interest in a Global Note may upon request exchange such beneficial interest for a Certificated Note. Upon receipt by the Trustee of written instructions or such other form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any Person having a beneficial interest in a Global Note, and, in the case of a Transfer Restricted Security, the following additional information and documents (all of which may be submitted by facsimile): (A) if such beneficial interest is being transferred to the Person designated by the Depositary as being the beneficial owner, a certification to that effect from such Person (in substantially the form of Exhibit B hereto); or (B) if such beneficial interest is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in accordance with Rule 144A under the Securities Act or pursuant to an exemption from registration in accordance with Rule 144 or Rule 904 under the Securities Act or pursuant to an effective registration statement under the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit B hereto); or 17 25 (C) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit B hereto) and an Opinion of Counsel from the transferee or transferor reasonably acceptable to the Company and to the Registrar to the effect that such transfer is in compliance with the Securities Act, in which case the Trustee or the Note Custodian, at the direction of the Trustee, shall, in accordance with the standing instructions and procedures existing between the Depositary and the Note Custodian, cause the aggregate principal amount of Global Notes to be reduced accordingly and, following such reduction, the Company shall execute and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate and deliver to the transferee a Certificated Note in the appropriate principal amount. (ii) Certificated Notes issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.06(d) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Certificated Notes to the Persons in whose names such Notes are so registered. (e) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding any other provision of this Indenture (other than the provisions set forth in subsection (f) of this Section 2.06), a Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (f) Authentication of Certificated Notes in Absence of Depositary. If at any time: (i) the Depositary for the Notes notifies the Company that the Depositary is unwilling or unable to continue as Depositary for the Global Notes and a successor Depositary for the Global Notes is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Certificated Notes under this Indenture, then the Company shall execute, and the Trustee shall, upon receipt of an authentication order in accordance with Section 2.02 hereof, authenticate and deliver, Certificated Notes in an aggregate principal amount equal to the principal amount of the Global Notes in exchange for such Global Notes. (g) Legends. (i) Except as permitted by the following paragraphs (ii) and (iii), each Note certificate evidencing Global Notes and Certificated Notes (and all Notes issued in exchange therefor or substitution thereof) shall bear a legend in substantially the following form: "THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE 18 26 OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE." (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act: (A) in the case of any Transfer Restricted Security that is a Certificated Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Certificated Note that does not bear the legend set forth in (i) above and rescind any restriction on the transfer of such Transfer Restricted Security; and (B) in the case of any Transfer Restricted Security represented by a Global Note, such Transfer Restricted Security shall not be required to bear the legend set forth in (i) above, but shall continue to be subject to the provisions of Section 2.06(c) hereof; provided, however, that with respect to any request for an exchange of a Transfer Restricted Security that is represented by a Global Note for a Certificated Note that does not bear the legend set forth in (i) above, which request is made in reliance upon Rule 144, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144 (such certification to be substantially in the form of Exhibit B hereto). (iii) Notwithstanding the foregoing, upon consummation of the Exchange Offer, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate Series B Notes in exchange for Series A Notes accepted for exchange in the Exchange Offer, which Series B Notes shall not bear the legend set forth in (i) above, and the Registrar shall rescind any restriction on the transfer of such Series B Notes, in each case unless the Holder of such Series A Notes is either (A) a broker-dealer, (B) a Person participating in the 19 27 distribution of the Series A Notes or (C) a Person who is an affiliate (as defined in Rule 144A) of the Company. (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in Global Notes have been exchanged for Certificated Notes, redeemed, repurchased or cancelled, all Global Notes shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for Certificated Notes, redeemed, repurchased or cancelled, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note, by the Trustee or the Note Custodian, at the direction of the Trustee, to reflect such reduction. (i) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Certificated Notes and Global Notes at the Registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.07, 4.10, 4.14 and 9.05 hereto). (iii)The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Certificated Notes and Global Notes issued upon any registration of transfer or exchange of Certificated Notes or Global Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Certificated Notes or Global Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required: (A) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection; or (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose 20 28 name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Certificated Notes and Global Notes in accordance with the provisions of Section 2.02 hereof. SECTION 2.07. REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee or either the Company or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of each of the Company, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for their expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.08. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of either of the Company holds the Note. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. SECTION 2.09. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Responsible Officer of the Trustee knows are so owned shall be so disregarded. The Company agrees to notify the Trustee of the existence of any Treasury Notes. 21 29 SECTION 2.10. TEMPORARY NOTES. Until Certificated Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon a written order of the Company signed by two Officers of the Company. Temporary Notes shall be substantially in the form of Certificated Notes but may have variations that the Company consider appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Certificated Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. SECTION 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company upon request. The Company may not issue new Notes to replace Notes that have been paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. 22 30 ARTICLE 3 REDEMPTION AND PREPAYMENT SECTION 3.01. NOTICES TO TRUSTEE. If the Company is required to make an offer to redeem Notes pursuant to the provisions of Section 3.09 or 4.13 hereof, it shall furnish to the Trustee at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price, including, accrued interest and Liquidated Damages. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, at least 45 days but not more than 60 days before a redemption date, it shall notify the Trustee in writing of such election, the redemption date, the principal amount of Notes to be redeemed and the redemption price. SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein (including pursuant to Sections 3.09 and 4.13), not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.03. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes 23 31 in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. SECTION 3.06. NOTES REDEEMED IN PART. 24 32 Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.07. OPTIONAL REDEMPTION. The Notes shall not be redeemable at the Company's option prior to September 1, 2000. Thereafter, the Notes shall be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on September 1 of the years indicated below:
Year Percentage 2000......................................................................................... 105.188% 2001......................................................................................... 103.458% 2002......................................................................................... 101.729% 2003 and thereafter.......................................................................... 100.000%
Notwithstanding the foregoing, during the first 36 months after the date of the Offering, the Company may redeem up to an aggregate of $49 million in principal amount of Notes at a redemption price of 110.375% of the principal amount thereof, in each case plus accrued and unpaid interest and Liquidated Damages thereon to the redemption date, with the net proceeds of an initial public offering of common stock of the Company; provided that at least $91 million in aggregate principal amount of Notes remain outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 45 days of the date of the closing of such initial public offering of common stock of the Company. SECTION 3.08. MANDATORY REDEMPTION. Except as set forth under Sections 3.09, 4.10 and 4.14 hereof, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), they shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is 25 33 registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (e) that Holders (other than those Holders whose Notes bear a legend containing the text set forth in Footnote 1 to Exhibit A) electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice, no later than the termination of the Offer Period; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were 26 34 accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.02 through 3.06 hereof. ARTICLE 4 COVENANTS SECTION 4.01. PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, interest and Liquidated Damages, if any, on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company, holds as of 12:00 noon Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the 27 35 City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the office of the Trustee at 14 Wall Street, 8th Floor, New York, New York, as one such office or agency of the Company in accordance with Section 2.03. The Trustee may resign such agency at any time by giving written notice to the Company no later than 30 days prior to the effective date of such resignation. SECTION 4.03. REPORTS. Whether or not required by the rules and regulations of the SEC, so long as any of the Notes are outstanding, the Company shall furnish to the Holders of the Notes, within 15 days after they are or would have been required to be contained in a filing with the SEC, (i) all quarterly and annual financial information that would be required to be contained in filings with the SEC on Forms 10-Q and 10-K if the Company were required to file such forms, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to annual consolidated financial statements and schedules only, a report thereon by the certified independent auditors of the Company, and (ii) all information that would be required to be contained in filings with the SEC on Form 8-K if the Company was required to file such form. In addition, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information and reports with the SEC for public availability (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company agrees that, for so long as any Notes remain outstanding, it shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. SECTION 4.04. COMPLIANCE CERTIFICATE. (a) The Company shall deliver to the Trustee, within 105 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, in all material respects, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in the Indenture in all material respects and is not in Default in the performance or observance of any of the terms, provisions and conditions of this Indenture (and, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03 above shall be accompanied by a written statement of the Company's certified independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article Four or Article Five hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. 28 36 (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith (and in any event within five calendar days) upon any Officer of the Company becoming aware of any Default or Event of Default an Officers' Certificate specifying such Default or Event of Default. SECTION 4.05. TAXES. The Company shall pay, and shall cause each of their Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. SECTION 4.06. STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.07. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock), dividends or distributions payable to the Company or any Subsidiary of the Company or dividends or distributions payable by a Subsidiary of the Company to its shareholders on a pro rata basis); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any direct or indirect parent of the Company (other than any such Equity Interests owned by the Company); (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes, except at stated maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) with respect to Restricted Payments described in clauses (i) and (ii) of the immediately preceding paragraph, the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; and (c) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Subsidiaries after the date hereof (including the Restricted Payments 29 37 permitted by the next paragraph, but excluding Restricted Payments permitted by clauses (ii), (iii) and (iv) of the next paragraph), is less than the sum of (i) an amount equal to the difference (but not less than zero) between (A) Cumulative Operating Cash Flow and (B) the product of 1.3 times Cumulative Total Interest Expense, plus (ii) 100% of the aggregate net cash proceeds, including the fair market value of property other than cash as determined in good faith by the Board whose determination shall be conclusive and evidenced by a resolution of the Board set forth in an Officer's Certificate delivered to the Trustee, received by the Company from the issue or sale since the date hereof of Equity Interests of the Company or of debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or debt securities issued subsequent to the date hereof that have been converted into Disqualified Stock), plus (iii) to the extent that any Restricted Investment that was made after the date hereof is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment, plus (iv) $15 million. The foregoing provisions shall not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption or repurchase of pari passu or subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness or the substantially concurrent issuance (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (iv) investments, loans or advances to joint ventures of the Company or any of its Subsidiaries in an aggregate amount at any time not to exceed $20 million; and (v) the repurchase of shares of, or options to purchase shares of, the Company's common stock or the common stock of Loral Space held by employees of the Company (other than any member of the BLS Group) 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 such common stock in an aggregate amount not to exceed $2 million in any fiscal year; provided that the amount available in any given fiscal year shall be increased by the excess, if any, of (A) $2 million over (B) the amount used pursuant to this clause (v) in the immediately preceding fiscal year. The amount of all Restricted Payments (other than cash) shall be the fair market value (as determined in good faith by the Board, which determination shall be conclusive and evidenced by a resolution of the Board set forth in an Officers' Certificate delivered to the Trustee) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.07 were computed, which calculations may be based upon the Company's latest available financial statements. SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. 30 38 The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make loans or advances to the Company or any of its Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) the Amended and Restated Credit Agreement as in effect as of the date hereof, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive with respect to such dividend and other payment restrictions than those contained in the Amended and Restated Credit Agreement as in effect on the date hereof, (b) this Indenture and the Notes, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred, (e) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, or (g) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company or any of its Subsidiaries may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and the Company's Subsidiaries may issue shares of preferred stock if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued would have been at least 1.7 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four-quarter period. The foregoing provisions shall not apply to: (i) the incurrence by the Company and its Subsidiaries of Indebtedness and letters of credit pursuant to the Amended and Restated Credit Agreement (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) in an aggregate principal amount not to exceed $110 million, less the aggregate amount of all proceeds of Assets Sales that have been applied since the date hereof to permanently reduce the outstanding amount of such Indebtedness pursuant to Section 4.10; 31 39 (ii) Existing Indebtedness; (iii) the incurrence by the Company or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, Indebtedness that is permitted by this Indenture to be incurred; (iv) the incurrence by the Company or any of its Subsidiaries of intercompany Indebtedness between or among the Company and any of its Subsidiaries; provided, however, that (i) if the Company is the obligor of such Indebtedness, such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be; (v) Indebtedness under Guarantees in respect of obligations of joint ventures of the Company or any of its Subsidiaries in an aggregate principal amount not to exceed $20 million at any one time; (vi) (A) Indebtedness 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 Indebtedness is secured by a Lien on the property, plant or equipment so purchased or constructed and such Indebtedness does not exceed the value of such 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) Indebtedness incurred in connection with any lease financing transaction in conjunction with the acquisition of new property; provided that such lease financing transaction is consummated within 60 days of such acquisition (whether such lease will be treated as an operating or capital lease in accordance with GAAP) and the aggregate of the Indebtedness 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; (vii) obligations incurred in the ordinary course of business under (A) trade letters of credit which are to be repaid in full not more than one year after the date on which such Indebtedness is originally incurred to finance the purchase of goods by the Company or a Subsidiary of the Company; (B) standby letters of credit issued for the purpose of supporting (1) workers' compensation liabilities of the Company or any of its Subsidiaries as required by law, (2) obligations with respect to leases of the Company or any of its Subsidiaries, (3) performance, payment, deposit or surety obligations of the Company or any of its Subsidiaries or (4) 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; (C) performance bonds and surety bonds, and refinancings thereof; and (D) Guarantees of Indebtedness incurred in the ordinary course of business of suppliers, licensees, franchisees, or customers in an aggregate amount not to exceed $5 million; (viii) Indebtedness to repurchase shares, or cancel options to purchase shares, of the Company's common stock or the common stock of Loral Space held by employees of the Company 32 40 (other than any member of the BLS Group) or any of its Subsidiaries pursuant to the forms of agreements under which such employees purchase shares of the Company's common stock; (ix) the incurrence by the Company or any of its Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; and (x) the incurrence by the Company or any of its Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any other clause of this paragraph) in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $25 million. Notwithstanding the foregoing, the accretion or amortization of original issue discount under any Indebtedness, the payment of interest in additional Indebtedness or the accretion of the liquidation preference of Disqualified Stock or preferred stock, shall not be deemed an incurrence of Indebtedness, Disqualified Stock or preferred stock; provided, however, that such accretion or amortization or payment of interest is included in Fixed Charges. SECTION 4.10. ASSET SALES. The Company shall not, and shall not permit any of its Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 70% of the consideration therefor received by the Company or such Subsidiary is in the form of cash or Cash Equivalents; provided that the amount (x) of any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet), of the Company or any Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Guarantee thereof) that are assumed by the transferee of any such assets and (y) any notes, securities or other obligations received by the Company or any such Subsidiary from such transferee that are immediately (subject to normal settlement periods) converted by the Company or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to permanently reduce Senior Indebtedness or (b) to invest in the business or businesses of the Company or any of its Subsidiaries or any business directly related to any business then conducted by the Company or any of its Subsidiaries or any business related to the aircraft industry or used for working capital purposes. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Revolving Indebtedness or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10 million, the Company will be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase, in accordance with the procedures set forth in Section 3.09 hereof. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a 33 41 pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. SECTION 4.11. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into any transaction involving aggregate consideration in excess of $1 million 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 disinterested and 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 of $5 million, if the Company does not have any disinterested and independent directors, in addition to approval of its Board, 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 Section 4.11 shall not apply to (a) any transaction between the Company or any Affiliate thereof and any Lehman Investor, including, without limitation, the payment of fees to any Lehman Investor 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, (c) the payment of reasonable and customary regular fees to directors of the Company, (d) any transaction between the Company and any of its Subsidiaries or between any of its Subsidiaries, (e) any transaction between the Company and any of its Subsidiaries and Loral Space as required by the Acquisition Agreement or (f) any Restricted Payment not otherwise prohibited by Section 4.07. SECTION 4.12. LIENS. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. SECTION 4.13. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes (a "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase (the "Change of Control Payment"). The Change of Control Offer shall be made in compliance with all applicable laws, including, without limitation, Rule 14e-1 under the 34 42 Exchange Act and all applicable federal and state securities laws, and shall include all instructions and materials necessary to enable Holders to tender their Notes. Within 30 days following any Change of Control, the Company shall mail a notice to each Holder stating: (1) the transaction or transactions that constitute the Change of Control, providing information regarding the Person or Persons acquiring control, and stating that the Change of Control Offer is being made pursuant to this Section 4.13 and that, to the extent lawful, all Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof; On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided, that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. Prior to complying with the provisions of this Section, but in any event within 90 days following a Change of Control, the Company shall either repay all outstanding Senior Indebtedness or obtain the requisite consents, if any, under all agreements governing outstanding Senior Indebtedness to permit the repurchase of the Notes required by this Section. 35 43 The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.13 made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. This Section 4.13 shall be applicable whether or not any other provisions of this Indenture are applicable. SECTION 4.14. PAYMENTS FOR CONSENT. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. SECTION 4.15. NO SENIOR SUBORDINATED DEBT. The Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Indebtedness and senior in any respect in right of payment to the Notes. ARTICLE 5 SUCCESSORS SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving entity or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning 36 44 of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: (a) the Company defaults in the payment when due of interest, or Liquidated Damages, on the Notes (whether or not prohibited by Article 10) and such default continues for a period of 30 days; (b) the Company defaults in the payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by Article 10) when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise; (c) the Company fails to observe or perform any other covenant or agreement in this Indenture or the Notes and such failure to observe or perform continues for a period of 45 days after notice thereof; (d) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date hereof which default (i) is caused by a failure to pay principal or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (ii) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment 37 45 Default or the maturity of which has been so accelerated, aggregates $10 million or more; (e) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Subsidiaries and such judgment or judgments remain unpaid or undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate of all such unpaid, undischarged or unstayed judgments exceeds $10 million; (f) the Company or any Subsidiary of the Company: (i) commences a voluntary case under any Bankruptcy Law, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian or receiver of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of the Company's Subsidiaries; (ii) appoints a Custodian of the Company or any of its Subsidiaries or for all or substantially all of the property of the Company or any of its Subsidiaries; or (iii) orders the liquidation of the Company or any of its Subsidiaries; and the order or decree remains unstayed and in effect for 60 consecutive days. SECTION 6.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (f) or (g) of Section 6.01 hereof with respect to the Company or any Subsidiary of the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided; that so long as the Amended and Restated Credit Agreement is in effect, such declaration shall not become effective until the earlier of (i) five days after receipt of notice of such acceleration by the agent under the Amended and Restated Credit Agreement and the Company or (ii) an acceleration of obligations under the Amended and Restated Credit Agreement. Notwithstanding the foregoing, if an Event of Default specified in clause (f) or (g) of Section 6.01 hereof occurs with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary of the Company, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate 38 46 principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. In the case of any Event of Default occurring by reason any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to September 1, 2000 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to September 1, 2000, then the premium, as discussed below, will become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The premium payable for purposes of this paragraph for each of the years beginning on September 1 of the years set forth below shall be as set forth in the following table expressed as a percentage of the amount that would otherwise be due but for the provisions of this sentence, plus accrued interest, if any, to the date of payment: Year Percentage 1996.....................................115.562% 1997.....................................112.969% 1998.....................................110.375% 1999.....................................107.782% SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, interest or Liquidated Damages, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. The Trustee shall not be deemed to have knowledge of the Company's intent to avoid the payment of any such premium unless it shall have received notice thereof from a Holder or the Company. The Company shall promptly notify holders of Senior Indebtedness if payment of the Notes is accelerated because of an Event of Default. SECTION 6.04. WAIVER OF PAST DEFAULTS. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, interest, or Liquidated Damages, if any, on the Notes 39 47 (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability and shall be entitled to the benefit of Section 7.01(c)(iii) and (e) hereof. SECTION 6.06. LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal of, or premium, if any, interest or Liquidated Damages, if any, on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining 40 48 unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents (including accountants, experts or such other professionals as the Trustee deems necessary, advisable or appropriate) and counsel (including the allocated costs of inside counsel)) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a special record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. SECTION 6.11. UNDERTAKING FOR COSTS. 41 49 In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7 TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers 42 50 under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents, and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest (as defined in the TIA) it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein 43 51 or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each May 15 beginning with the May 15 following the date hereof, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim, and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. 44 52 To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(f) or (g) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, 45 53 provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article Eight. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all their other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal 46 54 of, or premium, if any, interest and Liquidated Damages, if any, on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from their obligations under the covenants contained in Sections 4.07 - 4.15 hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01(c) hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through 6.01(e) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, and premium, if any, interest and Liquidated Damages, if any, on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will 47 55 not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Section 6.01(f) or (g) hereof is concerned, at any time in the period ending on the ninety-first day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the ninety-first day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company, or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (h) the Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent and provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 48 56 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT TO THE COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium or Liquidated Damages, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium or Liquidated Damages, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national editions), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company under this Indenture, and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; 49 57 (b) to provide for uncertificated Notes in addition to or in place of certificated Notes; (c) to provide for the assumption of the Company's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article 5 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Notes; or (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company, accompanied by a resolution of the Board authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including Section 3.10, 4.10, 4.13 and Article 10 hereof, and including the defined terms used therein) and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, interest or Liquidated Damages, if any, on the Notes) or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes (other than with respect to Section 4.10 and 4.13 hereof,; (c) reduce the rate of or change the time for payment of interest on any Note; (d) waive a Default or Event of Default in the payment of principal of, or premium, if any, interest or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); 50 58 (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, interest on the Notes; (g) waive a redemption payment with respect to any Note (other than with respect to Section 4.10 and 4.13 hereof); or (h) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions. In addition, any amendment to the provisions of Article 10 of this Indenture or any of the related definitions will require the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of Notes. Upon the written request of the Company accompanied by a resolution of the Board authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Inden ture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. 51 59 The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and rely upon an Officer's Certificate and an Opinion of Counsel stating that (i) the execution of such amended or supplemental indenture is authorized or permitted by this Indenture, (ii) no Event of Default shall occur as a result of the execution of such Officer's Certificate or the delivery of such Opinion of Counsel and (iii) the amended or supplemented indenture complies with the terms of this Indenture. ARTICLE 10 SUBORDINATION SECTION 10.01. NOTES SUBORDINATED TO SENIOR INDEBTEDNESS. The Company covenants and agrees and each Holder, by his acceptance thereof likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article 10; and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that the payment of the principal of and interest on the Notes, whether at maturity, by declaration or otherwise by the Company, shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment, to the prior payment in full in cash or Cash Equivalents of Senior Indebtedness. SECTION 10.02. NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES. (a) If any default in the payment of any principal of or interest on any Senior Indebtedness outstanding under the Senior Notes, any Specified Senior Indebtedness or any Designated Senior Indebtedness 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 amount owing with respect to, the Notes, or to redeem or acquire any of the Notes for cash or property or otherwise (except, in each case, if there is no Senior Indebtedness outstanding under the Senior Notes, payments made in Reorganization Securities). (b) If any event of default (other than a default in payment of the principal of or interest on any Designated Senior Indebtedness) occurs and is continuing in respect of any Senior Indebtedness (or if such an event of default would occur upon any payment of any kind or character with respect to the Notes), as such event of default is defined in such Designated Senior Indebtedness, 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 52 60 the Trustee receives notice from the holder or holders of the relevant Designated Senior Indebtedness (or a representative of such holder or holders) terminating the Blockage Period (as defined below), during the 179 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, or other amounts owing with respect to the Notes or (y) acquire any of the Notes for cash or property or otherwise (except, in each case, if there is no Senior Indebtedness outstanding under the Senior Notes, payments made in Reorganization Securities). At the expiration of such Blockage Period, the Company shall, subject to Section 10.2(a) promptly pay to the Trustee all sums which the Company would have been obligated to pay during such Blockage Period but for this Section 10.2(b). Only one such Blockage Period may be commenced within any 360 consecutive days. For all purposes of this Section 10.2, no event of default which existed or was continuing with respect to the Designated Senior Indebtedness 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 Indebtedness (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. (c) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 10.2(a) or 10.2(b), such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that, upon notice from the Trustee to the holders of the Senior Indebtedness that such prohibited payment has been made, the holders of the Senior Indebtedness notify the Trustee of the amounts then due and owing on the Senior Indebtedness, if any, and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. SECTION 10.03. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.. (a) 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 Indebtedness shall first be paid in full in cash or Cash Equivalents before any payment of any kind or character (excluding Reorganization Securities) may be made on account of the principal of or interest on the Notes, or to acquire or redeem any of the Notes for cash or property (excluding Reorganization Securities). 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 would be entitled, except for the provisions of this Article 10, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holders of the Notes or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Senior Indebtedness. (b) In the event that, notwithstanding the foregoing, any payment or distribution or assets of the Company of any kind or character, whether in cash, property or securities (excluding Reorganization 53 61 Securities), shall be received by the Trustee or any Holder when such payment or distribution is prohibited by Section 10.03(a), such payment or distribution shall be held in trust for the benefit or, and shall be paid over or delivered to, the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective amount of Senior Indebtedness held by such holders) or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has been paid 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 Indebtedness. The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article 5 hereof shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 10.03 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article 5. Notwithstanding anything to the contrary in this Section 10.03, any assets which the Holders of Notes are permitted to receive in accordance with the provisions of this Article 10 shall not be subject to any claim by or on behalf of the holders of Senior Indebtedness. SECTION 10.04. SUBROGATION. Subject to the payment in full in cash or Cash Equivalents of all Senior Indebtedness, the Holders of the Notes shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the principal of and interest on the Notes shall be paid in full; and, for the purposes of the such subrogation, (a) no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Notes would be entitled except for the provisions of Article 10 and no payment over pursuant to the provisions of Article 10 to the holders of Senior Indebtedness by Holders of the Notes shall, as between the Company, its creditors other than holders of Senior Indebtedness, and Holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Indebtedness, and (b) no payment or distributions of cash, property or securities to or for the benefit of the Holders of the Notes pursuant to this Section 10.04, which would otherwise have been paid to the holders of Senior Indebtedness shall be deemed to be a payment by the Company to or for the account of the Notes. It is understood that the provisions of this Article 10 are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes, on the one hand, and the holders of the Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders of Notes would otherwise have been entitled but for the provisions of this Article 10, to the payment of all amounts payable under the Senior Indebtedness, then and in such case, the Holders of Notes shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount required to make payment in full in cash or Cash Equivalents of such Senior Indebtedness. SECTION 10.05. OBLIGATIONS OF THE COMPANY UNCONDITIONAL. Nothing contained in this Article 10 or elsewhere in this Indenture is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness, and the Holders of the Notes, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of 54 62 the Notes the principal of and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Notes and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Holders of any Note or the Trustee on their behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article 10 of the holders of the Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Without limiting the generality of the foregoing, nothing contained in Article 10 will restrict the right of the Trustee or the Holders of Notes to take any action to declare the Notes to be due and payable prior to their stated maturity pursuant to Section 6.01 or to pursue any rights or remedies hereunder. SECTION 10.06. NOTICE TO TRUSTEE. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Notes pursuant to the provisions of this Article 10. Regardless of anything to the contrary contained in this Article 10 or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Senior Indebtedness or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until a Responsible Officer of the Trustee shall have received notice in writing at the Corporate Trust Office of the Trustee to that effect signed by an officer of the Company, or by a holder of Senior Indebtedness or trustee or agent therefor, who shall have been certified by the Company or otherwise established to the reasonable satisfaction of the Trustee to be such holder, trustee or agent, and, prior to the receipt of any such written notice, the Trustee shall, subject to Sections 7.01 and 7.02, be entitled to assume that no such facts exist; provided that if the Trustee shall not have received the notice provided for in this Section 10.06 at least three Business Days prior to the date upon which by the terms hereof any such monies shall become payable for any purpose (including, without limitation, the payment of the principal of or interest on any Note), then, regardless of anything herein to the contrary, the Trustee shall have full power and authority to receive such monies and apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article 10, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 10, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 10.07. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee, subject to the provisions of Section 7.01 and 7.02 and the Holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or the Holders of the Notes, for the purpose of ascertaining the 55 63 persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.08. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS. The Trustee and any agent of the Company or the Trustee shall be entitled to all the rights set forth in this Article 10 with respect to any Senior Indebtedness which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Indebtedness and nothing in this Indenture shall deprive the Trustee or any such agent, of any of its rights as such holder. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall not be liable to any holder of Senior Indebtedness if it shall pay over or deliver to Holders of Notes, the Company or any other person monies or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article 10 or otherwise. SECTION 10.09. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OF OMISSIONS OF THE COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS. (a) No right of any present or future holders of any Senior Indebtedness to enforce subordination as provided herein will at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The provision of this Article 10 are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness. No amendment, waiver or other modification of this Indenture shall in any way adversely affect the rights of the holders of any Senior Indebtedness under this Article 10 unless such holders of Senior Indebtedness consent in writing to such amendment, waiver or modification. (b) The holders of Senior Indebtedness may at any time and from time to time without the consent of, or notice to, any Holder of Notes and without incurring any responsibility to any Holder and without impairing or releasing any rights of the holders of any Senior Indebtedness or any of the obligations of any Holder hereunder; (i) change the manner, place or terms (including amortization, interest rate, covenants and other terms) of, or renew, extend, refinance, refund, restructure or otherwise alter any or all Senior Indebtedness; (ii) perfect, or not perfect, sell, exchange, release or otherwise deal with any property at any time pledged, assigned or mortgaged to secure Senior Indebtedness; (iii) release any Person liable in any manner for the payment or collection of Senior Indebtedness; (iv) exercise or refrain from exercising any rights against the Company and any other Person; and (v) apply any amounts paid, acquired or realized to Senior Indebtedness. SECTION 10.10. HOLDERS OF NOTES AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF THE NOTES. Each Holder of Notes by his acceptance of them authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article 10, and appoints the Trustee his attorney-in-fact for such purposes, including, in the event of any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon any assignment for 56 64 the benefit of creditors or otherwise) tending towards liquidation of the business and assets of the Company the filing of a claim for the unpaid balance of its or his Notes in the form required in those proceedings. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding at least 30 days before the expiration of the time to file such claim or claims, the holders of the Senior Indebtedness (or its representatives) are hereby authorized to file an appropriate claim for and on behalf of the Holders of Notes. SECTION 10.11. ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a payment on account of principal of or interest on, or any other amount owing on, the Notes by reason of any provision of this Article 10 will not be construed as preventing the occurrence of an Event of Default. SECTION 10.12. TRUSTEE'S COMPENSATION NOT PREJUDICED. Nothing in this Article will apply to amounts due to the Trustee pursuant to other sections in the Indenture. ARTICLE 11 MISCELLANEOUS SECTION 11.01. TRUST INDENTURE ACT CONTROLS. If any provision hereof limits, qualifies or conflicts with a provision of the TIA or another provision that would be required or deemed under such Act to be part of and govern this Indenture if this Indenture were subject thereto, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the TIA that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 11.02. NOTICES. Any notice or communication by the Company or the Trustee to others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: K & F Industries, Inc. 600 Third Avenue New York, New York 10016 Telecopier No.: (212) 867-1182 Attention: Chief Financial Officer With a copy to: O'Sullivan Graev & Karabell, LLP 30 Rockefeller Plaza New York, New York 10112 57 65 Telecopier: (212) 408-2420 Attention: John Suydam If to the Trustee: Fleet National Bank Corporate Trust Administration 777 Main Street Mail Box: CTM 0238 Attention: Jacqueline Connor The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or regis tered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and 58 66 (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. SECTION 11.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, this Indenture, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 11.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE AND THE NOTES. SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. 59 67 SECTION 11.10. SUCCESSORS. All agreements of the Company in this Indenture and the Notes shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture, which have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following pages] 60 68 SIGNATURES K & F INDUSTRIES, INC. By: _______________________________ Name: Kenneth M. Schwartz Title: Executive Vice President 61 69 FLEET NATIONAL BANK, AS TRUSTEE By: _______________________________ Name: Jacqueline Connor Title: Assistant Vice President 62 70 ================================================================================ EXHIBIT A (Face of Note) 10 3/8% [Series A] [Series B] Senior Subordinated Notes due 2004 CUSIP: ___________ No. $___________ K & F INDUSTRIES, INC. promise to pay to Cede & Co. or registered assigns, the principal sum of $___________ on September 1, 2004. Interest Payment Dates: March 1 and September 1 Record Dates: February 15 and August 15 Dated: August 15, 1996 K & F INDUSTRIES, INC. By:______________________________ Name: Title: This is one of the Global Notes referred to in within-mentioned Indenture: Fleet National Bank, as Trustee By:_________________________________ Name: Title: ================================================================================ A-1 71 (Back of Note) 10 3/8% [Series A] [Series B] Senior Subordinated Notes due 2004 [Unless and until it is exchanged in whole or in part for Notes in definitive form, this Note may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. Unless this certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as may be requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as may be requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]1 [THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.]2 - -------- 1. To be included only if the Note is issued in Global form. 2. This legend should be included on the Series A Notes and omitted from the Series B Notes. A-2 72 Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. K & F Industries, Inc., a Delaware corporation (the "Company") promises to pay interest on the principal amount of this Note at 10 3/8% per annum from August 15, 1996, until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually on March 1 and September 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be March 1, 1997. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if any (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the February 15 or August 15 next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, interest and Liquidated Damages at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, Fleet National Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of August 15, 1996 (the "Indenture") between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. The Notes are general obligations of the Company limited to $140 million in aggregate principal amount. A-3 73 5. OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company shall not have the option to redeem the Notes prior to September 1, 2000. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on September 1 of the years set forth below:
Year Percentage 2000............................................105.188% 2001............................................103.458% 2002............................................101.729% 2003 and thereafter.............................100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to August 15, 1999, the Company may redeem up to an aggregate of $49 million in principal amount of Notes at a redemption price of 110.375% of the principal amount thereof, in each case plus accrued and unpaid interest and Liquidated Damages thereon to the redemption date, with the net proceeds of an initial public offering of its common stock; provided that at least $91 million in aggregate principal amount of the Notes remain outstanding immediately after the occurrence of such redemption and that such redemption occurs within 45 days of the date of the closing of such initial public offering. 6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the principal amount thereof plus, in each case, accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase (in either case, the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sale, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $10 million, the Company shall commence an offer to all Holders of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use such deficiency for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date A-4 74 and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 of the Indenture, a notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. SUBORDINATION. The Notes are subordinated in right of payment, to the extent and in the manner provided in the Indenture, to the prior payments in full of all Senior Indebtedness (as defined in the Indenture), which includes (i) all Indebtedness and other monetary obligations (whether now existing or hereafter incurred) of the Company on, under or in respect of, the Amended and Restated Credit Agreement 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 Indebtedness of the Company (other than the Notes), whether presently outstanding or hereafter created, incurred or assumed, unless such Indebtedness, 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 Notes and (iii) any Hedging Obligations; provided that the term Senior Indebtedness shall not include (a) any Indebtedness of the Company which when incurred and without respect to any election under Section 11(b) of the Bankruptcy Code, was without recourse to the Company, (b) any Indebtedness of the Company to any of its Subsidiaries or Affiliates, (c) any Indebtedness of the Company not otherwise permitted by Sections 4.09 and 4.15 of the Indenture, (d) Indebtedness to any employee of the Company, (e) any liability for taxes and (f) trade payables. The Company agrees, and each Holder by accepting a Note consents and agrees, to the subordination provided in the Indenture and authorizes the Trustee to give it effect. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the A-5 75 Company's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. 13. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest or Liquidated Damages on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company for 45 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding to comply with certain other agreements in the Indenture or the Notes; (iv) default under certain other agreements relating to Indebtedness of the Company which default (a) is caused by a failure to pay principal or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default) or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10 million; (v) certain final judgments for the payment of money that remain undischarged for a period of 60 days, provided that the aggregate of all such undischarged judgments exceeds $10 million; and (vi) certain events of bankruptcy or insolvency with respect to the Company. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 14. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or their Affiliates, and may otherwise deal with the Company or their Affiliates, as if it were not the Trustee. 15. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 16. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. A-6 76 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 18. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Transferred Restricted Securities shall have all the rights set forth in the Registration Rights Agreement dated as of August 15, 1996, between the Company and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: K & F Industries, Inc. 600 Third Avenue New York, New York 10016 Attention: Chief Financial Officer A-7 77 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to _______________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. _______________________________________________________________________________ Date:_____________________________ Your Signature:_____________________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee:________________________________________ A-8 78 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.13 of the Indenture, check the box below: / / Section 4.10 / / Section 4.13 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the amount you elect to have purchased: $___________________ Date:________________________ Your Signature:________________________________ (Sign exactly as your name appears on the Note) Tax Identification No.:________________________ Signature Guarantee:___________________________ A-9 79 SCHEDULE OF EXCHANGES OF CERTIFICATED NOTES The following exchanges of a part of this Global Note for Certificated Notes have been made:
Principal Amount of this Signature of Amount of decrease in Amount of increase in Global Note authorized officer of Principal Amount of Principal Amount of following such decrease Trustee or Note Date of Exchange this Global Note this Global Note (or increase) Custodian
A-10 80 ================================================================================ EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES Re:10 3/8% Series A Senior Subordinated Notes due 2004 of K & F Industries, Inc. This Certificate relates to $_____ principal amount of Notes held in * ________ book-entry or *_______ certificated form by ________________ (the "Transferor"). The Transferor*: / / has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Note held by the Depositary a Note or Notes in certificated, registered form of authorized denominations in an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or / / has requested the Trustee by written order to exchange or register the transfer of a Note or Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that Transferor is familiar with the Indenture relating to the above captioned Notes and as provided in Section 2.06 of such Indenture, the transfer of this Note does not require registration under the Securities Act (as defined below) because:* / / Such Note is being acquired for the Transferor's own account, without transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of the Indenture). / / Such Note is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act")) in reliance on Rule 144A or to an "Accredited Investor," (as defined in Rule 501(a)(1), (2), (3), (5) or (6) under the Securities Act) in accordance with Regulation D under the Securities Act (in satisfaction of Section 2.06(a)(ii)(B), Section 2.06(b)(i) or Section 2.06(d)(i) (B) of the Indenture) or pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section 2.06(d)(i)(B) of the Indenture.) - --------------- *Check applicable box. B-1 81 / / Such Note is being transferred in accordance with Rule 144 under the Securities Act, or pursuant to an effective registration statement under the Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section 2.06(d)(i)(B) of the Indenture). / / Such Note is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Securities Act, other than Rule 144A, 144 or Rule 904 under the Securities Act. An Opinion of Counsel to the effect that such transfer does not require registration under the Securities Act accompanies this Certificate (in satisfaction of Section 2.06(a)(ii)(C) or Section 2.06(d)(i)(C) of the Indenture). ________________________________________ [INSERT NAME OF TRANSFEROR] By:_____________________________________ Date:_____________________________ - --------------- *Check applicable box. B-2 82 FLEET NATIONAL BANK, AS TRUSTEE By: /s/ Jacqueline Connor ------------------------------------- Name: Jacqueline Connor Title: Assistant Vice President 83 SIGNATURES K & F INDUSTRIES, INC. By: /s/ Kenneth M. Schwartz ------------------------------------- Name: Kenneth M. Schwartz Title: Executive Vice President EX-10.20 3 AMENDED AND RESTATED CREDIT AGREEMENT 1 EXECUTION COPY EXHIBIT 10.20 -------------------------------------- AMENDED AND RESTATED CREDIT AGREEMENT among AIRCRAFT BRAKING SYSTEMS CORPORATION and ENGINEERED FABRICS CORPORATION, CERTAIN LENDERS, LEHMAN COMMERCIAL PAPER INC. as Documentation Agent and THE CHASE MANHATTAN BANK as Administrative Agent ------------------------------------------- Dated as of August 14, 1996 ----------------------------------------------------------------- ----------------------------------------------------------------- 2 ` TABLE OF CONTENTS Page SECTION 1. DEFINITIONS................................................... 1 1.1 Defined Terms................................................. 1 1.2 Other Definitional Provisions................................. 20 1.3 Change in Accounting Principles............................... 21 SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT AND AMORTIZING CREDIT COMMITMENTS.......................... 21 2.1 Revolving Credit Commitments.................................. 21 2.2 Procedure for Revolving Credit Borrowing...................... 22 2.3 Revolving Credit Commitment Fee............................... 22 2.4 Optional Prepayments of Revolving Credit Loans................ 22 2.5 Termination or Reduction of Revolving Credit Commitments................................................. 23 2.6 Facility A Commitments........................................ 23 2.7 Procedure for Facility A Loan Borrowing....................... 23 2.8 Repayments of Facility A Loans................................ 24 2.9 Evidence of Debt.............................................. 25 2.10 Optional and Mandatory Prepayments and Commitment Reductions of Facility A Loans.............................. 25 2.11 Conversion Options; Minimum Amount of Loans................... 27 2.12 Minimum Amounts of Tranches................................... 27 2.13 Interest Rate and Payment Dates............................... 28 2.14 Computation of Interest and Fees.............................. 28 2.15 Inability to Determine Interest Rate.......................... 29 2.16 Pro Rata Treatment and Payments............................... 29 2.17 Illegality.................................................... 31 2.18 Requirements of Law........................................... 31 2.19 Taxes......................................................... 32 2.20 Indemnity..................................................... 34 2.21 Changes in Lending Office..................................... 34 2.22 Maximum Liability............................................. 34 SECTION 3. LETTERS OF CREDIT............................................. 34 3.1 Letter of Credit Commitment................................... 34 3.2 Letters of Credit and Applications............................ 35 3.3 Participating Interests....................................... 35 3.4 Procedure for Opening Letters of Credit....................... 35 3.5 Payments...................................................... 35 3.6 Letter of Credit Commissions.................................. 36 -i- 3 Page 3.7 Letter of Credit Reserves..................................... 36 3.8 Obligations Absolute.......................................... 37 3.9 Uses of Letters of Credit..................................... 38 SECTION 4. REPRESENTATIONS AND WARRANTIES................................ 38 4.1 Financial Condition........................................... 38 4.2 No Change..................................................... 39 4.3 Corporate Existence; Compliance with Law...................... 39 4.4 Corporate Power; Authorization; Enforceable Obligations................................................. 39 4.5 No Legal Bar.................................................. 40 4.6 No Material Litigation........................................ 40 4.7 No Default.................................................... 40 4.8 Ownership of Property; Liens.................................. 40 4.9 Intellectual Property......................................... 40 4.10 No Burdensome Restrictions.................................... 41 4.11 Taxes......................................................... 41 4.12 Federal Regulations........................................... 41 4.13 ERISA......................................................... 41 4.14 Investment Company Act; Other Regulations..................... 41 4.15 Subsidiaries.................................................. 42 4.16 Accuracy and Completeness of Information...................... 42 4.17 Security Documents............................................ 42 4.18 Solvency...................................................... 43 4.19 Environmental Matters......................................... 43 4.20 Purpose of Loans.............................................. 44 SECTION 5. CONDITIONS PRECEDENT.......................................... 44 5.1 Conditions to Effectiveness of the Agreement.................. 44 5.2 Conditions to Loans and Issuances of Letters of Credit...................................................... 48 SECTION 6. AFFIRMATIVE COVENANTS......................................... 48 6.1 Financial Statements.......................................... 48 6.2 Certificates; Other Information............................... 50 6.3 Payment of Obligations........................................ 51 6.4 Conduct of Business and Maintenance of Existence, etc. ....................................................... 51 6.5 Maintenance of Property; Insurance............................ 51 6.6 Inspection of Property; Books and Records; Discussions................................................. 51 6.7 Notices....................................................... 52 6.8 Corporate Separateness........................................ 53 6.9 Environmental Laws............................................ 53 6.10 Further Assurances............................................ 53 -ii- 4 Page 6.11 Government Contracts.......................................... 53 6.12 Additional Collateral......................................... 53 6.13 Real Property................................................. 54 6.14 Environmental Audit........................................... 55 6.15 Audit of A/R and Inventory.................................... 55 SECTION 7. NEGATIVE COVENANTS............................................ 56 7.1 Limitation on Indebtedness.................................... 56 7.2 Limitation on Liens........................................... 57 7.3 Limitation on Guarantee Obligations........................... 58 7.4 Limitations of Fundamental Changes............................ 58 7.5 Limitation on Sale of Assets.................................. 58 7.6 Limitation on Leases.......................................... 59 7.7 Limitation on Dividends and the Like.......................... 59 7.8 Limitation on Investments, Loans and Advances................. 59 7.9 Limitation on Optional Payments and Modification of Debt Instruments......................................... 60 7.10 Sale and Leaseback............................................ 60 7.11 Corporate Documents........................................... 61 7.12 Transactions with Affiliates.................................. 61 7.13 Restrictions Affecting Subsidiaries........................... 61 7.14 Subsidiaries.................................................. 61 7.15 Limitation on Changes in Fiscal Year.......................... 61 7.16 Limitation on Negative Pledge Clauses......................... 61 7.17 Limitation on Lines of Business............................... 62 7.18 Limitation on Capital Expenditures............................ 62 7.19 Financial Condition Covenants................................. 62 SECTION 8. EVENTS OF DEFAULT............................................. 64 SECTION 9. THE ADMINISTRATIVE AGENT; THE DOCUMENTATION AGENT............................ 67 9.1 Appointment................................................... 67 9.2 Delegation of Duties.......................................... 68 9.3 Exculpatory Provisions........................................ 68 9.4 Reliance by Administrative Agent.............................. 68 9.5 Notice of Default............................................. 69 9.6 Non-Reliance on Administrative Agent and Other Lenders..................................................... 69 9.7 Indemnification............................................... 69 9.8 Administrative Agent in Its Individual Capacity............... 70 9.9 Successor Administrative Agent................................ 70 -iii- 5 Page SECTION 10. MISCELLANEOUS............................................... 70 10.1 Amendments and Waivers........................................ 70 10.2 Notices....................................................... 71 10.3 No Waiver; Cumulative Remedies................................ 72 10.4 Survival of Representations and Warranties.................... 72 10.5 Payment of Expenses and Taxes................................. 72 10.6 Successors and Assigns; Participations; Purchasing Lenders.......................................... 73 10.7 Adjustments; Set-off.......................................... 76 10.8 Counterparts.................................................. 77 10.9 Confidentiality............................................... 77 10.10 Severability.................................................. 77 10.11 Integration................................................... 77 10.12 GOVERNING LAW................................................. 77 10.13 Submission To Jurisdiction; Waivers........................... 77 10.14 Effect of Amendment and Restatement............................78 -iv- 6 SCHEDULES SCHEDULE 1.1A Lender Names, Addresses and Commitments SCHEDULE 1.1B Mortgaged Property SCHEDULE 1.1C Pricing Grid SCHEDULE 4.15 Subsidiaries of K&F (jurisdiction of incorporation and book value of assets) SCHEDULE 4.17(a) Security Agreement Filing Offices (Existing Collateral) SCHEDULE 4.17(b) Security Agreement Filing Offices (New Collateral) SCHEDULE 4.17(c) Mortgage Filing Offices SCHEDULE 7.1 Existing Indebtedness SCHEDULE 7.2 Existing Liens SCHEDULE 7.3 Existing Guarantee Obligations SCHEDULE 7.6 Consolidated Lease Expense EXHIBITS EXHIBIT A-1 FORM OF REVOLVING CREDIT NOTE EXHIBIT A-2 FORM OF FACILITY A NOTE EXHIBIT B-1 FORM OF AMENDED AND RESTATED ABS SECURITY AGREEMENT EXHIBIT B-2 FORM OF AMENDED AND RESTATED EF SECURITY AGREEMENT EXHIBIT C FORM OF BORROWING BASE CERTIFICATE EXHIBIT D FORM OF CLOSING CERTIFICATE EXHIBIT E FORM OF AMENDED AND RESTATED K&F AGREEMENT EXHIBIT F FORM OF LETTER OF CREDIT PARTICIPATION CERTIFICATE EXHIBIT G FORM OF OPINION OF O'SULLIVAN GRAEV & KARABELL, LLP EXHIBIT H FORM OF COMMITMENT TRANSFER SUPPLEMENT EXHIBIT I-1 FORM OF BORROWER MORTGAGE EXHIBIT I-2 FORM OF SUBSIDIARY MORTGAGE EXHIBIT J-1 FORM OF ALTERNATIVE REVOLVING CREDIT NOTE EXHIBIT J-2 FORM OF ALTERNATIVE FACILITY A NOTE -v- 7 AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 14, 1996, among Aircraft Braking Systems Corporation ("ABS") and Engineered Fabrics Corporation ("EF"), each a Delaware corporation (ABS and EF collectively, the "Borrowers"; individually a "Borrower"), the several banks and financial institutions party to this Credit Agreement (collectively, the "Lenders"; individually, a "Lender"), Lehman Commercial Paper Inc. ("Lehman"), as documentation agent (in such capacity, the "Documentation Agent"), and The Chase Manhattan Bank ("Chase"), a New York banking corporation, as administrative agent for the Lenders hereunder (in such capacity, the "Administrative Agent"). W I T N E S S E T H : WHEREAS, the Borrowers are parties to an Amended and Restated Revolving Credit Agreement, dated as of June 10, 1992 (as heretofore amended, the "Existing Revolving Credit Agreement"); WHEREAS, K&F Industries, Inc. ("K&F") has outstanding (i) an aggregate principal amount of $100,000,000 of its 11-7/8% Senior Secured Notes Due 2003 (the "Existing Senior Notes") and (ii) an aggregate principal amount of $170,000,000 of its 13-3/4% Senior Subordinated Debentures Due 2001 (the "Existing Subordinated Debentures"); WHEREAS, K&F and the Borrowers have requested that the Lenders extend the credit facilities provided for herein to refinance the credit facilities provided for in the Existing Revolving Credit Agreement, to finance a portion of the redemption of the Existing Subordinated Debentures and, subject to certain restrictions, up to $60,000,000 in outstanding principal amount of the Existing Senior Notes, and to finance their working capital requirements; NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms have the following meanings: "ABR": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by Chase in connection with extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a 8 2 fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. Any change in the ABR due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "ABR Loans": loans hereunder at such time as they are made and/or being maintained at a rate of interest based on the ABR. "ABS": as defined in the preamble hereto. "Affiliate": any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, either of the Borrowers. For purposes of this definition, a Person shall be deemed to be "controlled by" a Borrower if such Borrower possesses, directly or indirectly, power either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Aggregate Outstanding Revolving Extensions of Credit": as to any Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Revolving Credit Loans made by such Lender then outstanding and (b) such Lender's Revolving Credit Commitment Percentage of the L/C Obligations then outstanding. "Agreement": this Amended and Restated Credit Agreement, as amended, supplemented or modified from time to time. 9 3 "Alternative Note": as defined in subsection 10.6(e). "Alternative Noteholder": as defined in subsection 10.6(f). "Applicable Margin": for each Type of Loan, the rate per annum set forth under the relevant column heading below:
Eurodollar ABR Loans Loans --------- ---------- Revolving Credit Loans 1-1/4% 2-1/4% and Facility A Loans
; provided that the Applicable Margin will be adjusted, on each Adjustment Date (as defined below), to the applicable rate per annum set forth in the Pricing Grid attached hereto as Schedule 1.1C based on the Consolidated Leverage Ratio, as determined from the relevant financial statements delivered pursuant to subsection 6.1. Changes in the Applicable Margin resulting from changes in the Consolidated Leverage Ratio shall become effective on the date (the "Adjustment Date") on which such financial statements are delivered to the Lenders (but in any event not later than the 60th day after the end of each of the first three quarterly periods of each fiscal year or the 90th day after the end of each fiscal year, as the case may be) and shall remain in effect until the next change to be effected pursuant to this definition, provided, that (a) until the effectiveness of any change in the Applicable Margin based upon the consolidated financial statements of K&F and its Subsidiaries for the fiscal period ending September 30, 1997, the Consolidated Leverage Ratio for the purposes of this definition shall be deemed to be greater than 4.25 to 1.00 and less than 5.00 to 1.00; (b) if any financial statements referred to above are not delivered within the time periods specified above, then, until such financial statements are delivered, the Consolidated Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall for the purposes of this definition be deemed greater than 5.00 to 1; and (c) each determination of the Consolidated Leverage Ratio pursuant to this definition shall be made with respect to the period of four consecutive fiscal quarters of K&F and its Subsidiaries (or, if less, the number of full fiscal quarters subsequent to the Effective Date) ending at the end of the period covered by the relevant financial statements. "Asset Sale": any sale or other disposition by K&F or any Subsidiary of any of its property or assets, including the stock of any Subsidiary, except as permitted under subsections 7.5(a), (c), (d) and (e). "Available Revolving Credit Commitment": as to any Lender, at a particular time, the amount, if any, by which such Lender's Revolving Credit Commitment then in effect exceeds such Lender's Aggregate Outstanding Revolving Extensions of Credit; collectively, as to all the Lenders, the "Available Revolving Credit Commitments". 10 4 "BLS": Bernard L. Schwartz. "BLS Group": (i) BLS's spouse and descendants (collectively, "relatives"), (ii) a trust of which there are not beneficiaries other than BLS and the relatives of BLS, (iii) a partnership of which there are no other partners other than BLS or the relatives of BLS, (iv) a corporation of which there are no stockholders other than BLS or relatives of BLS, and (v) any other Affiliate of BLS. "Board": the Board of Governors of the Federal Reserve System of the United States. "Borrower Mortgages": the collective reference to the fee or leasehold Mortgages to be executed and delivered by each Borrower, substantially in the form of Exhibit I-1, as the same may be amended, supplemented or otherwise modified from time to time. "Borrowing Base": at a particular date, an amount equal to the sum of (a) 85% of Eligible Accounts of the Borrowers at such date plus (b) 45% of the Eligible Inventory of the Borrowers at such date; provided that until September 30, 1998 the Borrowing Base shall be deemed to be 120% of the amount determined by the foregoing formula. "Borrowing Base Certificate": a certificate substantially in the form of Exhibit C. "Borrowing Date": any Business Day, in the case of ABR Loans, or Working Day, in the case of Eurodollar Loans, specified in a notice pursuant to subsections 2.2 or 2.7 on which either of the Borrowers requests the Lenders to make Loans hereunder. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Capital Expenditure": any payment made directly or indirectly for the purpose of acquiring or constructing fixed assets, real property or equipment which in accordance with GAAP would be added as a debit to the fixed asset account of the Person making such expenditure (but excluding any capitalized interest expense added as a debit to the fixed asset account), including, without limitation, amounts paid or payable under any conditional sale or other title retention agreement. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Capitalized Lease": any lease of property (real, personal or mixed) which, in accordance with GAAP, should be capitalized on the lessee's balance sheet. 11 5 "Cash Equivalents": (i) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof having maturities of not more than 12 months from the date of acquisition, (ii) time deposits, certificates of deposit or bankers' acceptances having maturities of not more than 6 months from the date of acquisition of any domestic commercial bank having capital and surplus in excess of $500,000,000, which has, or the holding company of which has, a commercial paper rating meeting the requirements specified in clause (iv) below, (iii) repurchase obligations with a term of not more than 7 days for underlying securities of the types described in clauses (i) and (ii) entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper rated at least A-2 or the equivalent thereof by Standard & Poor's Ratings Services or P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in either case maturing within 6 months after the date of acquisition and (v) so long as the same are acquired by one of the Subsidiaries of either Borrower which is principally engaged in business outside of the United States, investments of comparable quality (as determined by such Subsidiary) and tenor issued in a currency which is not Dollars. "Chase": as defined in the preamble hereto. "Chattel Paper": as to any Person, any "chattel paper", as such term is defined in Section 9-105(b) of the UCC, now or hereafter owned by such Person. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collateral": the property, real and personal, tangible and intangible, and the proceeds thereof which are subject from time to time to the Liens purported to be created or continued by the Security Documents. "Commitments": collectively, the Revolving Credit Commitments and the Facility A Commitments. "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with either Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes either Borrower and which is treated as a single employer under Section 414 of the Code. "Confidential Information Memorandum": the Confidential Information Memorandum, dated as of July 1996, with respect to the Borrowers and the credit facilities provided for herein. "Consolidated Adjusted Net Worth": at a particular date, the sum of (a) all amounts which would, in accordance with GAAP, be included under shareholders' equity on the consolidated balance sheet of K&F and its Subsidiaries as of the Effective Date, (b) Consolidated Net Income on a cumulative basis since the Effective Date, (c) the expense accrued in accordance with FASB 106 on the March 31, 1996 balance sheet of K&F and its Subsidiaries and (d) Net Proceeds from the sale of Capital Stock of K&F on a cumulative basis since the Effective Date minus any cash 12 6 dividends paid, or redemptions made, in respect of any Capital Stock of K&F on a cumulative basis since the Effective Date. "Consolidated Cash Interest Coverage Ratio": for any period, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Cash Interest Expense for such period. "Consolidated Cash Interest Expense": for any period, the aggregate amount of interest accrued during such period and payable currently in cash during or within six months following such period by K&F and its Subsidiaries on all Indebtedness in respect of borrowed money, the deferred purchase price of property or Capitalized Leases, (including net costs under Interest Rate Agreements, but excluding, however, interest expense not currently payable in cash, amortization of discount and deferred financing costs) all as determined in accordance with GAAP. "Consolidated Current Assets": at a particular date, all amounts which would, in conformity with GAAP, be included under current assets on a consolidated balance sheet of K&F and its Subsidiaries at such date; provided that there shall be excluded therefrom any cash or Cash Equivalents. "Consolidated Current Liabilities": at a particular date, all amounts which would, in conformity with GAAP, be included under current liabilities on a consolidated balance sheet of K&F and its Subsidiaries as at such date; provided that there shall be excluded therefrom any current maturities of long-term Indebtedness and any other short-term Indebtedness. "Consolidated Earnings Before Interest and Taxes": for any fiscal period, the Consolidated Net Income of K&F and its Subsidiaries for such period plus, to the extent deducted from earnings in determining such Consolidated Net Income for such period, the sum of (i) taxes measured by income and (ii) interest expense. "Consolidated EBITDA": for any fiscal period, the sum for K&F and its Subsidiaries of the amounts for such period of (i) Consolidated Earnings Before Interest and Taxes, (ii) depreciation expense and (iii) amortization expense, all as determined on a consolidated basis in accordance with GAAP. "Consolidated Lease Expense": for any period, the aggregate rental obligations of K&F and its Subsidiaries determined on a consolidated basis payable in respect of such period under leases of real and/or personal property (net of income from sub-leases thereof, but excluding taxes, insurance, maintenance and similar expenses which the lessee is obligated to pay under the terms of said leases), whether or not such obligations are reflected as liabilities or commitments on a consolidated balance sheet of K&F and its Subsidiaries or in the notes thereto, excluding, however, obligations under Capitalized Leases. 13 7 "Consolidated Leverage Ratio": for any period, the ratio of (a) Total Funded Indebtedness of K&F and its Subsidiaries on a consolidated basis on the last day of such period to (b) Consolidated EBITDA for such period. "Consolidated Net Income": for any period, the consolidated net income (or deficit) of K&F and its Subsidiaries for such period, determined in accordance with GAAP; provided that there shall be excluded from the calculation thereof any non-operating gains (including, without limitation, extraordinary or unusual gains, gains from discontinuance of operations, gains arising from Asset Sales and other non-recurring gains) during such period and, there shall be included in the calculation thereof any similar non-operating losses during such period (net of any similar non-operating gains during such period). "Consolidated Working Capital": at any date, the excess of Consolidated Current Assets over Consolidated Current Liabilities as at such date. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Credit Accounts": as to any Person, any "account", as such term is defined in Section 9-106 of the UCC and any "chattel paper" as such term is defined in Section 9-105(b) of the UCC, now or hereafter owned by such Person which is classified as a receivable on the balance sheet of such Person and which arises in the ordinary course of business of such Person. "Credit Exposure": as to any Lender, such Lender's outstanding Loans, Facility A Commitment, Revolving Credit Commitment and Letter of Credit Participating Interests. "Credit Inventory": as to any Person, any "inventory" as such term is defined in Section 9-109(4) of the UCC, now or hereafter owned by such Person. "Default": any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Dollars" and "$": dollars in lawful currency of the United States. "Drawdown Date": the Borrowing Date within 50 days after the Effective Date on which the Facility A Loans are made pursuant to subsection 2.6. "EF": as defined in the preamble hereto. "Effective Date": the date on which the conditions precedent set forth in subsection 5.1 shall be satisfied. 14 8 "Eligible Accounts": at a particular date, Credit Accounts of the Borrowers and the Eligible Subsidiaries: (i) which are not outstanding more than 90 days past the due date expressed in the related invoice; (ii) of which not more than 25% are due more than 30 days after the issuance date expressed in the related invoice, unless otherwise approved by the Administrative Agent; provided that only the portion in excess of 25% shall be excluded from the "Eligible Accounts"; (iii) as to which the account debtor thereunder has been sent an invoice within 10 days after such Credit Accounts have been entered on the financial records of the appropriate Borrower; (iv) which are not owed by an obligor which is a Loan Party or a Subsidiary of a Loan Party; (v) which are not owed by an obligor which has taken any of the actions or suffered any of the events of the kind described in subsection 8(k) hereto; and (vi) except as otherwise permitted by the Administrative Agent, (A) which are bona fide, valid and legally enforceable obligations of the parties thereto or the account debtor in respect thereof and arise from the sale and delivery of goods or rendition of services in the ordinary course of business to such parties or account debtors, (B) as to which neither Borrower or such Eligible Subsidiary nor (to the best of the Borrowers' or such Eligible Subsidiary's knowledge) any other party to such Credit Account is in default or is likely to become in default in the performance or observance of any of the terms thereof in any material respects, (C) as to which the relevant Borrower or Eligible Subsidiary has fully performed all its obligations then required to be performed under each such Credit Account, and the right, title and interest of such Borrower or such Eligible Subsidiary in any such Credit Account is not subject to any chargeback, defense, offset, counterclaim or claim, nor have any of the foregoing been asserted or alleged against such Borrower or such Eligible Subsidiary as to any such Credit Account, (D) which are solely owned by a Borrower or such Eligible Subsidiary, (E) in which a Borrower or such Eligible Subsidiary (1) has granted a valid and continuing first lien and first security interest in favor of the Administrative Agent for itself and the ratable benefit of the Lenders under the UCC pursuant to the Security Agreements and (2) has good and marketable title, free and clear of any and all Liens or rights of others enforceable as such against all other Persons, (F) except in the case of Credit Accounts of foreign Subsidiaries, as to which all action necessary or desirable under the UCC to protect and perfect such lien and security interest has been duly taken, (G) as to which no amounts payable under or in connection therewith are evidenced by promissory notes or other instruments 15 9 except (1) instruments which constitute a part of Chattel Paper and which have been individually marked to show the Lien of the Security Agreements and (2) instruments which have been delivered to the Administrative Agent and (H) as to which no security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part thereof is on file or of record in any public office, except such as may have been filed in favor of the Administrative Agent pursuant to the Security Agreements. "Eligible Inventory": at a particular date, Credit Inventory (i) which is solely owned by either Borrower or any Eligible Subsidiary, (ii) as to which such Borrower or Eligible Subsidiary (A) has granted a valid and continuing first lien and first security interest in favor of the Administrative Agent for itself and the ratable benefit of Lenders pursuant to the Security Agreements and (B) has good and marketable title, free and clear of any and all Liens (other than inchoate warehouseman's or similar Liens), (iii) as to which no security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part thereof is on file or of record in any public office, except such as may have been filed in favor of the Administrative Agent for itself and the ratable benefit of Lenders pursuant to the Security Agreements, (iv) which is not located at, or in the possession of, a vendor to a Loan Party and (v) as to which all action necessary or desirable to protect and perfect such lien and security interest has been duly taken. "Eligible Subsidiary": any Subsidiary of the Borrowers that executes a security agreement substantially in the form of Exhibit B. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto), dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate of interest equal to the rate for deposits in dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate Service as of 11:00 A.M., London time, two Working Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Telerate Service (or otherwise on such service), the "Eurodollar Base Rate" shall be determined by reference to such other publicly available service for displaying eurodollar rates as may be agreed upon by the Administrative Agent and the Borrowers or, in the absence of such agreement, the "Eurodollar Base Rate" shall instead be the rate per annum 16 10 equal to the rate at which the Administrative Agent is offered Dollar deposits at or about 10:00 A.M., New York City time, two Working Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its Eurodollar Loans are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its Eurodollar Loans to be outstanding during such Interest Period. "Eurodollar Loans": loans hereunder at such time as they are made and/or are being maintained at a rate of interest based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upwards to the nearest whole multiple of 1/100th of one percent): Eurodollar Base Rate -------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Event of Default": any of the events specified in Section 8, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, event or act has been satisfied. "Excess Cash Flow": for each fiscal year commencing with the fiscal year ended March 31, 1997, the sum of (i) for such period, Consolidated EBITDA minus Capital Expenditures of K&F and its Subsidiaries minus, without duplication, New Program Investments permitted by subsection 7.8(i), minus increases in Consolidated Working Capital, minus non-cash credits included in Consolidated Net Income, plus non-cash charges reducing Consolidated Net Income, plus decreases in Consolidated Working Capital, in each case, as shown on the audited financial statements for such period delivered pursuant to subsection 6.1, minus (ii) the aggregate amount of scheduled principal and interest payments made by the Borrowers during such period (other than mandatory prepayments) in respect of Indebtedness. For the fiscal year ended March 31, 1997, all such amounts shall be calculated for the period from the Effective Date through March 31, 1997. The Net Proceeds from any sale/leaseback transaction permitted by subsection 7.10(a) shall be excluded from the definition hereof. "Existing Revolving Credit Agreement": as defined in the recitals hereto. "Existing Senior Note Documentation": the documents executed in connection with K&F's issuance of the Existing Senior Notes. "Existing Senior Note Permitted Redemption Conditions": the Borrowers may redeem up to $60,000,000 of Existing Senior Notes, if, after giving effect to each such redemption, the Borrowing Base requirements of this Agreement are complied with 17 11 and the following conditions, as applicable, are satisfied: (a) in the amount of $25,000,000, so long as (i) such redemption does not occur before June 1, 1997 and (ii) the Borrowers are in compliance with the terms of this Agreement after giving effect to such redemption, (b) in the additional amount of $5,000,000, as long as the conditions in clause (a) above are satisfied and the Revolving Credit Loans outstanding do not exceed $35,000,000 after giving effect to the redemptions contemplated by this clause (b) and clause (a) above, and (c) in the additional amount of $30,000,000, so long as (i) the conditions in clauses (a) and (b) above are satisfied, (ii) the aggregate principal amount of the Facility A Loans has been reduced to zero and (iii) the Leverage Ratio is less than or equal to 4.0 to 1.0 at the end of each of the six fiscal months most recently ended prior to the date of any such redemption. "Existing Senior Notes": as defined in the recitals hereto. "Existing Subordinated Debentures": as defined in the recitals hereto. "Existing Subordinated Debenture Documentation": the documents executed in connection with K&F's issuance of the Existing Subordinated Debentures. "Facility A Commitment": as to any Lender, its obligation to make Facility A Loans to the Borrowers pursuant to subsection 2.6 in an aggregate amount not to exceed the amount set forth opposite such Lender's name in Schedule 1.1A under the heading "Facility A Commitment", as such amount may be reduced from time to time as provided herein; collectively, as to all the Lenders, the "Facility A Commitments". "Facility A Commitment Percentage": as to any Lender, the percentage of the aggregate Facility A Commitments constituted by such Lender's Facility A Commitment. "Facility A Loan" and "Facility A Loans": as defined in subsection 2.6. "Facility A Note" and "Facility A Notes": as defined in subsection 2.9(d). "FYE": as defined in subsection 7.15. "GAAP": generally accepted accounting principles in the United States from time to time in effect. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee Obligation": as to any Person, any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent (a) to purchase any such primary 18 12 obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation shall be deemed to be the lower of (i) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (ii) the maximum amount for which the guarantor may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such Person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such Person's maximum reasonably anticipated liability in respect thereof as determined by the Borrowers in good faith. "Hazardous Materials": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Relevant Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Indebtedness": of a Person, at a particular date, the sum (without duplication) at such date of (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (excluding current trade payables incurred in the ordinary course of such Person's business) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under Capitalized Leases, (c) all obligations of such Person in respect of letters of credit, acceptances, or similar obligations issued or created for the account of such Person, (d) all such Indebtedness and obligations secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, (e) the liquidation value of any preferred capital stock of such Person or its Subsidiaries held by any Person other than such Person and its wholly owned Subsidiaries and (f) the net liabilities (that is, fractional exposure) of such Person or its Subsidiaries in respect of Interest Rate Agreements. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intercompany Loans": (a) the loan in the original principal amount of $48,400,000 made by K&F to EF on or about April 28, 1989 and (b) the loan in the 19 13 original principal amount of $304,600,000 made by K&F to ABS on or about April 28, 1989. "Interest Payment Date": (a) as to any ABR Loan, the last day of each March, June, September and December, commencing on the first of such days to occur after ABR Loans are made or Eurodollar Loans are converted to ABR Loans, (b) as to any Eurodollar Loan in respect of which the Borrowers have selected an Interest Period of one, two or three months, the last day of such Interest Period and (c) as to any Eurodollar Loan in respect of which the Borrowers have selected a longer Interest Period than the periods described in clause (b), each date which is three months from the first day of such Interest Period and the last day of such Interest Period. "Interest Period": with respect to any Eurodollar Loans: (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loans and ending one, two, three or six months thereafter, as selected by the Borrowers in their notice of borrowing as provided in subsections 2.2 and 2.7 or their notice of conversion as provided in subsection 2.11; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loans and ending one, two, three or six months thereafter, as selected by the Borrowers by irrevocable notice to the Administrative Agent not less than three Working Days prior to the last day of the then current Interest Period with respect to such Eurodollar Loans; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period pertaining to a Eurodollar Loan would otherwise end on a day which is not a Working Day, that Interest Period shall be extended to the next succeeding Working Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Working Day; (ii) any Interest Period that would otherwise extend beyond the Revolving Credit Termination Date (in the case of Revolving Credit Loans) or beyond the date final payment is due on the Facility A Loans shall end on the Revolving Credit Termination Date or such date of final payment, as applicable; (iii) if the Borrowers shall fail to give a notice of conversion or continuation as provided above, they shall be deemed to have selected an ABR Loan to replace the affected Eurodollar Loan; 20 14 (iv) any Interest Period pertaining to a Eurodollar Loan that begins on the last Working Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Working Day of a calendar month; and (v) Interest Periods shall be selected so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. "Interest Rate Agreement": any interest rate protection agreement, interest rate future, interest rate option, interest rate cap or other interest rate hedge arrangement to which any Loan Party is a party or a beneficiary. "K&F": as defined in the preamble hereto. "K&F Agreement": the amended and restated agreement among K&F, the Administrative Agent and the Lenders, dated as of the date hereof, substantially in the form of Exhibit E, as the same may be amended, supplemented or otherwise modified from time to time. "L/C Obligations": at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to subsection 3.5. "Lehman": as defined in the preamble hereto. "Letter of Credit" or "L/C": the documentary letters of credit and standby letters of credit opened for the account of either Borrower pursuant to subsection 3.1. "Letter of Credit Application": a letter of credit application executed and delivered by either Borrower for a Letter of Credit on the standard form of Chase for documentary letters of credit or standby letters of credit, as the case may be. "Letter of Credit Commitment": as defined in subsection 3.1. "Letter of Credit Participating Interest": an undivided participating interest in each Letter of Credit and the Letter of Credit Application relating thereto. "Letter of Credit Participation Certificate": a certificate in substantially the form of Exhibit F. "LIDS Joint Venture": the joint venture between ABS and Loral Information Defense System. "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, 21 15 without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and, except for any protective filing with respect to property leased as lessee, the filing of any financing statement under the UCC or comparable law of any jurisdiction in respect of any of the foregoing). "Loan": any loan made by any Lender pursuant to this Agreement. "Loan Documents": the collective reference to this Agreement, the Revolving Credit Notes, the Facility A Notes, the Letter of Credit Applications, the Security Agreements, the K&F Agreement, the subordination agreements, dated as of the date hereof, executed by ABS and EF in favor of the Administrative Agent in respect of the Intercompany Loans and upon the execution and delivery thereof in accordance with the terms of this Agreement, the Mortgages. "Loan Parties": the collective reference to the Borrowers, K&F and any Eligible Subsidiary. "Loral": Loral Space & Communications Ltd. "Material Adverse Effect": a material adverse effect on (a) the business, assets, operations, property, condition (financial of otherwise) or prospects of K&F and its Subsidiaries or the Borrowers and their Subsidiaries, in each case taken as a whole or (b) the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "Material Environmental Amount": an amount payable by either Borrower and/or its Subsidiaries in excess of $1,000,000 for remedial costs, compliance costs, compensatory damages, punitive damages, fines, penalties or any combination thereof. "Mortgaged Property": the collective reference to the real properties owned in fee or leased by a Borrower or a Subsidiary listed on Schedule 1.1B, as to which the Administrative Agent for itself and for the ratable benefit of the Lenders shall be granted a Lien pursuant to each Mortgage including, without limitation, all buildings, improvements, structures and fixtures now or subsequently located thereon and owned by a Borrower or a Subsidiary. "Mortgages": the collective reference to the Borrower Mortgages and the Subsidiary Mortgages substantially in the forms attached hereto as Exhibits I-1 and I-2, respectively (with such modifications thereto as the Administrative Agent shall determine is necessary in any state to create a valid and enforceable first mortgage Lien securing the obligations and liabilities of the Loan Parties under the Loan Documents). "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. 22 16 "Net Proceeds": (a) in connection with any Asset Sale, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale, net of reasonable attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset which is the subject of such Asset Sale (other than any Lien in favor of the Administrative Agent for the benefit of the Lenders) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or sale of equity securities or debt securities or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of reasonable attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "New Bond Issuance": the issuance by K&F of the Subordinated Notes in an aggregate principal amount of approximately $140,000,000 on or before December 31, 1996. "New Program Investments": any commitment made by ABS, in connection with its selection as a supplier of wheels, brakes or anti-skid systems for a new airframe design, (i) to make any payment to the manufacturer or original purchaser of such airframe design or (ii) to provide such airframe manufacturer or original purchaser with equipment below cost; provided, however, that a program investment by ABS shall not be deemed a New Program Investment if ABS has previously supplied or committed to supply equipment for the airframe design in question. "Notes": the collective reference to the Revolving Credit Notes and the Facility A Notes. "Obligations": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and reimbursement obligations in respect of Letters of Credit and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrowers, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Notes and all other obligations and liabilities of the Borrowers to the Administrative Agent or to any Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, any Interest Rate Agreement entered into with any Lender or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by the Borrowers pursuant hereto). 23 17 "Offering Memorandum": the Offering Memorandum, dated August __, 1996, in respect of the Subordinated Notes. "Other Long Term Liabilities": at a particular date, all amounts which would, in conformity with GAAP, be included in the item "Other long-term liabilities" on a consolidated balance sheet of K&F and its Subsidiaries as at such date. "Participant": as defined in subsection 10.6(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Permitted Redemptions": the redemption of Existing Subordinated Debentures of up to $180,000,000 in aggregate principal amount plus redemption premiums, and the redemption of Existing Senior Notes of up to $60,000,000 in aggregate principal amount in accordance with the Existing Senior Note Permitted Redemption Conditions. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which either Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Properties": the collective reference to the real property owned, leased or operated by K&F, the Borrowers or any of their Subsidiaries. "Purchasing Lender": as defined in subsection 10.6(c). "Register": as defined in subsection 10.6(h). "Regulation U": Regulation U of the Board, as from time to time in effect. "Relevant Environmental Laws": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of such term as used in Section 4241 of ERISA. 24 18 "Reportable Event": any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 2615. "Required Lenders": (a) prior to the Drawdown Date, Lenders whose Revolving Credit Commitments and Facility A Commitments aggregate at least 51% of the aggregate amount of the Revolving Credit Commitments and the Facility A Commitments and (b) subsequent to the Drawdown Date, the holders of at least 51% of the sum of (i) the aggregate unpaid principal amount of the Facility A Loans and (ii) the aggregate Revolving Credit Commitments, or, if the Revolving Credit Commitments have been terminated, the Aggregate Outstanding Revolving Extensions of Credit of the Lenders. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": with respect to each Borrower and K&F, the chief executive officer or the president of such Loan Party or, with respect to financial matters, the chief financial officer of such Loan Party. "Revolving Credit Commitment": as to any Lender, its obligation to make Revolving Credit Loans to the Borrowers pursuant to subsection 2.1 in an aggregate amount not to exceed at any one time outstanding the amount set forth opposite such Lender's name in Schedule 1.1A under the heading "Revolving Credit Commitment", as such amount may be reduced from time to time as provided herein; collectively, as to all the Lenders, the "Revolving Credit Commitments". "Revolving Credit Commitment Percentage": as to any Lender, the percentage of the aggregate Revolving Credit Commitments constituted by such Lender's Revolving Credit Commitment. "Revolving Credit Commitment Period": the period from and including the Effective Date to but not including the Revolving Credit Termination Date or such earlier date on which the Revolving Credit Commitments shall terminate as provided herein. "Revolving Credit Loan" and "Revolving Credit Loans": as defined in subsection 2.1. "Revolving Credit Note" and "Revolving Credit Notes": as defined in subsection 2.9(d). 25 19 "Revolving Credit Termination Date": August 14, 2001 or, if the New Bond Issuance does not occur by December 31, 1996, July 1, 2000, or such earlier date on which the Revolving Credit Commitment shall terminate as provided herein. "Security Agreements": collectively, each of the amended and restated security agreements, dated as of the date hereof, made by ABS and EF, individually, in favor of the Administrative Agent for the ratable benefit of the Lenders, substantially in the form of Exhibits B-1 and B-2, respectively, as the same may be amended, supplemented or otherwise modified from time to time. "Security Documents": the collective reference to the Mortgages, the Security Agreements and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any asset or assets of any Person to secure the obligations and liabilities of the Borrowers hereunder and/or under any of the other Loan Documents. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Solvent": when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable Federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "Subordinated Note Documentation": any documents executed in connection with K&F's issuance of the Subordinated Notes. "Subordinated Notes": subordinated notes that may be issued by K&F in an aggregate principal amount of approximately $140,000,000 containing terms and conditions satisfactory to the Administrative Agent and the Documentation Agent. "Subsidiary": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the 26 20 happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of K&F and shall include the Borrowers. "Subsidiary Cash Interest Coverage Ratio": for any period the ratio of (i) Consolidated EBITDA for such period, plus the amount of operating expenses of K&F during such period, determined in accordance with GAAP, to (ii) interest paid on the Loans during such period. "Subsidiary Mortgages": the collective reference to the fee or leasehold Mortgages to be executed and delivered by each Subsidiary, substantially in the form of Exhibit I-2, as the same may be amended, supplemented or otherwise modified from time to time. "Termination Date": the final Installment Payment Date or Revised Installment Payment Date, as the case may be. "Total Funded Indebtedness": at any date, the sum (without duplication) of (a) the Indebtedness of K&F and its Subsidiaries for borrowed money on such date, (b) all obligations of K&F and its Subsidiaries on such date in respect of Capital Leases and (c) all Guarantee Obligations of K&F and its Subsidiaries on such date in respect of borrowed money, in each case determined on a consolidated basis in accordance with GAAP. "Tranche": the collective reference to Eurodollar Loans having the same Interest Period (whether or not originally made on the same day); Tranches may be identified as "Eurodollar Tranches". "Transferee": as defined in subsection 10.6(d). "Type": as to any Loan, its nature as an ABR Loan or Eurodollar Loan. "UCC": the Uniform Commercial Code as from time to time in effect in the State of New York. "United States": the United States of America. "U.S. Taxes": as defined in subsection 10.6(e). "Working Day": any Business Day on which dealings in foreign currencies and exchange between banks may be carried on in London, England. 1.2 Other Definitional Provisions. (a) As used herein and in the Notes, and any certificate or other document made or delivered pursuant hereto, accounting terms relating 27 21 to the Borrowers and their Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 1.3 Change in Accounting Principles. Except as otherwise provided herein, if any changes in GAAP as used in the preparation of the financial statements dated March 31, 1996 are hereafter made and are adopted by K&F with the agreement of its independent certified public accountants and such changes result in a change in the method of calculation of any of the financial covenants, standards or terms found in subsection 1.1 or Section 7 hereof, the parties hereto agree to enter into negotiations in good faith in order to amend such provisions so as to equitably reflect such changes with the desired result that the criteria for evaluating the consolidated financial condition of K&F and its Subsidiaries shall be the same after such changes as if such changes had not been made; provided, however, that no change in GAAP that would affect the method of calculation of any of the financial covenants, standards or terms shall be given effect in such calculations until such provisions are amended, in a manner satisfactory to the Required Lenders, to so reflect such change in accounting principles. SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT AND AMORTIZING CREDIT COMMITMENTS 2.1 Revolving Credit Commitments. (a) Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans (individually, a "Revolving Credit Loan"; collectively, the "Revolving Credit Loans") to the Borrowers from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding not to exceed the Available Revolving Credit Commitment of such Lender; provided that no Revolving Credit Loans shall be made if, after giving effect thereto, the sum of (a) the aggregate principal amount of the Revolving Credit Loans then outstanding and (b) the L/C Obligations then outstanding would exceed the Borrowing Base. During the Revolving Credit Commitment Period, the Borrowers may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Revolving Credit Loans may be (i) Eurodollar Loans, (ii) ABR Loans, or (iii) a combination thereof, as determined by the Borrowers and notified to the Administrative Agent in accordance with subsection 2.2; provided that no Eurodollar Loan shall be made after the day that is one month prior to the Revolving Credit Termination Date. 28 22 (c) The Borrowers jointly and severally hereby unconditionally promise to pay to the Administrative Agent for the account of the appropriate Lender the then unpaid principal amount of each Revolving Credit Loan of such Lender on the last day of the Revolving Credit Commitment Period (or such earlier date on which the Revolving Credit Loans become due and payable pursuant to Section 8). The Borrowers jointly and severally hereby further agree to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date such Loan is made to the Borrowers until payment in full thereof at the rates per annum, and on the dates, set forth in subsection 2.13. 2.2 Procedure for Revolving Credit Borrowing. The Borrowers may borrow under the Revolving Credit Commitments during the Revolving Credit Commitment Period on any Working Day if the borrowing is a Eurodollar Loan or on any Business Day if the borrowing is a ABR Loan; provided that the Borrowers shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time) (i) three Working Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, and (ii) one Business Day prior to the requested Borrowing Date, in the case of ABR Loans, specifying (A) the amount to be borrowed, (B) the requested Borrowing Date, (C) whether the borrowing is to be a Eurodollar Loan or a ABR Loan or a combination thereof, and (D) if the borrowing is to be entirely or partly a Eurodollar Loan, the length of the Interest Period for such Eurodollar Loan. Each borrowing pursuant to the Revolving Credit Commitments shall be in an aggregate principal amount of (a) in the case of ABR Loans, the lesser of (i) $1,000,000 or a whole multiple thereof, and (ii) the then Available Revolving Credit Commitments and (b) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of such notice from the Borrowers, the Administrative Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its pro rata share of each borrowing according to the respective Revolving Credit Commitment Percentage of such Lender available to the Administrative Agent for the account of the Borrowers at the office of the Administrative Agent set forth in subsection 10.2 prior to 11:00 A.M., New York City time, on the Borrowing Date requested by the Borrowers in funds immediately available to the Administrative Agent to Clearing Account No. 023055389. The proceeds of all such Revolving Credit Loans will then be made available to the Borrowers by the Administrative Agent at such office of the Administrative Agent by crediting the Clearing Account No. 023055389 of the Borrowers on the books of such office of the Administrative Agent with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 2.3 Revolving Credit Commitment Fee. The Borrowers agree to pay to the Administrative Agent for the account of each Lender a commitment fee from and including the date hereof to (i) the Revolving Credit Termination Date in the case of the Available Revolving Credit Commitments or (ii) the Termination Date in the case of the available Facility A Commitment, computed at the rate of 1/2 of 1 percent per annum (or 3/8 of 1 percent per annum if the Consolidated Leverage Ratio is less than 3.50 to 1.00 (the requirements set forth in the definition of "Applicable Margin" in subsection 1.1 shall govern any such change in commitment fee)) on the average daily amount of the Available Revolving Credit Commitment and available Facility A Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of March, 29 23 June, September and December, commencing on September 30, 1996, and on the Revolving Credit Termination Date. 2.4 Optional Prepayments of Revolving Credit Loans. (a) The Borrowers may, on the last day of any Interest Period with respect thereto, in the case of Eurodollar Loans, or at any time and from time to time, in the case of ABR Loans, prepay the Revolving Credit Loans in whole or in part, without premium or penalty, upon at least three Business Days' irrevocable notice to the Administrative Agent in the case of Eurodollar Loans and at least two Business Days' irrevocable notice to the Administrative Agent in the case of ABR Loans, specifying the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or ABR Loans or a combination thereof, and if of a combination thereof, the amount of prepayment allocable to each. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender thereof. If such notice is given, the payment amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments shall be in an amount equal to the lesser of (a) $1,000,000, or a whole multiple thereof and (b) the aggregate outstanding amount of the Revolving Credit Loans, and may only be made if, after giving effect thereto, subsection 2.12 shall not have been contravened. 2.5 Termination or Reduction of Revolving Credit Commitments. The Borrowers shall have the right, upon not less than five Business Days' notice to the Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to reduce the amount of the Revolving Credit Commitments, provided that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Credit Loans made on the effective date thereof, the then outstanding principal amount of the Revolving Credit Loans plus the Letter of Credit Commitment would exceed the amount of the Revolving Credit Commitments then in effect. Any such reduction shall be in an amount of $1,000,000, or a whole multiple thereof, and shall reduce permanently the amount of the Revolving Credit Commitments then in effect. 2.6 Facility A Commitments. Subject to the terms and conditions hereof, each Lender severally agrees to make an amortizing term loan (a "Facility A Loan"; collectively, the "Facility A Loans") to the Borrowers on the Drawdown Date in an amount not to exceed the amount of the Facility A Commitment of such Lender then in effect. The Facility A Loans may from time to time be (a) Eurodollar Loans, (b) ABR Loans or (c) a combination thereof, as determined by the Borrowers and notified to the Administrative Agent in accordance with subsections 2.7. 2.7 Procedure for Facility A Loan Borrowing. The Borrowers shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, (a) three Working Days prior to the Drawdown Date, if all or any part of the Facility A Loans are to be initially Eurodollar Loans or (b) one Business Day prior to the Drawdown Date, otherwise) requesting that the Lenders make the Facility A Loans on the Drawdown Date and specifying (i) the amount to be borrowed, (ii) whether the Facility A Loans are to be initially Eurodollar Loans, ABR Loans or a combination thereof, and (iii) if the Facility A Loans are to be entirely or partly Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Periods therefor. Upon receipt of such notice, the Administrative 30 24 Agent shall promptly notify each Lender thereof. Not later than 11:00 A.M. on the Drawdown Date, each Lender shall make available to the Administrative Agent at its office specified in subsection 10.2 the amount of such Lender's pro rata share of the Facility A Loan in immediately available funds to Clearing Account No. 023055389. The Administrative Agent shall on such date credit Clearing Account No. 023055389 of the Borrowers on the books of such office of the Administrative Agent with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 2.8 Repayments of Facility A Loans. (a) Provided that the New Bond Issuance occurs on or before December 31, 1996, the Borrowers agree that the Facility A Loans shall be repaid in 22 consecutive quarterly installments on the dates set forth below (each such date, an "Installment Payment Date"), commencing on June 30, 1997, in an amount equal to the amount specified for each such Installment Payment Date as follows: Facility A Loan Installment Payment Dates June 30, 1997 $1,000,000 September 30, 1997 $1,000,000 December 31, 1997 $1,500,000 March 31, 1998 $1,500,000 June 30, 1998 $1,500,000 September 30, 1998 $1,500,000 December 31, 1998 $1,500,000 March 31, 1999 $1,500,000 June 30, 1999 $1,500,000 September 30, 1999 $1,500,000 December 31, 1999 $2,000,000 March 31, 2000 $2,000,000 June 30, 2000 $2,000,000 September 30, 2000 $2,000,000 December 31, 2000 $2,000,000 March 31, 2001 $2,000,000 June 30, 2001 $2,000,000 September 30, 2001 $2,000,000 December 31, 2001 $2,500,000 March 31, 2002 $2,500,000 June 30, 2002 $2,500,000 September 30, 2002 $2,500,000 (b) If the New Bond Issuance does not occur on or before December 31, 1996, the Borrowers agree that the Facility A Loans shall be repaid in 14 consecutive quarterly installments on the revised installment payment dates (the "Revised Installment Payment Dates") set forth below, commencing on January 31, 1997, in an amount equal to the amount specified for each such Revised Installment Payment Date as follows: Facility A Loan Installment Payment Dates 31 25 January 31, 1997 $2,000,000 April 30, 1997 $2,000,000 July 30, 1997 $2,000,000 October 31, 1997 $2,000,000 January 31, 1998 $2,000,000 April 30, 1998 $2,000,000 July 30, 1998 $2,000,000 October 31, 1998 $2,000,000 January 31, 1999 $2,000,000 April 30, 1999 $2,000,000 July 30, 1999 $2,000,000 October 31, 1999 $2,000,000 January 31, 2000 $2,000,000 April 30, 2000 $14,000,000 Amounts repaid on account of the Facility A Loans pursuant to this subsection 2.8 or otherwise may not be reborrowed. 2.9 Evidence of Debt. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrowers to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (b) The Administrative Agent, on behalf of the Borrowers, shall maintain the Register, and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Revolving Credit Loan and Facility A Loan made hereunder, the Type thereof and each Interest Period, if any, applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrowers and each Lender's share thereof. (c) The entries made in the Register and the accounts of each Lender maintained pursuant to subsection 2.9(a) shall, to the extent permitted by applicable law, be prima facie evidence, in the absence of manifest error, of the existence and amounts of the obligations of the Borrowers therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrowers to repay (with applicable interest as determined hereunder) the Loans made to such Borrowers by such Lender in accordance with the terms of this Agreement. (d) The Borrowers agree that, upon the request to the Administrative Agent by any Lender, the Borrower will execute and deliver to such Lender (i) a promissory note of the Borrower evidencing the Revolving Credit Loans of such Lender, substantially in the form of Exhibit A-1 with appropriate insertions as to date and principal amount (together with any alternative note substantially in the form of Exhibit J-1 issued in lieu thereof or in exchange therefor, a "Revolving Credit Note"; collectively, the "Revolving Credit Notes"), and/or (ii) a 32 26 promissory note of the Borrower evidencing the Facility A Loans of such Lender, substantially in the form of Exhibit A-2 with appropriate insertions as to date and principal amount (together with any alternative note substantially in the form of Exhibit J-2 issued in lieu thereof or in exchange therefor, a "Facility A Note"; collectively, the "Facility A Notes"). 2.10 Optional and Mandatory Prepayments and Commitment Reductions of Facility A Loans. (a) The Borrowers may, on the last day of any Interest Period with respect thereto, in the case of Eurodollar Loans, or at any time and from time to time, in the case of ABR Loans, prepay the Facility A Loans in whole or in part, without premium or penalty, upon at least three Business Days' irrevocable notice to the Administrative Agent in the case of Eurodollar Loans and at least two Business Days' irrevocable notice to the Administrative Agent in the case of ABR Loans, specifying the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or ABR Loans or a combination thereof, and if of a combination thereof, the amount of prepayment allocable to each. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender thereof. If such notice is given, the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments shall be in an amount equal to the lesser of (a) $1,000,000, or a whole multiple thereof and (b) the aggregate outstanding principal amount of the Facility A Loans. Optional prepayments of the Facility A Loans shall be applied as set forth in subsection 2.10(e) and may not be reborrowed. (b) If any class of equity or debt securities or instruments of K&F, or any of its Subsidiaries shall be issued or sold, or K&F or any of its Subsidiaries shall incur or permit the incurrence of loans (except any debt securities or instruments issued or loans incurred (i) in accordance with subsection 7.1 or (ii) the proceeds of which are used to refinance Indebtedness of K&F or a Subsidiary on terms more favorable to the obligor thereunder), an amount equal to 100% of the Net Proceeds thereof shall be applied on the date of such issuance or incurrence to reduce permanently the Facility A Commitments or prepay the Facility A Loans as set forth in subsection 2.10(e). (c) On the date of the consummation of any Asset Sale by K&F or a Subsidiary, an amount equal to 100% of the Net Proceeds thereof shall be applied to reduce permanently the Facility A Commitments or prepay the Facility A Loans as set forth in subsection 2.10(e). (d) If, for any fiscal year of the Borrowers ending after the Effective Date (or portion of fiscal year commencing on the Effective Date), there shall be Excess Cash Flow, the Borrowers shall, on the relevant Excess Cash Flow Application Date, apply to reduce permanently the Facility A Commitments or prepay the Facility A Loans as set forth in subsection 2.10(e) by a percentage of such Excess Cash Flow equal to 50%; provided that the amount of such reduction shall be reduced by the aggregate amount of all optional prepayments made by the Borrowers in respect of the Facility A Loans during the three month period immediately preceding such Excess Cash Flow Application Date. Each such prepayment shall be made on a date (a "Excess Cash Flow Application Date") no later than five days after the earlier of (i) the date on which the financial statements of the Borrowers referred to in subsection 6.1(a), for the fiscal year with respect to which such prepayment is 33 27 made, are required to be delivered to the Lenders and (ii) the date such financial statements are actually delivered. (e) Each of the Borrowers shall give the Administrative Agent (which shall promptly notify each Lender) at least one Business Day's notice of each prepayment or Facility A Commitment reduction required by paragraphs (b) through (d) above setting forth the date, amount and calculation thereof. Prepayments of Net Proceeds shall be applied first to any ABR Loans then outstanding and the balance of such Net Proceeds, if any, to the Eurodollar Loans then outstanding. Prior to the Drawdown Date, the amount of any Net Proceeds or Excess Cash Flow pursuant to paragraphs (b) through (d) above shall be applied to permanently reduce the Facility A Commitments. Subsequent to the Drawdown Date, the amount of any such Net Proceeds or Excess Cash Flow shall be applied to the prepayment of the Facility A Loans. Each prepayment of the Loans under this subsection 2.10 shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. All prepayments of the Facility A Loans pursuant to this subsection 2.10 shall be applied to the remaining installments of principal thereof in the inverse order of scheduled maturity. Amounts prepaid on account of the Facility A Loans may not be reborrowed. 2.11 Conversion Options; Minimum Amount of Loans. (a) The Borrowers may elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans shall only be made on the last day of an Interest Period with respect thereto. The Borrowers may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent at least three Working Days' prior irrevocable notice of such election. Any such notice of conversion shall comply with the procedure for borrowing set forth in subsection 2.2 or 2.7. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender thereof. All or any part of outstanding Eurodollar Loans and ABR Loans may be converted as provided herein, provided that (i) no ABR Loan may be converted into a Eurodollar Loan when any Default or Event of Default has occurred and is continuing and the Administrative Agent or the Required Lenders have determined that such a conversion is not appropriate, (ii) partial conversions shall be in an aggregate principal amount of $5,000,000 or a whole multiple thereof, (iii) any such conversion may only be made if, after giving effect thereto, subsection 2.12 shall not have been contravened and (iv) no ABR Loan may be converted into a Eurodollar Loan after the date that is one month prior to (x) the Revolving Credit Termination Date, with respect to Revolving Credit Loans and (y) the Termination Date, with respect to Facility A Loans. (b) Any Eurodollar Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrowers giving notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such Eurodollar Loans, provided that no Eurodollar Loan may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent or the Required Lenders have determined that such a continuation is not appropriate, (ii) if, after giving effect thereto, subsection 2.12 would be contravened or (iii) after the date that is one month prior to (x) the Revolving Credit Termination Date, with respect to Revolving Credit Loans and (y) the Termination Date, with respect to Facility A Loans and provided, further, 34 28 that if the Borrowers shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Eurodollar Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. 2.12 Minimum Amounts of Tranches. All borrowings, conversions, payments, prepayments and selection of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loans comprising any Eurodollar Tranche shall not be less than $5,000,000, provided that the Borrowers may not have in the aggregate more than five (5) Eurodollar Tranches outstanding at any given time. 2.13 Interest Rate and Payment Dates. (a) The Loans comprising each Eurodollar Tranche shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) ABR Loans shall bear interest at a rate per annum equal to the ABR plus the Applicable Margin. (c) If all or a portion of (i) any principal of any Loan or reimbursement obligations in respect of a Letter of Credit, (ii) any interest payable thereon, (iii) any commitment fee or (iv) any other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), the principal of the Loans and reimbursement obligations in respect of a Letter of Credit and any such overdue interest, commitment fee or other amount shall bear interest at a rate per annum which is (x) in the case of principal of the Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% and (y) in the case of reimbursement obligations, and any overdue interest, commitment fee or other amount, the rate applicable to Loans which are ABR Loans plus 2%, in each case from the date of such non-payment until such overdue principal, interest, commitment fee or other amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date; provided that interest accruing pursuant to paragraph (c) of this subsection shall be payable on demand. (e) If a financial statement delivered by the Borrowers pursuant to subsection 6.1 shall prove to be incorrect (as determined by reference to subsequent publicly filed statements of K&F), the reduction (if any) in the Applicable Margin for such Interest Period shall no longer be in effect, and the Administrative Agent shall notify the Borrowers of such incorrectness, and shall calculate the difference between the amount of interest actually paid by the Borrowers on the basis of such incorrect financial statement and the amount of interest which would have been due had such financial statement not been incorrect. The Administrative Agent shall notify the Borrowers of the amount of such difference, if any, in a statement setting forth the method of calculation of such amount (which calculation, in the absence of manifest error, shall be deemed correct) and the 35 29 Borrowers shall promptly pay such amount to the Administrative Agent for the account of the Lenders upon receipt of such notice. 2.14 Computation of Interest and Fees. (a) Commitment fees and, whenever it is calculated on the basis of the Prime Rate, interest shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed; and, otherwise, interest shall be calculated on the basis of a 360-day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrowers and the Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change in the ABR is announced, or such change in the Eurocurrency Reserve Requirements shall become effective, as the case may be. The Administrative Agent shall as soon as practicable notify the Borrowers and the Lenders of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrowers and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrowers, deliver to the Borrowers a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to any provision of this Agreement. 2.15 Inability to Determine Interest Rate. (a) In the event that: (i) the Administrative Agent shall have determined (which determination in the absence of manifest error shall be conclusive and binding upon the Borrowers) that, by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any requested Interest Period; or (ii) the Administrative Agent shall have received notice prior to the first day of such Interest Period from Lenders constituting the Required Lenders that the interest rate determined pursuant to subsection 2.13(a) for such Interest Period does not accurately reflect the cost to such Lenders (as conclusively certified by such Lenders and in the absence of manifest error) of making or maintaining their affected Loans during such Interest Period, with respect to (a) proposed Loans that the Borrowers have requested be made as Eurodollar Loans, (b) Eurodollar Loans that will result from the requested conversion of ABR Loans into Eurodollar Loans or (c) the continuation of Eurodollar Loans beyond the expiration of the then current Interest Period with respect thereto, the Administrative Agent shall forthwith give telecopy or telephonic notice of such determination to the Borrowers and the Lenders at least one day prior to, as the case may be, the requested Borrowing Date for such Eurodollar Loans, the conversion date of such ABR Loans or the last day of such Interest Period. If such notice is given (x) any requested Eurodollar Loans shall be made as ABR Loans, (y) any ABR Loans that were to have been converted to Eurodollar Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the last day of the 36 30 then current Interest Period with respect thereto, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made, nor shall the Borrowers have the right to convert ABR Loans to Eurodollar Loans. 2.16 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrowers from the Lenders, each payment by the Borrowers on account of any commitment fee hereunder and any reduction of the Revolving Credit Commitments and Facility A Commitments of the Lenders hereunder shall be made pro rata according to the respective Revolving Credit Commitment Percentages and Facility A Commitment Percentages, as the case may be, of the Lenders. Each payment (including each prepayment) by the Borrowers on account of principal of and interest on the Facility A Loans shall be made pro rata according to the respective outstanding principal amounts of the Facility A Loans then held by the Lenders; each payment (including each repayment and prepayment) by the Borrowers on account of principal of and interest on the Revolving Credit Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Credit Loans held by each Lender; and, notwithstanding the foregoing, when any payment is insufficient to pay all amounts then due and owing to all Lenders hereunder, such payment shall be applied pro rata to the Lenders according to the respective amounts then due and owing to the Lenders hereunder. The proceeds of Collateral shall be applied pro rata to the Lenders according to the respective amounts then due and owing to the Lenders hereunder. All payments (including repayments and prepayments) to be made by the Borrowers on account of principal, interest, fees payable pursuant hereto and with respect to the Letters of Credit and the Letter of Credit Applications shall be made without set-off or counterclaim and shall be made to the Administrative Agent, for the account of the Lenders, at the Administrative Agent's office set forth in subsection 10.2, in lawful money of the United States and in immediately available funds to Clearing Account No. 023055389. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Working Day, the maturity thereof shall be extended to the next succeeding Working Day unless the result of such extension would be to extend such payment into another calendar month in which event such payment shall be made on the immediately preceding Working Day. (b) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a Borrowing Date or the Drawdown Date, as applicable, that such Lender will not make the amount which would constitute its Revolving Credit Commitment Percentage or Facility A Commitment Percentage, as the case may be, of the borrowing on such date available to the Administrative Agent, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such Borrowing Date or the Drawdown Date, as applicable, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is made available to the Administrative Agent on a date after such Borrowing Date or the Drawdown Date, as applicable, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (i) the daily average Federal Funds Effective Rate 37 31 during such period as quoted by the Administrative Agent, times (ii) the amount of such Lender's Revolving Credit Commitment Percentage or Facility A Commitment Percentage, as the case may be, of such borrowing, times (iii) a fraction the numerator of which is the number of days that elapse from and including such Borrowing Date to the date on which such Lender's Revolving Credit Commitment Percentage or Facility A Commitment Percentage, as the case may be, of such borrowing shall have become immediately available to the Administrative Agent and the denominator of which is 360. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection 2.16(b) shall be conclusive, absent manifest error. If such Lender's Revolving Credit Commitment Percentage or Facility A Commitment Percentage, as the case may be, of such borrowing is not in fact made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date or the Drawdown Date, as applicable, the Administrative Agent shall be entitled to recover such amount with interest thereon at the rate per annum applicable to ABR Loans hereunder, on demand, from the Borrowers. 2.17 Illegality. Notwithstanding any other provisions herein, if any Requirement of Law or any change therein or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans or convert ABR Loans to Eurodollar Loans shall forthwith be suspended and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the respective last days of the then current Interest Periods for such Loans or within such earlier period as required by law. If any such prepayment or conversion of a Eurodollar Loan occurs on a day which is not the last day of the current Interest Period with respect thereto, the Borrowers shall pay to such Lender such amounts, if any, as may be required pursuant to subsection 2.20. 2.18 Requirements of Law. (a) In the event that any change in any Requirement of Law after the Effective Date or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority: (i) does or shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note or any Eurodollar Loans made by it, or change the basis of taxation of payments to such Lender of principal, commitment fee, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of such Lender); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender which are not otherwise included in the determination of the Eurodollar Rate hereunder; (iii) does or shall impose on such Lender any other condition; 38 32 and the result of any of the foregoing is to increase the cost to such Lender, by any amount which such Lender reasonably deems to be material, of making, renewing or maintaining advances or extensions of credit or to reduce any amount receivable hereunder, in each case, in respect of its Eurodollar Loans, then, in any such case, the Borrowers shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such additional cost or reduced amount receivable. If a Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Borrowers, but in no event later than six months from the date such Lender incurred such additional costs or sustained such reduced amount receivable, through the Administrative Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by such Lender, through the Administrative Agent, to the Borrowers shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and payment of the outstanding Notes and all other amounts payable hereunder. (b) In the event that any Lender shall have determined that the adoption after the Effective Date of any law, rule, regulation or guideline regarding capital adequacy, or any change therein or in the interpretation or application thereof or compliance by any Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or Governmental Authority, including, without limitation, the issuance of any final rule, regulation or guideline, does or shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount reasonably deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrowers (with a copy to the Administrative Agent) of a written request therefor setting forth the basis of such Lender's determination (which determination shall be conclusive absent manifest error), the Borrowers shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. If a Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Borrowers, but in no event later than six months from the date such Lender incurred such additional costs or sustained such reduced amount receivable, through the Administrative Agent, of the event by reason of which it has become so entitled. This covenant shall survive the termination of this Agreement and payment of the outstanding Notes and all other amounts payable hereunder. 2.19 Taxes. (a) All payments made by the Borrowers under this Agreement shall be made free and clear of, and without reduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority excluding, in the case of the Administrative Agent and each Lender, (i) net income and franchise taxes imposed on the Administrative Agent or such Lender by the jurisdiction under the laws of which the Administrative Agent or such Lender is organized or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which such Lender's lending office, is located or any political subdivision or taxing authority thereof or therein and (ii) in the case of a Lender (or Transferee) that is not 39 33 incorporated under the laws of the United States or a state thereof (a "Non-U.S. Lender"), any withholding tax that is imposed on amounts payable to such Non-U.S. Lender at the time such Non-U.S. Lender becomes a party to this Agreement or is attributable to such Non-U.S. Lender's failure to comply with subsection 2.19(b), except to the extent that such Non-U.S. Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from a Borrower with respect to such withholding tax pursuant to subsection 2.19(a) (all such non-excluded taxes, levies, imposts, deductions, charges or withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder or under the Notes, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary so that after making all required deductions (including deductions applicable to additional sums payable under this subsection 2.19) the Administrative Agent or such Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made (after payment of all taxes). Whenever any Taxes are payable by the Borrowers, as promptly as possible thereafter, the Borrowers shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrowers showing payment thereof. If the Borrowers fail to pay any Taxes when due to the appropriate taxing authority or fail to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrowers shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) Each Non-U.S. Lender agrees that it will deliver to the Borrowers and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) (i) two properly completed and duly executed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States Federal income taxes, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each Lender which delivers to the Borrowers and the Administrative Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the preceding sentence further undertakes to deliver to the Borrowers and the Administrative Agent two further copies of Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such letter or form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent letter and form previously delivered by it to the Borrowers, and such extensions or renewals thereof as may reasonably be requested by the Borrowers, certifying in the case of a Form 1001 or 4224 that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States Federal income taxes, unless in any such cases an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable and such Lender advises the Borrowers that it is not capable of receiving payments without any deduction or withholding of United 40 34 States Federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). (c) If a Lender shall become aware that it is entitled to receive a refund in respect of Taxes paid by a Borrower which refund in the good faith judgment of such Lender is allocable to such payment made pursuant to this subsection 2.19, it shall promptly notify such Borrower of either availability of such refund and shall, within 30 days after the receipt of a request by such Borrower, apply for such refund. If any Lender receives a refund in respect of any Taxes paid by a Borrower which refund in good faith judgment of such Lender is allocable to such payment made pursuant to this subsection 2.19, it shall promptly notify such Borrower of such refund and shall, within 15 days after receipt, repay such refund (including any interest actually received from the taxing authority with respect thereto) to such Borrower net of all out-of-pocket expenses of such Lender, provided, however, that such Borrower agrees to promptly return such refund to the Administrative Agent or the Lender, as the case may be, if it receives notice from the Administrative Agent or such Lender that such Administrative Agent or Lender is required to repay such refund. 2.20 Indemnity. The Borrowers jointly and severally agree to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrowers in payment when due of the principal amount of or interest on any Eurodollar Loans of such Lender, (b) default by the Borrowers in making a borrowing or conversion after the Borrowers have given a notice of borrowing in accordance with subsections 2.2 or 2.7 or a notice of conversion pursuant to subsection 2.11, (c) default by the Borrowers in making any prepayment after the Borrowers have given a notice in accordance with subsections 2.4 or 2.10 or (d) the making of a prepayment of a Eurodollar Loan on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, in each case, any such loss or expense (other than loss of margin) arising from the reemployment of funds obtained by it to maintain its Eurodollar Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. This covenant shall survive termination of this Agreement and payment of the outstanding Notes and all other amounts payable hereunder. 2.21 Changes in Lending Office. Each Lender agrees that, in the event that, at any time, the provisions of subsections 2.17, 2.18 or 2.19 have become or are likely to become applicable to it, it will use reasonable efforts to change its lending office to another of the offices through which it or its affiliates conducts business of the type in which it is engaged hereunder, if by making such change it can avoid or mitigate any cost or disadvantage to the Borrowers arising out of the operation of such provisions, so long as such Lender is not disadvantaged in any material financial, economic, regulatory or other material business way. The Borrowers hereby agree to pay all reasonable out-of-pocket costs and expenses reasonably incurred by any Lender in connection with any such designation or assignment. 2.22 Maximum Liability. Notwithstanding anything in this Agreement to the contrary, the maximum liability of each Borrower hereunder in respect of the other 41 35 Borrower's obligations and liabilities hereunder, whether on account of principal, interest, fees, reimbursement obligations, indemnities, costs, expenses or otherwise shall not exceed such other Borrower's Maximum Liability. As used herein, "Maximum Liability" for any Borrower shall mean the maximum amount of liability which such Borrower is permitted to incur in respect of the obligations and liabilities of the other Borrower hereunder in accordance with applicable Federal and state laws relating to insolvency of debtors. SECTION 3. LETTERS OF CREDIT 3.1 Letter of Credit Commitment. Subject to the terms and conditions of this Agreement, Chase agrees to open Letters of Credit for the purposes set forth in subsection 3.9 for the joint and several account of the Borrowers from time to time during the Revolving Credit Commitment Period in an aggregate face amount at any one time outstanding not to exceed the excess of (a) $15,000,000 (such amount, as reduced in accordance with this subsection 3.1, the "Letter of Credit Commitment") over (b) any amounts drawn under the Letters of Credit for which Chase has not been reimbursed in accordance with subsection 3.5, provided that no Letter of Credit may be issued if, after giving effect thereto, the Revolving Credit Loans, together with the undrawn and unexpired outstanding Letters of Credit (including the Letters of Credit to be issued) and any amounts drawn under Letters of Credit for which Chase has not been reimbursed, would exceed the lesser of (i) the aggregate Revolving Credit Commitments or (ii) the Borrowing Base. The Borrowers shall have the right, upon not less than five (5) Business Days' prior notice to the Administrative Agent, to terminate or, from time to time, reduce the Letter of Credit Commitment, provided that no termination of the Letter of Credit Commitment may be made while amounts may be drawn under outstanding Letters of Credit and no reduction of the Letter of Credit Commitment may be made if such reduction reduces the Letter of Credit Commitment below the aggregate amounts that may be drawn under outstanding Letters of Credit. Any such reduction of the Letter of Credit Commitment shall be in the amount of $1,000,000 or a whole multiple thereof, and shall reduce permanently the amount of the Letter of Credit Commitment then in effect. 3.2 Letters of Credit and Applications. Each Letter of Credit shall (a) be opened pursuant to a Letter of Credit Application, (b) expire on a date not later than the earlier of (i) the date one year from the date of the issuance thereof and (ii) the date which is five days prior to the Revolving Credit Termination Date and (c) be denominated in Dollars. 3.3 Participating Interests. Effective in the case of each Letter of Credit as of the date of the opening thereof, Chase agrees to allot and does allot, to each other Lender and each Lender severally and irrevocably agrees to take and does take a Letter of Credit Participating Interest in a percentage equal to such Lender's Revolving Credit Commitment Percentage. 3.4 Procedure for Opening Letters of Credit. Each Borrower will give Chase written notice on or prior to any date in respect of which a Letter of Credit is requested to be opened accompanied by a duly completed and executed Letter of Credit Application therefor. Upon receipt of such notice from a Borrower and of such Letter of Credit Application, Chase 42 36 will promptly notify each Lender thereof. Upon receipt of any such notice, Chase will process such notice and such Letter of Credit Application in accordance with its customary procedures and shall promptly open such Letter of Credit (but in any event not earlier than three Business Days after receipt by Chase of such notice) by issuing the original of such Letter of Credit to the beneficiary thereof and by furnishing a copy thereof to each of the Borrowers and the other Lenders. 3.5 Payments. (a) The Borrowers jointly and severally agree (i) to reimburse Chase, forthwith upon its demand and otherwise in accordance with the terms of the Letter of Credit Application relating thereto, for any payment made by Chase under any Letter of Credit and (ii) to pay interest on any unreimbursed portion of any such payment from the date of such payment until reimbursement in full thereof at a rate per annum equal to (A) prior to the date which is one Business Day after the day on which Chase demands reimbursement from the Borrowers for such payment, the rate which would then be payable on any outstanding ABR Loans which are not overdue and (B) thereafter, the rate which would then be payable on any outstanding ABR Loans which are overdue. (b) In the event that Chase makes a payment under any Letter of Credit and is not reimbursed in full therefor forthwith upon the demand of Chase referred to in paragraph (a) of this subsection 3.5 and otherwise in accordance with the terms of the Letter of Credit Application relating to such Letter of Credit, Chase will promptly notify each other Lender. Forthwith upon its receipt of any such notice, each other Lender will transfer to Chase, in immediately available funds, an amount equal to such other Lender's pro rata share according to its Revolving Credit Commitment Percentage of the unreimbursed portion of such payment. Upon its receipt from any such other Lender of such amount, Chase will complete, execute and deliver to such other Lender a Letter of Credit Participation Certificate dated the date of such receipt and in such amount. (c) Whenever, at any time after Chase has made a payment under any Letter of Credit and has received from any other Lender such other Lender's pro rata share of the unreimbursed portion of such payment, Chase receives any reimbursement on account of such unreimbursed portion or any payment of interest on account thereof, Chase will distribute to such other Lender its pro rata share thereof; provided, however, that in the event that the receipt by Chase of such reimbursement or such payment of interest (as the case may be) is required to be returned, such other Lender will return to Chase any portion thereof previously distributed by Chase to it. 3.6 Letter of Credit Commissions. In lieu of any letter of credit commissions and fees provided for in any Letter of Credit Application (other than any standard issuance, amendment, administrative, payment and negotiation fees), the Borrowers shall pay a letter of credit commission (a) to the Administrative Agent for the account of each Lender on such Lender's Revolving Credit Commitment Percentage of the undrawn and unexpired amount of each Letter of Credit from time to time outstanding at a rate per annum equal to the then prevailing Applicable Margin on Eurodollar Loans and (b) to Chase on the undrawn and unexpired amount of each Letter of Credit from time to time outstanding at a rate per annum equal to 1/4 of 1%. Such letter of credit commission shall be payable quarterly in arrears on 43 37 the last day of each March, June, September and December and the last day of the Revolving Credit Commitment Period. 3.7 Letter of Credit Reserves. (a) In the event that any change in any Requirement of Law after the Effective Date or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or Governmental Authority shall either (i) impose, modify, deem or make applicable any reserve, special deposit, assessment or similar requirement against letters of credit issued by or participated in any Lender or (ii) impose on any Lender any other condition regarding this Agreement or any Letter of Credit or any participation therein, and the result of any event referred to in clause (i) or (ii) above shall be to increase the cost to any Lender of issuing or maintaining any Letter of Credit or any participation therein by an amount which such Lender reasonably deems material, then, upon demand by any Lender, the Borrowers shall immediately pay to such Lender, from time to time as specified by such Lender, additional amounts which shall be sufficient to compensate such Lender for such increased cost, together with interest on each such amount from the date demanded until payment in full thereof at a rate per annum equal to the ABR. If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Borrowers, but in no event later than six months from the date such Lender incurred such additional costs or sustained such reduced amount receivable, of the event by reason of which it has become so entitled. A certificate as to such increased cost incurrence by any Lender submitted by such Lender to the Borrowers shall be conclusive, absent manifest error, as to the amount thereof. This covenant shall survive the termination of this Agreement and the payment of all amounts payable hereunder. (b) Notwithstanding any other provisions herein, if any change in any Requirement of Law after the Effective Date or in the interpretation or application thereof (a "Change in Law") shall, in the opinion of any Lender, require that any obligation under any Letter of Credit or any participation therein be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital to be maintained by any Lender or any corporation controlling any Lender, and such Change in Law shall have the effect of reducing the rate of return on such Lender's or such corporation's capital, as the case may be, as a consequence of such Lender's obligations under such Letter of Credit or any participation therein to a level below that which such Lender or such corporation, as the case may be, could have achieved but for such Change in Law (taking into account such Lender's or such corporation's policies, as the case may be, with respect to capital adequacy) by an amount reasonably deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrowers of a written request therefor, the Borrowers shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation, as the case may be, for such reduction. If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Borrowers, but in no event later than six months from the date such Lender incurred such additional costs or sustained such reduced amount receivable, of the event by reason of which it has become so entitled. A certificate setting forth in reasonable detail the computation of such increased cost incurred by any Lender, submitted by such Lender to the Borrowers, shall be conclusive and binding absent manifest error. This covenant shall survive the termination of this Agreement and the payment of all amounts payable hereunder. 44 38 (c) The Borrowers agree that the provisions of the foregoing paragraphs (a) and (b) override the provisions of each Letter of Credit Application providing for reimbursement or payment to Chase in the event of the imposition or implementation of, or increase in, any reserve, special deposit, capital adequacy or similar requirement in respect of the Letter of Credit relating thereto and shall apply equally to each other Lender in respect of its Letter of Credit Participating Interest in such Letter of Credit. 3.8 Obligations Absolute. The payment obligations of any Borrower under this Agreement shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: (i) the existence of any claim, set-off, defense or other right which any Borrower may have at any time against any beneficiary, or any transferee, of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Administrative Agent, or any Lender, or any other Person, whether in connection with this Agreement, the transactions contemplated herein, or any unrelated transaction; (ii) any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; and (iii) payment by Chase under any Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit or any other circumstances or happening whatsoever, whether or not similar to any of the foregoing; provided, that such payment by Chase or such circumstance or happening does not constitute gross negligence or willful misconduct of Chase. 3.9 Uses of Letters of Credit. The Letters of Credit shall be used in the ordinary course of business. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Agreement and to make or maintain the Loans and issue or participate in the Letters of Credit, each of the Borrowers hereby represents and warrants to the Administrative Agent and to each Lender that: 4.1 Financial Condition. The audited consolidated balance sheets of K&F and its consolidated Subsidiaries as at March 31, 1995 and 1996 and the related consolidated statements of income and of cash flows for the fiscal years ended on such date, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of K&F and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of K&F and its consolidated Subsidiaries as at May 31, 1996 and the related unaudited consolidated statements of income 45 39 and of cash flows for the two-month period ended on such dates, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of K&F and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the two-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). Neither K&F nor any of its consolidated Subsidiaries had, at the date of the most recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto. During the period from March 31, 1996 to and including the date hereof, there has been no sale, transfer or other disposition by the Borrower or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the consolidated financial condition of the Borrower and its consolidated Subsidiaries at March 31, 1996 other than purchases or sales of inventory and capital expenditures in the ordinary course of business. 4.2 No Change. (a) Since March 31, 1996 there has been no material adverse change in the business, operations, property or financial or other condition of either of the Borrowers nor has either Borrower incurred any material obligation, contingent or otherwise, which has had a Material Adverse Effect and (b) during the period from March 31, 1996 to and including the date of this Agreement, no dividends or other distributions have been declared, paid or made upon the Capital Stock of K&F or any Subsidiary nor has any of the Capital Stock of K&F or any Subsidiary been redeemed, retired, purchased or otherwise acquired for value by K&F or any or any of its Subsidiaries. 4.3 Corporate Existence; Compliance with Law. Each of the Borrowers and its respective Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (b) has the corporate power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law except to the extent that the failure to be so qualified or to comply with any Requirement of Law would not, in the aggregate, have a Material Adverse Effect. 4.4 Corporate Power; Authorization; Enforceable Obligations. Each of the Borrowers has the corporate power and authority to make, deliver and perform the Loan Documents to which it is a party or is to be a party and to borrow hereunder and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and the Notes and to authorize the execution, delivery and performance of the Loan Documents to which it is a party or is to be a party. No consent or authorization of, 46 40 filing with or other act by or in respect of any Governmental Authority or any other Person is required in connection with the issuance of the Subordinated Notes, the Permitted Redemptions, the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of the Loan Documents to which either Borrower is a party other than (i) filings necessary to perfect the security interests under the Security Documents and (ii) consents, authorizations, orders, filings or registrations the failure of which to obtain or make could not reasonably be expected to have a Material Adverse Effect. This Agreement has been, and each other Loan Document to which it is a party will be, duly executed and delivered on behalf of each of the Borrowers. This Agreement constitutes, and each of the Security Agreements when executed and delivered will constitute, a legal, valid and binding obligation of the Borrower party thereto, as the case may be, enforceable in accordance with its respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 4.5 No Legal Bar. The execution, delivery and performance of this Agreement, the Notes, the other Loan Documents, the Subordinated Note Documentation, the borrowings hereunder and thereunder and the use of the proceeds thereof, will not violate any Requirement of Law or any Contractual Obligation of either of the Borrowers or of any of the Subsidiaries, and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any Requirement of Law or Contractual Obligation (except for the Liens created by the Security Documents) the consequences of which violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 4.6 No Material Litigation. Except as disclosed in the Offering Memorandum, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of either of the Borrowers, threatened by or against either of the Borrowers or any of their Subsidiaries or against any of its or their respective properties or revenues (a) with respect to this Agreement, the other Loan Documents, the Permitted Redemptions, the Subordinated Note Documentation or any of the transactions contemplated hereby or thereby or (b) which could reasonably be expected to have a Material Adverse Effect. 4.7 No Default. Neither of the Borrowers nor any of the Subsidiaries is in default under or with respect to any Contractual Obligation in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 4.8 Ownership of Property; Liens. Each of the Borrowers has good record and valid title in fee simple to, or a valid leasehold interest in, all its real property, good title to all its other property, and none of such property is subject to any Lien, except as permitted in subsection 7.2. K&F and its Subsidiaries have (a) title in fee simple to no real property other than as specified on Schedule 1.1B and (b) a valid leasehold interest in no real property other than as specified on Schedule 1.1B; provided that the Borrowers may revise the information set forth on Schedule 1.1B from time to time upon notice to the Administrative Agent. 47 41 4.9 Intellectual Property. The Borrowers own, or are licensed to use, all trademarks, tradenames, patents, patent applications, copyrights, technology, know-how and processes necessary for the conduct of their respective businesses as currently conducted that are material to the condition (financial or other), business, or operations of the Borrowers and the Subsidiaries taken as a whole (the "Intellectual Property"). To the best of each Borrower's knowledge after reasonable inquiry, no claim has been asserted and is pending by any Person with respect to the use of any such Intellectual Property, or challenging or questioning the validity or effectiveness of any such Intellectual Property and the Borrowers do not know of any valid basis for any such claim. The use of such Intellectual Property by the Borrowers and the Subsidiaries does not infringe on the rights of any Person, subject to such claims and infringements as do not, in the aggregate, give rise to any liability on the part of the Borrowers and the Subsidiaries that could reasonably be expected to have a Material Adverse Effect. 4.10 No Burdensome Restrictions. No Requirement of Law or Contractual Obligation of any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 4.11 Taxes. Each of the Borrowers and the Subsidiaries has filed or caused to be filed all tax returns which to the knowledge of the Borrowers are required to be filed (except for those returns whose due dates or extended due dates have not yet occurred) and has paid, withheld or made provisions for all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of either Borrower or any Subsidiary, as the case may be); and no tax lien has been filed and, to the knowledge of each of the Borrowers, no material claim is being asserted with respect to any such tax, fee or other charge. 4.12 Federal Regulations. No part of the proceeds of any borrowings hereunder will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrowers will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. 4.13 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation 48 42 date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by an amount in excess of $15,000,000. Neither of the Borrowers nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan, and neither of the Borrowers nor any Commonly Controlled Entity would become subject to any liability under ERISA if either of the Borrowers or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. 4.14 Investment Company Act; Other Regulations. Neither Borrower nor any of the Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. Neither Borrower nor any of the Subsidiaries is subject to regulation under any other Federal or state regulatory scheme which limits its ability to incur Indebtedness, other than applicable Federal and state laws relating to insolvency of debtors. 4.15 Subsidiaries. (a) The Subsidiaries set forth on Schedule 4.15 constitute all the direct and indirect Subsidiaries of K&F, (b) each such Subsidiary was incorporated on the date and in the jurisdiction set forth opposite such Subsidiary's name on such Schedule 4.15 and (c) the approximate book value of the assets of each such Subsidiary is set forth opposite such Subsidiary's name on Schedule 4.15; provided that the Borrowers may revise the information set forth on Schedule 4.15 upon notice to the Administrative Agent. 4.16 Accuracy and Completeness of Information. All information, reports and other papers and data with respect to each of the Borrowers and the other Loan Parties (other than projections) furnished in writing to the Lenders by the Borrowers or the other Loan Parties or on behalf of the Borrowers or the other Loan Parties, including without limitation the Confidential Information Memorandum, were, at the time the same were so furnished, complete and correct in all material respects, or have been subsequently supplemented by other information, reports or other papers or data, to the extent necessary to give the Lenders a true and accurate knowledge of the subject matter contained therein in all material respects. All projections with respect to the Borrowers and the other Loan Parties, so furnished by the Borrowers or the other Loan Parties, as supplemented, were prepared and presented in good faith by the Borrowers, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. 4.17 Security Documents. (a) The Security Agreements are effective to continue in favor of the Administrative Agent, for itself and the ratable benefit of the Lenders, a legal, valid and enforceable security interest in the Existing Collateral described in Section 2(a) of the Security Agreements and proceeds thereof, and when financing statements in appropriate form are filed in the offices specified on Schedule 4.17(a), the Security Agreements shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Existing Collateral and the proceeds thereof, as security for the Obligations, in each case prior and superior in right to any other Person, other than with respect to Liens expressly permitted by subsection 7.2. 49 43 (b) The Security Agreements are effective to create in favor of the Administrative Agent, for itself and the ratable benefit of the Lenders, a legal, valid and enforceable security interest in the New Collateral described in Section 2(b) of the Security Agreements and proceeds thereof, and when financing statements in appropriate form are filed in the offices specified on Schedule 4.17(b), the Security Agreements shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such New Collateral and the proceeds thereof, as security for the Obligations, in each case prior and superior in right to any other Person, other than with respect to Liens expressly permitted by subsection 7.2. (c) Each Mortgage, when executed and delivered by the relevant Loan Party, shall be effective to create in favor of the Administrative Agent, for itself and the ratable benefit of the Lenders, a legal, valid and enforceable Lien on the Mortgaged Property described therein and proceeds thereof, and when each Mortgage is filed in the office(s) specified on Schedule 4.17(c), each Mortgage shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in the Mortgaged Property and the proceeds thereof, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person, other than with respect to Liens expressly permitted by subsection 7.2. 4.18 Solvency. Each Loan Party is, and after giving effect to the incurrence of all Indebtedness and obligations being incurred in connection herewith and the transactions contemplated hereby, will be and will continue to be Solvent. 4.19 Environmental Matters. (a) The Properties do not contain, and have not previously contained, any Hazardous Materials in amounts or concentrations or under circumstances which (i) constitute or constituted a violation of, or (ii) could give rise to liability under, any Relevant Environmental Law, except in either case insofar as such violation or liability, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. (b) The Properties and all operations at the Properties are in material compliance, and have in the last five years been in material compliance, with all Relevant Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Relevant Environmental Law with respect to the Properties or the business operated by K&F, the Borrowers or any of their Subsidiaries (the "Business") which could reasonably be expected to materially interfere with the continued operation of the Properties or materially impair the fair saleable value thereof. Neither K&F, the Borrowers nor any of their Subsidiaries has assumed any liability of any other Person under Relevant Environmental Laws. (c) Neither K&F, the Borrowers nor any of their Subsidiaries has received or is aware of any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Relevant Environmental Laws with regard to any of the Properties or the Business, nor does K&F, the Borrowers or any of their Subsidiaries have knowledge or reason to believe that any such notice will be received or is being threatened, except insofar as such notice or threatened notice, or any aggregation 50 44 thereof, does not involve a matter or matters that could reasonably be expected to result in the payment of a Material Environmental Amount. (d) Hazardous Materials have not been transported or disposed of from the Properties in violation of, or in a manner or to a location which could reasonably be expected to give rise to liability under, any Relevant Environmental Law, nor have any Hazardous Materials been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could give rise to liability under, any Relevant Environmental Law, except insofar as any such violation or liability referred to in this paragraph, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of K&F, the Borrowers or any of their Subsidiaries, threatened, under any Relevant Environmental Law to which K&F, the Borrowers or any of their Subsidiaries is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Relevant Environmental Law with respect to the Properties or the Business, except insofar as such proceeding, action, decree, order or other requirement, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. (f) There has been no release or threat of release of Hazardous Materials at or from the Properties, or arising from or related to the operations of K&F, the Borrowers or any of their Subsidiaries in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could give rise to liability under Relevant Environmental Laws, except insofar as any such violation or liability referred to in this paragraph, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. 4.20 Purpose of Loans. The proceeds of the Facility A Loans shall be used to provide a portion of the financing for the redemption, within 45 days of the Effective Date, of the Existing Subordinated Debentures. The proceeds of Revolving Credit Loans shall be available to fund the redemption of up to $40,000,000 of the Existing Subordinated Debentures, to fund the Borrowers' working capital requirements, to refinance amounts outstanding under the Existing Revolving Credit Agreement, and, subject to the Existing Senior Note Permitted Redemption Conditions, redemptions of the Existing Senior Notes. SECTION 5. CONDITIONS PRECEDENT 5.1 Conditions to Effectiveness of the Agreement. The agreement of each Lender to make the initial extension of credit requested to be made by it is subject to the satisfaction or waiver in writing by the Administrative Agent and/or Lenders, as the case may be, prior to or concurrently with the making of such extension of credit on the Effective Date, of the following conditions precedent: 51 45 (a) Loan Documents. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of each of the Borrowers, with a counterpart for each Lender, (ii) upon the request to the Administrative Agent by any Lender at least five days prior to the Effective Date, for the account of each Lender, a Revolving Credit Note conforming to the requirements hereof, executed and delivered by a duly authorized officer of each of the Borrowers, (iii) upon the request to the Administrative Agent by any Lender at least five days prior to the Effective Date, for the account of each Lender, a Facility A Note conforming to the requirements hereof, executed and delivered by a duly authorized officer of each of the Borrowers, (iv) each of the Security Agreements, executed and delivered by a duly authorized officer of the Borrower party thereto, and (v) the K&F Agreement, executed and delivered by a duly authorized officer of K&F. (b) Related Agreements. The Administrative Agent shall have received, with a copy for each Lender, true and correct copies, certified as to authenticity by the Borrower, of the Existing Senior Note Documentation, the Existing Subordinated Debenture Documentation, and such other documents or instruments as may be reasonably requested by the Administrative Agent, including, without limitation, a copy of any debt instrument, security agreement or, if so requested, any other material contract to which K&F or any of its Subsidiaries may be a party. (c) New Bond Issuance. The Administrative Agent shall have received satisfactory evidence that K&F shall have executed mandate letters with underwriters providing for the New Bond Issuance. (d) Redemption of Existing Subordinated Debentures. K&F shall have redeemed or shall have issued notices of redemption in respect of at least $40,000,000 in aggregate principal amount of Existing Subordinated Debentures, and to the extent that such redemption has not occurred prior to the Effective Date (excluding $30,000,000 in aggregate principal amount of Existing Subordinated Debentures previously redeemed), such notices of redemption to provide for such redemption to occur within 45 days after the Effective Date. (e) Closing Certificate. The Administrative Agent shall have received a Borrowing Certificate of each of the Loan Parties, dated the Effective Date, substantially in the form of Exhibit D, with appropriate insertions and attachments, reasonably satisfactory in form and substance to the Administrative Agent and its counsel, executed by the President or any Vice President and the Secretary or any Assistant Secretary of each of the Loan Parties. (f) Corporate Proceedings. The Administrative Agent shall have received a copy of the resolutions, in form and substance reasonably satisfactory to the Administrative Agent, of the Board of Directors of each of the Loan Parties authorizing (i) the execution, delivery and performance of this Agreement, the Notes and the other Loan Documents to which it is a party, (ii) the borrowings contemplated hereunder and (iii) the granting by it of security interests granted by it pursuant to the Security Documents, in each case, certified by the Secretary or an Assistant Secretary 52 46 of each such Loan Party as of the Effective Date, which certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded as of the date of such certificate. (g) Incumbency Certificates. The Administrative Agent shall have received a certificate of each of the Loan Parties, dated the Effective Date, as to the incumbency and signature of the officers of such Loan Party executing any Loan Document, reasonably satisfactory in form and substance to the Administrative Agent and its counsel, executed by the President or any Vice President and the Secretary or any Assistant Secretary of each such Loan Party. (h) Corporate Documents. The Administrative Agent shall have received true and complete copies of the certificate of incorporation and by-laws of each Loan Party, certified as of the Effective Date as true, complete and correct copies thereof by the Secretary or an Assistant Secretary of such Loan Party. (i) Good Standing Certificates. The Administrative Agent shall have received copies of certificates dated as of a recent date from the Secretary of State or other appropriate authority of such jurisdiction, evidencing the good standing of each of the Loan Parties in each state where the ownership, lease or operation of property or the conduct of business requires it to qualify as a foreign corporation except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. (j) Fees. The Lenders, the Administrative Agent, the Documentation Agent and Chase Securities Inc. shall have received all fees and expenses required to be paid on or before the Effective Date. (k) Governmental and Third-Party Approvals and Consents. All governmental and third-party approvals (including landlords' and other consents) necessary or advisable in connection with the financing contemplated hereby shall have been obtained and be in full force and effect. (l) Financial Information. The Administrative Agent shall have received, with a counterpart for each Lender, a copy of the financial information referred to in subsection 4.1. (m) Litigation. Except as disclosed in the Offering Memorandum, no suit, action, investigation, inquiry or other proceeding (including, without limitation, the enactment or promulgation of a statute or rule) by or before any arbitrator or any Governmental Authority shall be pending and no preliminary or permanent injunction or order by a state or Federal court shall have been entered which, in any such case, in the reasonable judgment of the Administrative Agent, could reasonably be expected to have a Material Adverse Effect. (n) No Violation. The consummation of the transactions contemplated hereby shall not contravene, violate or conflict with, nor involve the Administrative 53 47 Agent or any Lender in a violation of, any Requirement of Law, and the Lenders shall be satisfied that the terms of the credit facilities provided for herein and the use of the proceeds of the Loans shall not violate any agreement binding upon K&F or any of its Subsidiaries except any such violation which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (o) Legal Opinions. The Administrative Agent shall have received the executed legal opinion of O'Sullivan Graev & Karabell, LLP, counsel to the Loan Parties, substantially in the form of Exhibit G, with such changes therein as shall reasonably be requested or approved by the Administrative Agent. The Lenders shall have received such special and local counsel opinions as may be requested by the Administrative Agent. All such legal opinions shall be in form and substance satisfactory to the Administrative Agent and cover such matters incident to the transactions contemplated by this Agreement, the Notes and the Security Documents as the Administrative Agent may reasonably require. (p) Representations and Warranties. Each of the representations and warranties made by the Loan Parties in or pursuant to this Agreement or the other Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date. (q) Subordination of Intercompany Loans. The Borrowers and K&F shall have entered into agreements to subordinate the Intercompany Loans in form and substance reasonably satisfactory to the Administrative Agent. (r) Actions to Perfect Liens. The Administrative Agent shall have received evidence in form and substance satisfactory to it that all filings, recordings, registrations and other actions, including, without limitation, the filing of duly executed financing statements on form UCC-1, necessary or, in the reasonable opinion of the Administrative Agent, desirable to perfect or continue the Liens created by the Security Agreements shall have been completed. (s) Lien Searches. The Administrative Agent shall have received the results of a recent search by a Person satisfactory to the Administrative Agent of the UCC, judgment and tax lien filings which may have been filed with respect to personal property of each of the Borrowers and the results of such search shall be satisfactory to the Administrative Agent. (t) Insurance. The Administrative Agent shall have received evidence in form and substance satisfactory to it that all of the requirements of subsection 6.5 and Section 5(l) of the Security Agreements have been satisfied. The Administrative Agent shall have received copies of, or an insurance broker's or agent's certificate as to coverage under, the insurance policies required by subsection 6.5 and the applicable provisions of the Security Documents, each of which shall be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement and to name the Administrative Agent as additional insured, in form and substance reasonably satisfactory to the Administrative Agent. 54 48 (u) Financial Covenant Certificate. The Lenders shall have received a certificate of a Responsible Officer of K&F showing in detail as of the Effective Date (or such earlier date agreed to by the Administrative Agent) the figures and details of the Borrowers with respect to the financial condition covenants provided for in subsection 7.19 in form and substance reasonably satisfactory to the Administrative Agent. (v) Existing Revolving Credit Agreement. All amounts outstanding under the Existing Revolving Credit Agreement have been paid in full. (w) Additional Documents. The Administrative Agent shall have received each additional document, instrument, legal opinion or item of information reasonably requested by the Administrative Agent. (x) Additional Matters. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be reasonably satisfactory in form and substance to the Administrative Agent. 5.2 Conditions to Loans and Issuances of Letters of Credit. The obligation of each Lender to make any Loan to be made by it under this Agreement and of Chase to issue any Letter of Credit is subject to the satisfaction of the following conditions precedent on the applicable Borrowing Date, Drawdown Date, or date of issuance of a Letter of Credit: (a) Representations and Warranties. The representations and warranties made by the Loan Parties in any Loan Document or which are contained in any certificate, document or financial or other statement furnished at any time under or in connection herewith or therewith shall be correct in all material respects on and as of such Borrowing Date, Drawdown Date, or date of issuance of a Letter of Credit as if made on and as of such date, except as they may specifically relate to an earlier date. (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans to be made or any Letter of Credit to be issued on such Borrowing Date, Drawdown Date or issuance of a Letter of Credit. In connection with each borrowing and each issuance of a Letter of Credit hereunder, the Borrowers shall be deemed to have certified that the conditions in clauses (a) and (b) of this subsection 5.2 have been satisfied, including, that after giving effect to such Loan or issuance of a Letter of Credit and the simultaneous application by the Administrative Agent of the proceeds thereof, the limitations set forth in subsection 2.1 or 3.1, as the case may be, will not be contravened. 55 49 SECTION 6. AFFIRMATIVE COVENANTS Each of the Borrowers hereby agrees that, so long as either of the Commitments remains in effect, any Note or Letter of Credit remains outstanding and unpaid or any other amount is owing to any Lender or the Administrative Agent hereunder (other than indemnification and reimbursement obligations for which claims have not been made by the Administrative Agent or the Lenders), such Borrower shall and (except in the case of delivery of financial information, reports and notices) shall cause each of its Subsidiaries to: 6.1 Financial Statements. Furnish to each Lender: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of K&F, commencing with the fiscal year ended March 31, 1997, a copy of (i) the audited consolidated balance sheet of K&F and its consolidated Subsidiaries as at the end of such year, and the related audited consolidated statements of income and retained earnings and cash flows for such year, certified by a Responsible Officer of K&F, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Deloitte & Touche, LLP or other independent certified public accountants of nationally recognized standing not unacceptable to the Required Lenders and (ii) the consolidating balance sheet of K&F and its consolidated Subsidiaries (other than foreign Subsidiaries) as at the end of such year and the related consolidating statement of earnings for such year, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer of K&F as being fairly stated in all material respects when considered in relation to the consolidated financial statements of K&F and its consolidated Subsidiaries; and (b) as soon as available, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of K&F, (i) the unaudited consolidated balance sheet of K&F and its consolidated Subsidiaries as at the end of each such quarter and the related unaudited consolidated statements of income and retained earnings and cash flows of K&F and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through such date, certified by a Responsible Officer of K&F (subject to normal year-end adjustments) and (ii) the consolidating balance sheet of K&F and its consolidated Subsidiaries (other than foreign Subsidiaries) as at the end of each such quarter and the related consolidating statement of earnings for the portion of the fiscal year through such date, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer of K&F (subject to normal year-end audit adjustments); and (c) as soon as available, but in any event within 30 days after the end of each calendar month (other than any calendar month ending approximately on the last day of any fiscal quarter), beginning with the month ended July 31, 1996, the unaudited consolidated balance sheet of K&F and its consolidated Subsidiaries, and the unaudited consolidating balance sheet of K&F and its consolidated Subsidiaries (other than foreign Subsidiaries) as at the end of each such month and the related unaudited 56 50 consolidated and consolidating statements of earnings and cash flow or similar statements for such monthly period and the portion of the fiscal year through such date, setting forth in each case in comparative form the figures for the previous year; all such financial statements (i) to contain such information as may be necessary to calculate compliance with subsections 7.18 and 7.19 for the 12-month period ending on the date of such balance sheets and (ii) to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as approved by such accountants or officer, as the case may be, and disclosed therein). 6.2 Certificates; Other Information. Furnish to each Lender: (a) concurrently with the delivery of the financial statements referred to in subsection 6.1(a) above, a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsections 6.1(a) and (b), a certificate of a Responsible Officer of K&F (i) stating that, to the best of such officer's knowledge, (A) each of the Loan Parties during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement, and in the Notes and the other Loan Documents to be observed, performed or satisfied by such party, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate, and (B) during such period, no Subsidiary has been formed or acquired (or, if any such Subsidiary has been formed or acquired, the Borrowers have complied with the requirements of subsection 6.12 with respect thereto), and neither the Borrowers nor any of their Subsidiaries has changed its name, its principal place of business, its chief executive office or the location of any material item of tangible Collateral without complying with the requirements of this Agreement and the Security Documents with respect thereto, (ii) showing in reasonable detail as of the end of the related fiscal period the figures and calculations supporting such statement in respect of the Applicable Margin and subsections 2.10, 7.18 and 7.19, (iii) if not specified in the financial statements delivered pursuant to subsection 6.1, specifying the aggregate amount of depreciation, depletion and amortization charged on the books of K&F and its consolidated Subsidiaries during such accounting period, and (iv) listing all Guarantee Obligations of the type described in clause (a) of subsection 7.3 and all Indebtedness in each case incurred since the date of the previous consolidated and consolidating balance sheet of K&F and its consolidated Subsidiaries; (c) on or prior to 90 days after the beginning of each fiscal year of K&F and its consolidated Subsidiaries to which such budget relates, (i) an annual operating budget for K&F and its consolidated Subsidiaries, on a consolidated and consolidating basis, as adopted by the Board of Directors of K&F, and (ii) in summary form, a balance sheet, income statement and cash flow projection for such fiscal year and each 57 51 of the next succeeding two fiscal years for K&F and its consolidated Subsidiaries on a consolidated and consolidating basis, such projections to be accompanied by a certificate of a Responsible Officer of K&F to the effect that such projections are based on reasonable estimates, information and assumptions and that such officer has no reason to believe they are incorrect or misleading in any material respect; (d) within five days after the same are sent, copies of all financial statements and reports which K&F sends to its stockholders generally, and within five days after the same are filed, copies of all financial statements and reports which K&F may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; (e) as soon as the same becomes available, but in no event later than 20 days after the end of each calendar month, a Borrowing Base Certificate as of the last day of such month, with appropriate insertions, certified by a Responsible Officer of each of the Borrowers; (f) promptly after K&F's receipt thereof, a copy of any "management letter" received by K&F from its independent certified public accountants; and (g) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except when the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrowers or their Subsidiaries, as the case may be. 6.4 Conduct of Business and Maintenance of Existence, etc. (i) Continue to engage in business of the same general type as now conducted by it, (ii) preserve, renew and keep in full force and effect its corporate existence, except as otherwise permitted pursuant to subsection 7.4, (iii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business except as otherwise permitted pursuant to subsection 7.4 and (iv) comply with all Contractual Obligations and Requirements of Law, except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.5 Maintenance of Property; Insurance. Keep all property useful and necessary in its business in good working order and condition; maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability (other than in respect of ground products insurance) and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to each Lender, upon written request, full information as to the insurance carried. Each of the Borrowers and the Subsidiaries shall retain the right to self- 58 52 insure all or a portion of the required coverages (other than property insurance and product liability insurance relating to aircraft and aerospace products; provided that deductibles consistent with past practice shall not be considered self-insurance for purposes of this sentence) to the extent such self-insurance is reasonable and customary. 6.6 Inspection of Property; Books and Records; Discussions. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and, subject to restrictions imposed by any Governmental Authority governing access to classified information, permit representatives of any Lender during normal business hours and without any unreasonable disruption of business to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of the Borrowers and the Subsidiaries with officers and employees of the Borrowers and the Subsidiaries and with their independent certified public accountants. (b) Without limiting paragraph (a) above, permit representatives of Chase's asset based lending group or an independent firm acceptable to the Administrative Agent and the Borrowers during normal business hours and without any unreasonable disruption of business to examine the books and records of the Borrowers and the Subsidiaries as often as may reasonably be desired, and to prepare a report or reports in respect of such Borrowers' and Subsidiaries' accounts receivable and inventory, which examination and preparation, including reasonable travel and other out-of-pocket expenses, shall be at the Borrowers' expense for up to one such examination and report annually. 6.7 Notices. Promptly give notice to the Administrative Agent and each Lender: (a) of the occurrence of any Default or Event of Default; (b) of any (i) default or event of default under any Contractual Obligation of any Borrower or any of the Subsidiaries which, if not cured, could have a Material Adverse Effect or (ii) litigation, investigation or proceeding which may exist at any time between either of the Borrowers or any of the Subsidiaries and any Governmental Authority which is reasonably likely to be determined adversely to such Borrower or Subsidiary and which, if so determined, could reasonably be likely to cause a Material Adverse Effect; (c) of any litigation or proceeding affecting any Borrower or Subsidiary in which the amount involved is $2,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought; (d) of the following events, as soon as possible and in any event within 30 days after either of the Borrowers knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of a Lien in favor of 59 53 the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or either of the Borrowers or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; and (e) any development or event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrowers propose to take with respect thereto. 6.8 Corporate Separateness. Take all such action as is necessary to keep its operations separate and apart from those of K&F, of each other Subsidiary and of each other Borrower, including, without limitation, insuring that all customary formalities regarding the corporate existence of each of the Borrowers and each Subsidiary, including holding regular meetings and maintenance of current minute books, are followed; and maintain its own payroll and separate books of account and pay its respective liabilities, including all administrative expenses, from its own separate assets, and cause assets of each Subsidiary to be separately identified and segregated. 6.9 Environmental Laws. (a) Comply in all material respects with, and use reasonable efforts to cause compliance in all material respects by all tenants and subtenants, if any, with, all applicable Relevant Environmental Laws and obtain and comply in all material respects with and maintain, and use reasonable efforts to cause all tenants and subtenants to obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by Relevant Environmental Laws. (b) Conduct and complete all material investigations, studies, sampling and testing, and all material remedial, removal and other actions required under Relevant Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Relevant Environmental Laws. 6.10 Further Assurances. Upon the request of the Administrative Agent, promptly perform or cause to be performed any and all acts and execute or cause to be executed any and all documents (including, without limitation, financing statements and continuation statements) for filing under the provisions of the UCC or any other Requirement of Law which are necessary or advisable to maintain in favor of the Administrative Agent, for the benefit of the Lenders, Liens on the Collateral that are duly perfected in accordance with all applicable Requirements of Law. 6.11 Government Contracts. At such times as the Administrative Agent may reasonably request, furnish the Administrative Agent with a list of all contracts entered into between the United States Government and either of the Borrowers. 60 54 6.12 Additional Collateral. (a) With respect to any assets acquired after the Effective Date by the Borrowers or any of their Subsidiaries that are intended to be subject to the Lien created by any of the Security Documents (including but not limited to the material assets of any domestic Subsidiary) but which are not so subject (other than (y) any assets described in paragraph (b) of this subsection and (z) immaterial assets a Lien on which cannot be perfected by filing UCC-1 financing statements), promptly (and in any event within 30 days after the acquisition thereof): (i) execute and deliver to the Administrative Agent such amendments to the relevant Security Documents or such other documents as the Administrative Agent shall reasonably deem necessary or advisable to grant to the Administrative Agent, for itself and for the ratable benefit of the Lenders, a Lien on such assets, (ii) take all actions reasonably necessary or advisable to cause such Lien to be duly perfected in accordance with all applicable Requirements of Law, including, without limitation, the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent, and (iii) if requested by the Administrative Agent, with respect to any material fee real property acquired by the Borrowers or their Subsidiaries after the Effective Date, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (i) and (ii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (b) With respect to any Person that, subsequent to the Effective Date, becomes a Subsidiary, promptly upon the request of the Administrative Agent: (i) execute and deliver to the Administrative Agent, for the ratable benefit of the Administrative Agent and the Lenders, a pledge agreement in such form and substance as the Administrative Agent shall reasonably deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Administrative Agent and the Lenders, a Lien on the Capital Stock of such Subsidiary, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers duly executed and delivered in blank, (iii) cause such new Subsidiary (A) to become a party to a security agreement and a subsidiary guarantee, in each case pursuant to documentation which is in form and substance reasonably satisfactory to the Administrative Agent, and (B) to take all actions necessary or advisable to cause the Lien created by such security agreement to be duly perfected in accordance with all applicable Requirements of Law, including, without limitation, the filing of financing statements in such jurisdictions as may reasonably be requested by the Administrative Agent and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (i), (ii) and (iii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 6.13 Real Property. Within 60 days of the Effective Date, furnish to the Administrative Agent: (a) each of the Borrower Mortgages, each executed and delivered by a duly authorized officer of the party thereto, with a counterpart or a conformed copy for each Lender, together with such local counsel opinions with respect to the Borrower Mortgages as may be reasonably requested by the Administrative Agent in form and substance reasonably satisfactory to the Administrative Agent; 61 55 (b) and to the title insurance company (the "Title Insurance Company") issuing the policy referred to in subsection 6.13(c), maps or plots of an as-built survey of the sites of the property covered by each of the Borrower Mortgages certified to the Administrative Agent and the Title Insurance Company in a manner reasonably satisfactory to them, dated within 60 days of the Effective Date by an independent professional licensed land surveyor reasonably satisfactory to the Administrative Agent and the Title Insurance Company, which surveys shall be made in accordance with the Minimum Standard Detail Requirements for Land Title Surveys jointly established and adopted by the American Land Title Association and the American Congress on Surveying and Mapping in 1992, and, without limiting the generality of the foregoing, there shall be surveyed and shown on such maps, plots or surveys the following: (i) the locations on such sites of all the buildings, structures and other improvements and the established building setback lines; (ii) the lines of streets abutting the sites and width thereof; (iii) all access and other easements appurtenant to the sites; (iv) all roadways, paths, driveways, easements, encroachments and overhanging projections and similar encumbrances affecting the site, if recorded, apparent from a physical inspection of the sites or otherwise known to the surveyor; (v) any encroachments on any adjoining property by the building structures and improvements on the sites; and (vi) if the site is described as being on a filed map, a legend relating the survey to said map; (c) in respect of each parcel covered by each of the Borrower Mortgages, a mortgagee's title policy (or policies) or marked up unconditional binder for such insurance dated the effective date of the Borrower Mortgages. Each such policy shall (i) be in an amount reasonably satisfactory to the Administrative Agent; (ii) be issued at ordinary rates; (iii) ensure that the Borrower Mortgages insured thereby create valid first Liens on such parcels free and clear of all defects and encumbrances, except such as may reasonably be approved by the Administrative Agent; (iv) name the Administrative Agent for the benefit of the Lenders as the insured thereunder; (v) be in the form of ALTA Loan Policy - 1970 (Amended 10/17/70); (vi) contain such endorsements and affirmative coverage as the Administrative Agent may reasonably request and (vii) be issued by title companies reasonably satisfactory to the Administrative Agent (including any such title companies acting as co-insurers or reinsurers, at the option of the Administrative Agent). The Borrowers shall furnish to the Administrative Agent evidence satisfactory to it that all premiums in respect of each such policy, and all charges for mortgage recording tax, if any, have been paid. (d) (i) if reasonably requested by the Administrative Agent, a policy of flood insurance which (A) covers any parcel of improved real property which is encumbered by any of the Borrower Mortgages, (B) is written in an amount not less than the outstanding principal amount of the indebtedness secured by such Borrower Mortgages which is reasonably allocable to such real property or the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, whichever is less, and (C) has a term ending not earlier than the maturity of the indebtedness secured by such Borrower Mortgages and (ii) confirmation that the applicable Borrower has received the notice required pursuant to Section 208(e)(3) of Regulation H of the Board; and 62 56 (e) a copy of all recorded documents referred to, or listed as exceptions to title in, the title policy or policies referred to in subsection 6.13(c) and a copy, certified by such parties as the Administrative Agent may deem appropriate, of all other documents affecting the property covered by each of the Borrower Mortgages. 6.14 Environmental Audit. Within 45 days of the Effective Date, furnish to the Lenders a satisfactory Phase I environmental audit with respect to the real property owned or leased by the Borrowers and their Subsidiaries from a firm satisfactory to the Administrative Agent. 6.15 Audit of A/R and Inventory. Use diligent efforts to assist with the completion of an audit within 45 days of the Effective Date prepared by the Administrative Agent or an independent firm acceptable to the Administrative Agent and the Borrowers of the accounts receivable and inventory of the Borrowers in form and substance satisfactory to the Administrative Agent, including permitting representatives of Chase's asset based lending group or such independent firm to examine the books and records of the Borrowers and to discuss such books and records with the management of the Borrowers. SECTION 7. NEGATIVE COVENANTS Each of the Borrowers hereby agrees that, so long as either of the Commitments remains in effect, any Note or Letter of Credit remains outstanding and unpaid or any other amount is owing to any Lender or the Administrative Agent hereunder (other than indemnification and reimbursement obligations for which claims have not been made by the Administrative Agent or the Lenders), such Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: 7.1 Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness in respect of the Loans, the Notes, Letters of Credit and other obligations of the Borrowers under this Agreement and the other Loan Documents; (b) Indebtedness outstanding on the Effective Date and listed on Schedule 7.1, and any renewals, extensions or refundings thereof, provided that the aggregate principal amount owed pursuant to such Indebtedness is not increased by such renewals, extensions or refundings thereof, and provided further that any renewal, extension or refunding of the Intercompany Loans shall be with K&F; (c) Indebtedness of any Subsidiary to either Borrower or any other Subsidiary or of either Borrower to the other Borrower or to any Subsidiary; (d) Indebtedness in the aggregate not exceeding the lesser of the unused Letter of Credit Commitment and the Revolving Credit Commitment in respect of trade letters of credit and standby letters of credit issued for the purpose of supporting (i) workers' compensation liabilities of the Borrowers or any of the Subsidiaries as 63 57 required by law, (ii) performance, payment, deposit or surety obligations of the Borrowers or any of the Subsidiaries and (iii) environmental liabilities of the Borrowers or any of the Subsidiaries as required by law; (e) Unsecured Indebtedness in the ordinary course of business up to an aggregate amount of $25,000,000 for both of the Borrowers and their Subsidiaries combined; and (f) Indebtedness secured as permitted by, and subject to the proviso to, subsection 7.2(h) not in excess of $10,000,000 in aggregate principal amount at any one time outstanding, provided that during any fiscal year of either of the Borrowers, the Borrowers and the Subsidiaries do not incur more than $3,000,000 in aggregate principal amount of such other Indebtedness. 7.2 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of either of the Borrowers or any Subsidiary, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's, or other like Liens arising in the ordinary course of business and not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings in a manner which will not jeopardize or diminish the interest of the Administrative Agent in any of the collateral subject to the Security Agreements; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrowers and or the Subsidiaries; (f) Liens existing on the Effective Date and listed on Schedule 7.2 and any renewals, extensions or refundings thereof in an amount not exceeding the amount thereof remaining unpaid immediately prior to such renewal, extension or refunding; 64 58 (g) Liens in favor of the Administrative Agent created pursuant to the Security Documents; (h) Purchase money liens, including Capitalized Leases, created in respect of property acquired by either of the Borrowers or any Subsidiary or existing in respect of property so acquired at the time of acquisition thereof, provided that each such Lien shall at all times be confined solely to the item or items of property so acquired; (i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (j) Judgment liens in an aggregate amount not in excess of $1,000,000; and (k) Liens on goods the purchase price of which is financed by a documentary letter of credit issued for the account of either of the Borrowers or any of the Subsidiaries where such Lien secures the obligations of such Borrower or Subsidiary in respect of such letter of credit. 7.3 Limitation on Guarantee Obligations. Create, incur, assume or suffer to exist any Guarantee Obligation except: (a) Guarantee Obligations existing on the Effective Date and listed on Schedule 7.3 and any renewals, extensions or refundings thereof in an amount not exceeding the amount thereof immediately prior to such renewals, extensions or refundings; (b) Guarantee Obligations of either of the Borrowers or any Subsidiary with respect to any obligation or liability of either of the Borrowers or any Subsidiary; and (c) Guarantee Obligations incurred after the date hereof in an aggregate principal amount not to exceed $500,000 at any time outstanding. 7.4 Limitations of Fundamental Changes. Enter into any transaction of acquisition or merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, or make any material change in the present method of conducting business except (i) as permitted in subsection 7.5 and (ii) any of the Borrowers' wholly owned Subsidiaries may merge with, consolidate into or transfer all or substantially all of its assets to another of the Borrowers' wholly owned Subsidiaries (provided the surviving entity is a corporation incorporated under the laws of a state in the United States) or into or to either of the Borrowers and in connection therewith such Subsidiary may be liquidated or dissolved. 7.5 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer or otherwise dispose of, any of its property, business or assets (including, without limitation, receivables and leasehold interests) whether now owned or hereafter acquired except: 65 59 (a) obsolete or worn out property disposed of in the ordinary course of business; (b) the sale or other disposition of any property (other than inventory or Cash Equivalents) for cash, provided that such Net Proceeds shall be applied to the prepayment of the Loans as provided in subsection 2.10; (c) the sale of inventory in the ordinary course of business and the sale of Cash Equivalents from time to time; (d) the sale of assets as contemplated by subsection 7.10; and (e) the sale or other disposition of any property (other than inventory or Cash Equivalents) in an amount not to exceed $1,000,000 per fiscal year so long as the Net Proceeds of such sale or other disposition are reinvested in similar assets within 12 months of such sale or other disposition. 7.6 Limitation on Leases. Permit Consolidated Lease Expense for any fiscal year of the Borrowers to exceed the sum of $3,000,000 and the aggregate Consolidated Lease Expense incurred for such fiscal year in respect of the leases described on Schedule 7.6 and in respect of any renewal of any of such leases on substantially similar terms. 7.7 Limitation on Dividends and the Like. Except as permitted by Section 7.12, declare any dividend (other than dividends payable solely in common stock) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of its stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations, or make any loan or advance or other payment (including any payment or prepayment of principal or interest on the Intercompany Loans) to K&F, except, so long as no Default or Event of Default would be in existence after giving effect thereto, to the extent necessary to permit K&F to make the interest payments on its permitted Indebtedness as provided in Section 2(c) of the K&F Agreement, other payments contemplated by Section 2(c) of the K&F Agreement, payments permitted by Section 7.1(b) or Permitted Redemptions. 7.8 Limitation on Investments, Loans and Advances. Make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of, or make any other investment in, any Person, or make any New Program Investment, except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; (c) loans and advances to employees of the Borrowers and the Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business in an aggregate amount not to exceed $750,000 at any one time outstanding; 66 60 (d) each of the Borrowers may make advances, loans or capital contributions to, or investments in, its Subsidiaries and as permitted by subsection 7.1(c); (e) Capital Expenditures to the extent otherwise permitted hereunder; (f) loans and advances in the ordinary course of business to customers, suppliers, franchisees and licensees of the Borrowers and the Subsidiaries in an aggregate principal amount not to exceed $2,000,000 at any one time outstanding; (g) to the extent permitted by subsection 7.7; (h) investments, loans and advances in or to, or relating to, the LIDS Joint Venture; and (i) New Program Investments, provided that if the amount (as determined in accordance with the next succeeding sentence) of the cash payments to be made during the term of this Agreement of any such New Program Investment exceeds $25,000,000, then such New Program Investment shall only be permitted if, at least five Business Days prior to the date such New Program Investment is to be made, the Borrowers demonstrate to the Administrative Agent's reasonable satisfaction that the Consolidated Cash Interest Coverage Ratio, calculated using projections of the Borrowers deemed reasonable by the Administrative Agent, will comply with subsection 7.19 for each 12-month period ending on the last day of (i) each remaining fiscal quarter of the fiscal year in which such New Program Investment is made, (ii) each fiscal quarter of the fiscal year immediately succeeding the fiscal year in which such New Program Investment is made and (iii) each fiscal year thereafter, in each case through the Revolving Credit Termination Date. The amount of any New Program Investment shall be determined at the time ABS commits to such New Program Investment and shall be computed based upon the present value of the cash payments to be made by ABS over the life of the related program during the term of this Agreement and the present value of the discounts from cost over the life of the related program during the term of this Agreement on equipment to be provided by ABS (based upon delivery projections prepared in good faith by ABS and deemed reasonable by the Administrative Agent), in each case discounted to present value at a discount rate equal to the ABR. 7.9 Limitation on Optional Payments and Modification of Debt Instruments. (a) Make any optional payment or prepayment on or redemption or purchase of any Indebtedness (other than Indebtedness pursuant to this Agreement) or preferred capital stock, including the Existing Senior Notes, the Existing Subordinated Debentures, and the Subordinated Notes except Permitted Redemptions, or (b) amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms of any such Indebtedness (other than any such amendment, modification or change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon), including but not limited to the subordination provisions of the Existing Subordinated Debentures and the Subordinated Notes. 67 61 7.10 Sale and Leaseback. Enter into any arrangement with any Person providing for the leasing by either of the Borrowers or any Subsidiary of real or personal property which has been or is to be sold or transferred by such Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of such Borrower or such Subsidiary except: (a) the sale and leaseback of ABS' carbon manufacturing facilities so long as the net present value of the rental obligations of the Borrowers do not exceed $15,000,000; and (b) for any sale and leaseback otherwise permitted by subsections 7.5 and 7.6. 7.11 Corporate Documents. Amend its certificate of incorporation in any manner determined by the Administrative Agent to be adverse to the Lenders without the prior written consent of the Required Lenders. 7.12 Transactions with Affiliates. Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate other than a Subsidiary except for (i) transactions with or relating to the LIDS Joint Venture, (ii) the purchase of shares of, or options to purchase shares of, K&F's common stock or the common stock of Loral held by employees of K&F (other than any member of the BLS Group) 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 such common stock in an aggregate amount not to exceed $2 million in any fiscal year; provided that the amount available in any given fiscal year shall be increased by the excess, if any, of (a) $2 million over (b) the amount used pursuant to this clause (ii) in the immediately preceding fiscal year and (iii) transactions among any of the Loan Parties and/or any of their Subsidiaries and their respective Affiliates which are otherwise permitted under this Agreement and which are in the ordinary course of a Borrower's or a Subsidiary's business and which are upon fair and reasonable terms comparable to those that might reasonably obtain in an arm's length transaction with a Person not an Affiliate. 7.13 Restrictions Affecting Subsidiaries. Agree to the inclusion in any Contractual Obligation of any representation or warranty, covenant, event of default or any similar or other provision or term which would prohibit, limit or otherwise restrict, directly or indirectly, any Subsidiary of the Borrowers from declaring or paying dividends, repaying Indebtedness owed to the Borrowers, making loans or advances to the Borrowers or guaranteeing any indebtedness or other obligations of the Borrowers. 7.14 Subsidiaries. Have any Subsidiaries other than those listed on Schedule 4.15 and other than wholly owned subsidiaries. 7.15 Limitation on Changes in Fiscal Year. Permit the fiscal year ("FYE") of the Borrowers or any of their respective Subsidiaries to end on a day other than March 31; provided, however, that the Borrowers may change their fiscal year one time, provided that 68 62 they give notice of such change to the Administrative Agent and the Lenders at least 45 days prior to the date such change becomes effective and the Borrowers and the Administrative Agent negotiate in good faith to determine prior to such effective date the amendments, if any, required to be made to this Agreement as a result of such change in the fiscal year (which amendments shall be approved by the Required Lenders as required by subsection 10.1 of this Agreement). 7.16 Limitation on Negative Pledge Clauses. Enter into with any Person, or suffer to exist, any agreement, other than (a) this Agreement and the other Loan Documents, the Subordinated Note Documentation, the Existing Senior Note Documentation and the Existing Subordinated Debenture Documentation or (b) any industrial revenue bonds, purchase money mortgages or other security arrangements or Capital Leases permitted by this Agreement (in which cases, any prohibition or limitation shall only be effective against the assets financed thereby) which prohibits or limits the ability of the Borrowers or any of their Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired. 7.17 Limitation on Lines of Business. Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrowers and their Subsidiaries are engaged on the date of this Agreement or which are reasonably related thereto. 7.18 Limitation on Capital Expenditures. Make or commit to make (by way of the acquisition of securities of a Person or otherwise) any Capital Expenditure (excluding any such asset acquired in connection with normal replacement and maintenance programs properly charged to current operations) except for expenditures in the ordinary course of business not exceeding, in the aggregate for the Borrowers and their Subsidiaries during any of the fiscal years of the Borrowers set forth below, the amount set forth opposite such fiscal year below:
Fiscal Year Ended Amount ----------------- ------- March 1997 $20,000,000 March 1998 $10,000,000 March 1999 $10,000,000 March 2000 $10,000,000 March 2001 $10,000,000 March 2002 $10,000,000 March 2003 $10,000,000
provided, that any such amount if not so expended in the fiscal year for which it is permitted above may be carried over for expenditure in the next following fiscal year, and provided, further, that any amount so carried forward shall be deemed to be the amount expended first in the following fiscal year. 69 63 7.19 Financial Condition Covenants. (a) Consolidated Cash Interest Coverage Ratio Permit the Consolidated Cash Interest Coverage Ratio of K&F and its Subsidiaries for any four fiscal quarter period ending on the date set forth below to be less than the ratio set forth below opposite such date:
Consolidated Cash Fiscal Quarter Interest Coverage Ratio -------------- ----------------------- September 30, 1996 1.40 to 1.00 December 31, 1996 1.40 to 1.00 March 31, 1997 1.40 to 1.00 June 30, 1997 1.48 to 1.00 September 30, 1997 1.55 to 1.00 December 31, 1997 1.63 to 1.00 March 31, 1998 1.70 to 1.00 June 30, 1998 1.78 to 1.00 September 30, 1998 1.85 to 1.00 December 31, 1998 1.93 to 1.00 March 31, 1999 2.00 to 1.00 June 30, 1999 2.08 to 1.00 September 30, 1999 2.15 to 1.00 December 31, 1999 2.20 to 1.00 March 31, 2000 2.25 to 1.00 June 30, 2000 2.33 to 1.00 September 30, 2000 2.40 to 1.00 December 31, 2000 2.45 to 1.00 March 31, 2001 2.50 to 1.00 June 30, 2001 2.50 to 1.00 September 30, 2001 2.50 to 1.00 December 31, 2001 2.50 to 1.00 March 31, 2002 2.50 to 1.00 June 30, 2002 2.50 to 1.00 September 30, 2002 2.50 to 1.00
(b) Subsidiary Cash Interest Coverage Ratio. Permit the Subsidiary Cash Interest Coverage Ratio for any four fiscal quarter period ending on the last day of any fiscal quarter of K&F to be less than 3.00 to 1.00. (c) Consolidated Adjusted Net Worth. Permit the Consolidated Adjusted Net Worth at any time to be less than the sum of (i) $22,000,000 plus (ii) 50% of Consolidated Net Income (excluding any consolidated net deficit for any fiscal period of K&F and its Subsidiaries) on a cumulative basis since the Effective Date. (d) Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio of K&F and its Subsidiaries for any four fiscal quarter period ending on the date set forth below to be greater than the ratio set forth below opposite such date: 70 64
Consolidated Fiscal Quarter Leverage Ratio -------------- -------------- September 30, 1996 5.75 to 1.00 December 31, 1996 5.75 to 1.00 March 31, 1997 5.75 to 1.00 June 30, 1997 5.60 to 1.00 September 30, 1997 5.40 to 1.00 December 31, 1997 5.20 to 1.00 March 31, 1998 5.00 to 1.00 June 30, 1998 4.80 to 1.00 September 30, 1998 4.60 to 1.00 December 31, 1998 4.40 to 1.00 March 31, 1999 4.25 to 1.00 June 30, 1999 4.13 to 1.00 September 30, 1999 4.00 to 1.00 December 31, 1999 3.86 to 1.00 March 31, 2000 3.75 to 1.00 June 30, 2000 3.65 to 1.00 September 30, 2000 3.60 to 1.00 December 31, 2000 3.55 to 1.00 March 31, 2001 3.50 to 1.00 June 30, 2001 3.50 to 1.00 September 30, 2001 3.50 to 1.00 December 31, 2001 3.50 to 1.00 March 31, 2002 3.50 to 1.00 June 30, 1002 3.50 to 1.00 September 30, 2002 3.50 to 1.00
SECTION 8. EVENTS OF DEFAULT Upon the occurrence of any of the following events: (a) Any Borrower shall fail to (i) pay any principal of any Note when due, or to reimburse Chase in accordance with subsection 3.5(a)(i), or (ii) pay any interest on any Note, or any other amount payable hereunder, within five days after any such amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made or deemed made by any Loan Party herein or in the other Loan Documents or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) Either of the Borrowers shall default in the observance or performance of any agreement contained in subsection 6.7(a) or Section 7; or 71 65 (d) Either of the Borrowers shall default in the observance or performance of any other agreement contained in this Agreement (other than as provided in (a) through (c) above), and such default shall continue unremedied for a period of 30 days; or (e) K&F shall default in the observance or performance of any agreement contained in Section 2 of the K&F Agreement; or (f) K&F shall default in the observance or performance of any other agreement contained in the K&F Agreement (other than as provided in (e) above) and such default shall continue unremedied for a period of 30 days; or (g) Either of the Borrowers or any Eligible Subsidiary shall default in the observance or performance of any agreement contained in subsection 5(o) of the Security Agreements applicable to such Borrower or Eligible Subsidiary; or (h) Either of the Borrowers or any Eligible Subsidiary shall default in the observance or performance of any other agreement contained in the Security Agreements or any other Security Document applicable to such Borrower or Eligible Subsidiary (other than as provided in (g) above) and such default shall continue unremedied for a period of 30 days; or (i) (i) Any Security Document shall cease, for any reason, to be in full force and effect, or either Borrower shall so assert or (ii) the security interests created by the Security Documents in an aggregate amount in excess of $5,000,000 shall cease in any material respect to be enforceable or of the same effect and priority purported to be created thereby or (iii) or any of the subordination provisions contained in the Existing Subordinated Debenture Documentation or the Subordinated Note Documentation shall cease in any material respect, for any reason, to be valid or any Loan Party or any of its Subsidiaries shall so assert in writing; or (j) Either Borrower or any of the Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness in an aggregate amount in excess of $500,000 (other than the Notes) or in the payment of any Guarantee Obligation in an aggregate amount in excess of $500,000, beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, after the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable; or 72 66 (k) (i) K&F or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or K&F or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against K&F or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against K&F or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) K&F or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) K&F or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (l) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) either Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist, with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could subject either Borrower or any Subsidiary to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial or other condition of the Borrowers and the Subsidiaries taken as a whole; or (m) One or more judgments or decrees shall be entered against either Borrower or any of the Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $2,000,000 or more and all such judgments or decrees 73 67 shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (n) (i) So long as he is alive, BLS shall cease to control the ability to vote at least 13-1/2% of the common stock of K&F, or (ii) BLS (so long as he is alive), Loral and/or Lehman Brothers Inc. and its affiliates shall cease to control the election of a majority of the Board of Directors of K&F, or (iii) K&F shall cease to own and control, of record and beneficially, directly, 100% of each class of outstanding Capital Stock of each of the Borrowers free and clear of all Liens, except pursuant to the Existing Senior Note Documentation; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (k) above, automatically the Revolving Credit Commitments and the Facility A Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes shall immediately become due and payable, and all obligations of the Borrowers in respect of the Letters of Credit, although contingent and unmatured, shall become immediately due and payable and Chase's obligation to open the Letters of Credit shall immediately terminate and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to each of the Borrowers declare the Revolving Credit Commitments and the Facility A Commitments and Chase's obligation to open Letters of Credit to be terminated forthwith, whereupon the Revolving Credit Commitments and the Facility A Commitments and such obligation shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice of default to each of the Borrowers, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable, and declare all or a portion of the obligations of each of the Borrowers in respect of the Letters of Credit, although contingent and unmatured, to be due and payable forthwith, whereupon the same shall immediately become due and payable, and/or demand that each of the Borrowers discharge any or all of the obligations supported by the Letters of Credit by paying or prepaying any amount due or to become due in respect of such obligations. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrowers shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrowers hereunder and under the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all reimbursement obligations in respect of Letters of Credit shall have been satisfied and all other obligations of the Borrowers hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrowers (or such other Person as may be lawfully entitled thereto). Except as expressly 74 68 provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 9. THE ADMINISTRATIVE AGENT; THE DOCUMENTATION AGENT 9.1 Appointment. Each Lender hereby irrevocably designates and appoints Chase as the Administrative Agent and Lehman as the Documentation Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes Chase as the Administrative Agent for such Lender and Lehman as the Documentation Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent and the Documentation Agent, as the case may be, by the terms of this Agreement and such other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement or such other Loan Documents, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the other Loan Documents or otherwise exist against the Administrative Agent. The Documentation Agent, in its capacity as such, shall not have any duties or responsibilities hereunder nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Documentation Agent in its capacity as such. 9.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 9.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or the other Loan Documents (except for its or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrowers or any officer thereof contained in this Agreement or the other Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or the other Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the other Loan Documents or for any failure of the Borrowers to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrowers. 75 69 9.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrowers), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement and the other Loan Documents unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. 9.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or either Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 9.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrowers, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrowers and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, 76 70 financial and other condition and creditworthiness of the Borrowers. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder or by the other Loan Documents, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Borrowers which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 9.7 Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrowers and without limiting the obligation of the Borrowers to do so), ratably according to the respective amounts of their original Revolving Credit Commitments and Facility A Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement the other Loan Documents, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Notes and all other amounts payable hereunder. 9.8 Administrative Agent in Its Individual Capacity. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrowers as though the Administrative Agent were not the Administrative Agent hereunder and under the other Loan Documents. With respect to its Loans made or renewed by it and any Note issued to it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 9.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders which successor agent shall be approved by the Borrowers (which approval shall not be unreasonably withheld), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon its appointment, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or 77 71 omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents. SECTION 10. MISCELLANEOUS 10.1 Amendments and Waivers. Neither this Agreement, any Note or any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the written consent of the Required Lenders, the Administrative Agent and the Borrowers may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement, the Notes, or the other Loan Documents to which any Borrower is a party or changing in any manner the rights of the Lenders or of the Borrowers hereunder or thereunder or waiving, on such terms and conditions as the Administrative Agent may specify in such instrument, any of the requirements of this Agreement or the Notes or the other Loan Documents to which any Borrower is a party or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (a) extend the maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce any fee payable to the Lenders hereunder or extend the due date thereof, or reduce the principal amount thereof, or change the amount or expiry date of any Lender's Revolving Credit Commitment or Facility A Commitment (except pursuant to subsection 10.6(c)) in each case, without the prior written consent of each Lender directly affected thereby, or amend, modify or waive any provision of this subsection or subsection 10.6(a) or reduce the percentage specified in the definition of Required Lenders, or release all or substantially all of the Collateral from the Liens of the Security Agreements or the Mortgaged Property from the Borrower Mortgages, or amend, modify or waive any provision contained in the definition or calculation of the Borrowing Base, in each case without the written consent of all the Lenders, or (b) amend, modify or waive any provision of Section 9 without the written consent of the then Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Borrowers, the Lenders, the Administrative Agent and all future holders of the Notes. In the case of any waiver, the Borrowers, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 10.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telegraph or telex), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telecopy notice, when sent, received, addressed as follows in the case of the Borrowers and the Administrative Agent, and as set forth in Schedule 1.1A in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: 78 72 The Borrowers: Aircraft Braking Systems Corporation c/o K&F Industries, Inc. 600 Third Avenue New York, New York 10016 Attention: Kenneth M. Schwartz Executive Vice President Telecopy: (212) 867-1182 -and- Engineered Fabrics Corporation c/o K&F Industries, Inc. 600 Third Avenue New York, New York 10016 Attention: Kenneth M. Schwartz Executive Vice President Telecopy: (212) 867-1182 The Administrative Agent: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: James B. Treger Telecopy: (212) 270-9647 with a copy to: The Chase Manhattan Bank c/o Agent Bank Services Group 140 East 45th Street, 29th Floor New York, New York 10017 Attention: Lascelles Thompson Telecopy: (212) 622-0854 provided that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to subsections 2.2, 2.4, 2.5, 2.7, 2.10, 2.11 and 2.16 shall not be effective until received. 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the Loan Documents, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided or provided in the Loan Documents are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 79 73 10.4 Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes. 10.5 Payment of Expenses and Taxes. The Borrowers jointly and severally agree (a) to pay or reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the Notes and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent, (b) to pay or reimburse each Lender and the Administrative Agent for all their costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes and any such other documents, including, without limitation, fees and disbursements of counsel to the Administrative Agent and to the several Lenders, (c) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes and any such other documents, and (d) to pay, indemnify, and hold each Lender, the Documentation Agent and the Administrative Agent harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not the Administrative Agent or any Lender is a party thereto) with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the Notes and any such other documents or in connection with the execution and delivery or transfer of, or payment or failure to make payment under any Letter of Credit, or in connection with any of the other transactions contemplated hereby, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (all the foregoing, collectively, the "indemnified liabilities"), provided, that the Borrowers shall have no obligation hereunder to the Documentation Agent, the Administrative Agent or any Lender with respect to indemnified liabilities arising from (i) the gross negligence or willful misconduct of the Documentation Agent, the Administrative Agent or any such Lender (ii) legal proceedings commenced against the Documentation Agent, the Administrative Agent or any such Lender by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such, or (iii) legal proceedings commenced against the Documentation Agent, the Administrative Agent or any such Lender by any other Lender or by any Transferee (as defined in subsection 10.6(d)), Documentation Agent, Administrative Agent or any such Lender. The agreements in this subsection shall survive repayment of the Notes and all other amounts payable hereunder. 80 74 10.6 Successors and Assigns; Participations; Purchasing Lenders. (a) This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Lenders, the Administrative Agent, all future holders of the Notes and their respective successors and assigns, except that the Borrowers may not assign or transfer any of their rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Credit Exposure. In the event of any such sale by a Lender of participating interest to a Participant, such Lender's obligations under this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Notes for all purposes under this Agreement and the other Loan Documents, and the Borrowers and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees payable hereunder, postpone the date of the final maturity of the Notes, consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or a substantial portion of the Collateral (other than in connection with any sale or other disposition of assets permitted by subsection 7.5) or any guarantee of the Obligations, in each case to the extent subject to such participation. The Borrowers agree that if amounts outstanding under this Agreement and the Notes are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Notes, provided that such Participant shall only be entitled to such right of set-off if it shall have agreed in the agreement pursuant to which it shall have acquired its participating interest to share with the Lenders the proceeds thereof as provided in subsection 10.7. The Borrowers also agree that each Participant shall be entitled to the benefits of subsections 2.18, 2.19, and 2.20 and 10.5 with respect to its participation in the Revolving Credit Commitments or Facility A Commitments and the Eurodollar Loans outstanding from time to time; provided that, in the case of subsection 2.19, such Participant shall have complied with the requirements of said subsection and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to such subsections than the transferror Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferror Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time assign to any Lender or any affiliate thereof, and, with the consent of the Borrowers and the Administrative Agent (which in each case shall not be unreasonably withheld) to one or more additional banks or financial institutions ("Purchasing Lenders") all or any part of its Credit Exposure pursuant to a 81 75 Commitment Transfer Supplement, substantially in the form of Exhibit H, executed by such Purchasing Lender, such transferor Lender and the Administrative Agent (and, in the case of a Purchasing Lender that is not then a Lender or an affiliate thereof, by the Borrowers); provided, however, that (i) it assigns its Credit Exposure ratably according to all facilities comprising its Credit Exposure and (ii) no assignment shall be of less than all of its Credit Exposure, except an assignment to an affiliate, provided further that within the five-day period after the Effective Date and in connection with the syndication of the Commitments, the Administrative Agent may permit assignments without regard to (i) and (ii) above. Upon (x) such execution of such Commitment Transfer Supplement, (y) delivery of an executed copy thereof to each of the Borrowers and (z) payment by such Purchasing Lender, such Purchasing Lender shall for all purposes be a Lender party to this Agreement and shall have all the rights and obligations of a Lender under this Agreement, to the same extent as if it were an original party hereto with the Revolving Credit Commitments, Facility A Commitments, Revolving Credit Loans or Facility A Loans set forth in such Commitment Transfer Supplement. Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Revolving Credit Commitment Percentages or Facility A Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and the Notes. Upon the consummation of any transfer to a Purchasing Lender, pursuant to this paragraph (c), the transferor Lender, the Administrative Agent and the Borrowers shall make appropriate arrangements so that, if required, replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchasing Lender, in each case in principal amounts reflecting their Revolving Credit Commitment Percentages or Facility A Commitment Percentages or, as appropriate, their outstanding Revolving Credit Loans or Facility A Loans as adjusted pursuant to such Commitment Transfer Supplement. (d) The Borrowers authorize each Lender to disclose to any Participant or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Borrowers which has been delivered to such Lender by the Borrowers pursuant to this Agreement or which has been delivered to such Lender by the Borrowers in connection with such Lender's credit evaluation of the Borrowers prior to entering into this Agreement; provided that, if non-public information is furnished, each Transferee shall execute and deliver to such Lender a confidentiality agreement between such Lender and the Transferee in a form previously approved by the Administrative Agent and the Borrowers, which approval shall not be unreasonably withheld. (e) Any Non-U.S. Lender that could become completely exempt from withholding of any tax, assessment or other charge or levy imposed by or on behalf of the United States or any taxing authority thereof ("U.S. Taxes") in respect of payment of any Obligations due to such Non-U.S. Lender under this Agreement if the Obligations were in registered form for U.S. Federal income tax purposes may request the Borrowers (through the Administrative Agent), and the Borrowers agree thereupon, to exchange any promissory note(s) evidencing such Obligations for promissory note(s) registered as provided in paragraph (g) below and substantially in the form of Exhibit J-1 (in the case of Obligations in respect of Revolving Credit Loans) and Exhibit J-2 (in the case of Obligations in respect of Facility A 82 76 Loans) (each, an "Alternative Note"). Alternative Notes may not be exchanged for promissory notes that are not Alternative Notes. (f) Each Non-U.S. Lender that holds Alternative Note(s) (an "Alternative Noteholder") (or, if such Alternative Noteholder is not the beneficial owner thereof, such beneficial owner) shall deliver to the Borrowers prior to or at the time such Non-U.S. Lender becomes an Alternative Noteholder each of the forms and certifications required by subsection 2.19(b). (g) An Alternative Note and the Obligation(s) evidenced thereby may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer of such Alternative Note and the Obligation(s) evidenced thereby on the Register (and each Alternative Note shall expressly so provide). Any assignment or transfer of all or part of such Obligation(s) and the Alternative Note(s) evidencing the same shall be registered on the Register only upon surrender for registration of assignment or transfer of the Alternative Note(s) evidencing such Obligation(s), duly endorsed by (or accompanied by a written instrument of assignment or transfer duly executed by) the Alternative Noteholder thereof, and thereupon one or more new Alternative Note(s) in the same aggregate principal amount shall be issued to the designated Purchasing Lender(s). No assignment of an Alternative Note and the Obligation(s) evidenced thereby shall be effective unless it has been recorded in the Register as provided in this subsection 10.6(g). (h) The Administrative Agent shall maintain at its address referred to in subsection 10.2 a copy of each Commitment Transfer Supplement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders (including Alternative Noteholders) and the relevant commitment of, and principal amount of the Loans owing to, each Lender from time to time. The Borrowers, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. 10.7 Adjustments; Set-off. (a) If any Lender (a "benefitted Lender") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in clause (k) of Section 8 of this Agreement, or otherwise) in a greater proportion than any such payment to and collateral received by any other Lender, if any, in respect of such other Lender's Loans, or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders such portion of each such other Lender's Loan or reimbursement obligations in respect of Letters of Credit, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but 83 77 without interest. The Borrowers agree that each Lender so purchasing a portion of another Lender's Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrowers, any such notice being expressly waived by the Borrowers to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrowers hereunder or under the Notes (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender to or for the credit or the account of the Borrowers. Each Lender agrees promptly to notify the Borrowers and the Administrative Agent after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. 10.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrowers and the Administrative Agent. 10.9 Confidentiality. Subject to subsection 10.6(d) hereof, the Lenders shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as such by either Borrower in accordance with its customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a bona fide transferee or participant or by an Affiliate of such Lender in connection with the contemplated transfer of any Note, Letter of Credit or participation therein or as required or requested by any Governmental Authority or representative thereof or pursuant to legal process. 10.10 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.11 Integration. This Agreement and the other Loan Documents represent the agreement of the Borrower, the Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 84 78 10.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 10.13 Submission To Jurisdiction; Waivers. (a) Each of the parties hereto hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same to the extent permitted by applicable law; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth in subsection 10.2 or on Schedule 1.1A or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (v) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary, punitive or consequential damages. (b) Each Borrower and the Administrative Agent and each Lender hereby irrevocably and unconditionally waives trial by jury in any legal action or proceeding relating to this agreement and for any counterclaim therein. 10.14 Effect of Amendment and Restatement. On the Effective Date, the Existing Revolving Credit Agreement and the Security Agreements (as defined in the Existing Revolving Credit Agreement) shall be amended, restated and superseded in their entirety. The parties hereto acknowledge and agree that (a) this Agreement and the other Loan Documents, whether executed and delivered in connection herewith or otherwise, do not constitute a novation, payment and reborrowing, or termination of the "Obligations" (as defined in the Existing Revolving Credit Agreement) under the Existing Revolving Credit Agreement as in effect prior to the Effective Date; (b) such "Obligations" are in all respects 85 79 continuing (as amended and restated hereby) with only the terms thereof being modified as provided in this Agreement; (c) the Liens, guarantees and security interests as granted under the Security Agreements (as defined in this Agreement) securing payment of such "Obligations" are in all respects continuing and in full force and effect and secure the payment of the Obligations (as defined in this Agreement); and (d) upon the effectiveness of this Agreement, all loans outstanding under the Existing Revolving Credit Agreement immediately before the effectiveness of this Agreement will be continued as Revolving Credit Loans hereunder, and all outstanding letters of credit under the Existing Revolving Credit Agreement will be continued as Letters of Credit hereunder, in each case on the terms and conditions set forth in this Agreement. 86 80 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. AIRCRAFT BRAKING SYSTEMS CORPORATION By: /s/ KENNETH M. SCHWARTZ --------------------------------- Title: ENGINEERED FABRICS CORPORATION By: /s/ KENNETH M. SCHWARTZ --------------------------------- Title: THE CHASE MANHATTAN BANK, as Administrative Agent and as a Lender By: /s/ JAMES B. TREGER --------------------------------- James B. Treger Title: VICE PRESIDENT LEHMAN COMMERCIAL PAPER INC., as Documentation Agent and as a Lender By: /s/ DENNIS J. DILL --------------------------------- Title: Authorized Signatory 87 81 NBD BANK By: /s/ GLENN A. CURRIN --------------------------------- Glenn A. Currin Title: VICE PRESIDENT NATIONAL BANK OF CANADA, NEW YORK BRANCH By: /s/ ILLEGIBLE --------------------------------- Title: VICE-PRESIDENT By: /s/ ILLEGIBLE --------------------------------- Title: ASST. VICE PRESIDENT THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: /s/ MARK A. THOMPSON --------------------------------- Mark A. Thompson Title: VICE PRESIDENT AND DUPUTY GENERAL MANAGER THE FIRST NATIONAL BANK OF BOSTON By: /s/ ILLEGIBLE --------------------------------- Title: VICE PRESIDENT 88 82 MERITA BANK LTD By: /s/ ILLEGIBLE --------------------------------- Title: VICE PRESIDENT By: /s/ ILLEGIBLE --------------------------------- Title: VICE PRESIDENT THE NIPPON CREDIT BANK, LTD. By: /s/ YOSHIHIDE WATANABE --------------------------------- Yoshihide Watanabe Title: VICE PRESIDENT & MANAGER NATIONAL CITY BANK, NORTHEAST By: /s/ KEVIN O. THOMPSON --------------------------------- Title: VICE PRESIDENT DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLAND BRANCH By: /s/ ANGELA BOZORGMIR --------------------------------- Angela Bozorgmir Title: ASSISTANT VICE PRESIDENT By: /s/ JAMES FOX --------------------------------- James Fox Title: ASSISTANT VICE PRESIDENT 89 83 BANK OF AMERICA ILLINOIS By: /s/ STEVE A . ARONOWITZ --------------------------------- Steve A. Aronowitz Title: VICE PRESIDENT BANK POLSKA KASA OPIEKI, S.A. NEW YORK BRANCH By: /s/ WILLIAM A. SHEA --------------------------------- William A. Shea Title: VICE PRESIDENT SENIOR LENDING OFFICER 90 84 BANQUE FRANCAISE DU COMMERCE EXTERIEUR By: /s/ WILLIAM C. MAIER --------------------------------- William C. Maier Title: VP-GROUP MANAGER By: /s/ BRIAN J. CUMBERLAND --------------------------------- Brian J. Cumberland Title: ASSISTANT TREASURER EX-10.21 4 AMENDED AND RESTATED ABS SECURITY AGREEMENT 1 EXHIBIT 10.21 EXECUTION COPY AMENDED AND RESTATED ABS SECURITY AGREEMENT AMENDED AND RESTATED ABS SECURITY AGREEMENT, dated as of August 14, 1996, made by AIRCRAFT BRAKING SYSTEMS CORPORATION (the "Pledgor"), a Delaware corporation, in favor of The Chase Manhattan Bank (formerly known as Chemical Bank), as administrative agent (in such capacity, the "Administrative Agent"), for the lenders (the "Lenders"), parties to the Amended and Restated Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Pledgor, Engineered Fabrics Corporation, the Lenders, Lehman Commercial Paper Inc., as Documentation Agent, and the Administrative Agent. W I T N E S S E T H : WHEREAS, the Pledgor is party to an Amended and Restated Revolving Credit Agreement, dated as of June 10, 1992 (as heretofore amended, the "Existing Revolving Credit Agreement"); WHEREAS, the Pledgor is party to an Amended and Restated Pledge and Security Agreement, dated as of June 10, 1992 (as heretofore amended, the "Existing Security Agreement"); WHEREAS, K & F Industries, Inc. ("K & F"), the parent of the Borrowers, has outstanding (i) an aggregate principal amount of $100,000,000 of its 11-7/8% Senior Secured Notes Due 2003 (the "Existing Senior Notes") and (ii) an aggregate principal amount of $170,000,000 of its 13-3/4% Senior Subordinated Debentures Due 2001 (the "Existing Subordinated Debentures"); WHEREAS, K & F and the Borrowers have requested that the Lenders and the Administrative Agent extend the credit facilities provided for in the Credit Agreement to refinance the credit facilities provided for in the Existing Revolving Credit Agreement, to finance the redemption of Existing Subordinated Debentures and, subject to certain restrictions, up to $60,000,000 in outstanding principal amount of the Existing Senior Notes, and to finance their working capital requirements; WHEREAS, the Lenders and the Administrative Agent are agreeable to the requested amendments on the terms and conditions set forth in the Credit Agreement and each of the parties thereto have agreed, for convenience, to restate the Existing Revolving Credit Agreement as so amended; WHEREAS, it is intended that this Amended and Restated ABS Security Agreement be a continuation of the Existing Security Agreement; and WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective Loans under the Credit Agreement that the Pledgor shall have confirmed and agreed to continue the security interest granted pursuant to the Existing Security Agreement and 2 2 shall have executed the amendment and restatement thereof pursuant to this Amended and Restated ABS Security Agreement; NOW, THEREFORE, in consideration of the premises and to induce the Lenders to extend and maintain the extensions of credit under the Credit Agreement, and to open and participate in the Letters of Credit under the Credit Agreement and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Pledgor hereby agrees with the Administrative Agent, for the benefit of the Lenders, as follows: 1. Defined Terms. Unless otherwise defined herein, terms which are defined in the Credit Agreement and used herein are so used as so defined, the following terms which are defined in the UCC in effect in the state of New York on the date hereof are used herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm Products, Instruments, Inventory and Proceeds; and the following terms shall have the following meanings: "Collateral" means, collectively, the Existing Collateral and the New Collateral, as such terms are defined in Section 2 of this Security Agreement. "Contracts" means the Contracts listed on Schedule I hereto and all other contracts executed from time to time by the Pledgor with respect to an Account, as any of the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (a) all rights of the Pledgor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of the Pledgor to damages arising out of, or for, breach or default in respect thereof and (c) all rights of the Pledgor to perform and to exercise all remedies thereunder. "Security Agreement" means this Amended and Restated ABS Security Agreement, as amended, supplemented or otherwise modified from time to time. "UCC" means the Uniform Commercial Code as from time to time in effect in the State of New York. 2. Confirmation and Continuation of Security Interest; Grant of Security Interest. (a) The Pledgor hereby confirms and acknowledges that the security interest as granted and created by the Pledgor pursuant to the Existing Security Agreement and confirmed and acknowledged by the Pledgor herein, constitutes security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, and the Pledgor agrees to maintain and continue the security interest in favor of the Administrative Agent for itself and for the ratable benefit of the Lenders, as a lien on and a security interest in all of the following property now owned or at any time hereafter acquired by the Pledgor or in which the Pledgor now has or at any time in the future may acquire any right, title or interest (collectively, the "Existing Collateral"): i) all Accounts; ii) all Chattel Paper; iii) all Contracts; iv) all Documents; v) all Instruments; 3 3 vi) all Inventory; and vii) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. (b) As additional collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, the Pledgor hereby grants to the Administrative Agent for itself and for the ratable benefit of the Lenders a security interest in all of the following property now owned or at any time hereafter acquired by the Pledgor or in which the Pledgor now has or at any time in the future may acquire any right, title or interest (collectively, the "New Collateral"): i) all Accounts; ii) all Chattel Paper; iii) all Contracts; iv) all Documents; v) all Equipment; vi) all Instruments; vii) all Inventory; viii) all books and records pertaining to the New Collateral; and ix) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. 3. Rights of Administrative Agent and Lenders; Limitations on Administrative Agent's and Lenders' Obligations. (a) Pledgor Remains Liable under Accounts and Contracts. Anything herein to the contrary notwithstanding, the Pledgor shall remain liable under each of the Accounts and Contracts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account or Contract in accordance with and pursuant to the terms and provisions of each such Contract. Neither the Administrative Agent nor any of the Lenders shall have any obligation or liability under any Account (or any agreement giving rise thereto) or Contract by reason of or arising out of this Security Agreement or the receipt by the Administrative Agent or any of such Lenders of any payment relating to such Account or Contract pursuant hereto, nor shall the Administrative Agent or any of the Lenders be obligated in any manner to perform any of the obligations of the Pledgor under or pursuant to any Account (or any agreement giving rise thereto) or under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto) or under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) Notice to Account Debtors and Contracting Parties. Upon the request of the Administrative Agent at any time after the occurrence and during the continuation of an Event of Default, the Pledgor shall notify account debtors on the Accounts and parties to the Contracts that the Accounts and the Contracts have been assigned to the Administrative Agent for the ratable benefit of the Lenders and that payments in respect thereof shall be made directly to the 4 4 Administrative Agent. The Administrative Agent may in its own name or in the name of others communicate with account debtors on the Accounts and parties to the Contracts to verify with them to its satisfaction the existence, amount and terms of any Accounts or Contracts with a copy of such communication to the Pledgor. (c) Collections on Accounts and Contracts. The Administrative Agent hereby authorizes the Pledgor to collect the Accounts and Contracts, subject to the Administrative Agent's direction and control, and the Administrative Agent may curtail or terminate said authority at any time. If required by the Administrative Agent at any time, any payments of Accounts and Contracts, when collected by the Pledgor, shall be forthwith (and, in any event, within two Business Days) deposited by the Pledgor in the exact form received, duly indorsed by the Pledgor to the Administrative Agent if required, in a special collateral account maintained by the Administrative Agent, subject to withdrawal by the Administrative Agent for the account of the Lenders only, as hereinafter provided, and, until so turned over, shall be held by the Pledgor in trust for the Administrative Agent and the Lenders, segregated from other funds of the Pledgor. All Proceeds while held by the Administrative Agent (or by the Pledgor in trust for the Administrative Agent and the Lenders) shall continue to be collateral security for all of the Obligations and shall not constitute payment thereof until applied as hereinafter provided. At such intervals as may be agreed upon by the Pledgor and the Administrative Agent, or, if an Event of Default shall have occurred and be continuing, at any time at the Administrative Agent's election, the Administrative Agent shall apply all or any part of the funds on deposit in said special collateral account on account of the Obligations in such order as the Administrative Agent may elect, and any part of such funds which the Administrative Agent elects not so to apply and deems not required as collateral security for the Obligations shall be paid over from time to time by the Administrative Agent to the Pledgor or to whomsoever may be lawfully entitled to receive the same. At the Administrative Agent's request, the Pledgor shall deliver to the Administrative Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Accounts and Contracts, including, without limitation, all original orders, invoices and shipping receipts. (d) Analysis of Accounts. The Administrative Agent shall have the right at any time during normal business hours and without any unreasonable disruption of business to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and the Pledgor shall furnish all such assistance and information as the Administrative Agent may require in connection therewith. At any time during normal business hours and without any unreasonable disruption of business, upon the Administrative Agent's request, which examination and preparation, including reasonable travel and out-of-pocket expenses, shall be at the Pledgor's expense for up to one such examination and report annually, the Pledgor shall cause independent public accountants or others satisfactory to the Administrative Agent to furnish to the Administrative Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts. 4. Representations and Warranties. The Pledgor hereby represents and warrants that: (a) Title; No Other Liens. (i) Except for the Lien confirmed and continued on the Existing Collateral for the ratable benefit of the Lenders pursuant to this Security Agreement and the other Liens permitted to exist on the Existing Collateral pursuant to the Credit 5 5 Agreement, the Pledgor owns each item of the Existing Collateral free and clear of any and all Liens or claims of others. To the best of the Pledgor's knowledge, after reasonable inquiry, no security agreement, financing statement or other public notice with respect to all or any part of the Existing Collateral is on file or of record in any public office, except such as may have been filed in favor of the Administrative Agent, for the ratable benefit of the Lenders, pursuant to the Existing Security Agreement or as may be permitted pursuant to the Credit Agreement. (ii) Except for the Lien granted on the New Collateral to the Administrative Agent for the ratable benefit of the Lenders pursuant to this Security Agreement and the other Liens permitted to exist on the New Collateral pursuant to the Credit Agreement, the Pledgor owns each item of the New Collateral free and clear of any and all Liens or claims of others. To the best of the Pledgor's knowledge, after reasonable inquiry, no security agreement, financing statement or other public notice with respect to all or any part of the New Collateral is on file or of record in any public office, except such as may have been filed in favor of the Administrative Agent, for the ratable benefit of the Lenders, pursuant to this Security Agreement or as may be permitted pursuant to the Credit Agreement. (b) Perfected First Priority Liens. (i) The Liens continued and confirmed pursuant to this Security Agreement continue to constitute perfected Liens on the Existing Collateral in favor of the Administrative Agent, for the ratable benefit of the Lenders, which are, except for the other Liens permitted to exist on the Existing Collateral pursuant to the Credit Agreement, prior to all other Liens on the Existing Collateral created by the Pledgor and in existence on the Effective Date and which are enforceable as such against all creditors of and purchasers from the Pledgor, except with respect to inchoate statutory liens having priority as a matter of law. (ii) The Liens granted pursuant to this Security Agreement constitute valid perfected Liens on the New Collateral in favor of the Administrative Agent, for the ratable benefit of the Lenders, which are, except for the Liens permitted to exist on the New Collateral pursuant to the Credit Agreement, prior to all other Liens on the New Collateral created by the Pledgor and in existence on the Effective Date and which are enforceable as such against all creditors of and purchasers from the Pledgor, except with respect to inchoate statutory liens having priority as a matter of law. (c) Accounts. The amount represented by the Pledgor to the Lenders from time to time as owing by each account debtor or by all account debtors in respect of the Accounts will at such time be the correct amount actually owing by such account debtor or debtors thereunder, subject to adjustment in the ordinary course of business. No amount payable to the Pledgor under or in connection with any Account is evidenced by any Instrument or Chattel Paper which has not been delivered to the Administrative Agent. (d) Consents. No consent of any party (other than the Pledgor) to any Contract or any obligor in respect of any Account is required, or purports to be required, in connection with the execution, delivery and performance of this Security Agreement. Each Account and each Contract is in full force and effect and constitutes a valid and enforceable obligation of the obligor in respect thereof or parties thereto, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor's rights generally and by general equitable principles (whether 6 6 enforcement is sought by proceedings in equity or at law), except that the Pledgor may not have complied with the Federal Assignment of Claims Act and except where failure to obtain the assignments and consent to Accounts and Contracts would have a Material Adverse Effect. No consent or authorization of, filing with or other act by or in respect of any Governmental Authority is required in connection with the execution, delivery, performance, validity or enforceability of any of the Accounts or Contracts by any party thereto other than those which have been duly obtained, made or performed, are in full force and effect and do not subject the scope of any such Account or Contract to any material adverse limitation, either specific or general in nature. Neither the Pledgor nor (to the best of the Pledgor's knowledge) any other party to any Account or Contract is in default or is likely to become in default in the performance or observance of any of the terms thereof. The Pledgor has fully performed all its obligations to the extent then due under each Contract. The right, title and interest of the Pledgor in, to and under each Account or Contract are not subject to any defense, offset, counterclaim or claim which would materially adversely affect the value of such Account or Contract as Collateral, nor have any of the foregoing been asserted or alleged against the Pledgor as to any of the foregoing. The Pledgor has delivered to the Administrative Agent a complete and correct copy of each Contract, including all amendments, supplements and other modifications thereto. No amount payable to the Pledgor under or in connection with any Account or Contract is evidenced by any Instrument which has not been delivered to the Administrative Agent. (e) Location of Tangible Property. The Inventory and Equipment is kept at the locations in the United States listed on Schedule II hereto; provided that the Pledgor may revise the information set forth on Schedule II upon notice to the Administrative Agent. (f) Chief Executive Office. (i) The Pledgor's chief executive office is located at: c/o K & F Industries, Inc. 600 Third Avenue New York, New York 10016 (ii) The Pledgor's chief place of business is located at: 1204 Massillon Road Akron, Ohio 44306 (g) Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products. (h) Power and Authority; Authorization. The Pledgor has the corporate power and authority to execute and deliver, to perform its obligations under, to continue and confirm the Lien on the Existing Collateral pursuant to Section 2(a) of this Security Agreement and to grant the Lien on the New Collateral pursuant to Section 2(b) of this Security Agreement, and has taken all necessary corporate action to authorize its execution, delivery and performance of, and continuation or grant, as the case may be, of the Lien on the Collateral pursuant to this Security Agreement. 7 7 (i) Enforceability. This Security Agreement constitutes a legal, valid and binding obligation of the Pledgor enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles (whether enforcement is sought by a proceeding in equity or at law). (j) No Conflict. The execution, delivery and performance of this Security Agreement will not violate any provision of any Requirement of Law or Contractual Obligation of the Pledgor and will not result in the creation or imposition of any Lien on any of the properties or revenues of the Pledgor pursuant to any Requirement of Law or Contractual Obligation of the Pledgor, except as contemplated hereby or which could not reasonably be expected to have a Material Adverse Effect. (k) No Consents, etc. No consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder or creditor of the Pledgor), is required in connection with the execution, delivery, performance, validity or enforceability of this Security Agreement, except that the Pledgor may not have complied with the Federal Assignment of Claims Act, except where the failure to have obtained consents to the assignment of Accounts and Contracts would have a Material Adverse Effect. (l) No Litigation. Except as disclosed in the Offering Memorandum, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Pledgor, threatened by or against the Pledgor or against any of its properties or revenues (a) with respect to this Security Agreement or the pledges contemplated hereby or (b) which could reasonably be expected to have a Material Adverse Effect. The Pledgor agrees that the foregoing representations and warranties shall be deemed to have been made by the Pledgor on the date of each borrowing by any Borrower and each other extension of credit under the Credit Agreement on and as of such date of borrowing or extension of credit as through made hereunder on and as of such date except as they may specifically relate to an earlier date. 5. Covenants. The Pledgor covenants and agrees with the Administrative Agent and the Lenders that, from and after the date of this Security Agreement until the Obligations are paid in full (other than indemnification and reimbursement obligations for which claims have not been made by the Administrative Agent or the Lenders), the Revolving Credit Commitments and the Facility A Commitments are terminated, and the expiration, termination or return to Chase of the Letters of Credit: (a) Further Documentation; Pledge of Instruments. At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of the Pledgor, the Pledgor will promptly and duly execute and deliver such further instruments and documents and take such further action as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Security Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the UCC in effect in any jurisdiction with respect to the Liens 8 8 confirmed and continued hereby. The Pledgor also hereby authorizes the Administrative Agent to file any such financing or continuation statement without the signature of the Pledgor to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Security Agreement shall be sufficient as a financing statement for filing in any jurisdiction. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument in an amount in excess of $10,000, such Instrument shall be immediately delivered to the Administrative Agent, duly endorsed in a manner satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Security Agreement. (b) Indemnification. The Pledgor agrees to pay, and to save the Administrative Agent and the Lenders harmless from, any and all liabilities, costs and expenses (including, without limitation, legal fees and expenses) (i) with respect to, or resulting from, any delay in paying, any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay in complying with any Requirement of Law applicable to any of the Collateral or (iii) in connection with the pledges contemplated by this Security Agreement. In any suit, proceeding or action brought by the Administrative Agent or any Lenders under any Account or Contract for any sum owing thereunder, or to enforce any provisions of any Account or Contract, the Pledgor will save, indemnify and keep the Administrative Agent and such Lender harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by the Pledgor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from the Pledgor. (c) Maintenance of Records. The Pledgor will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Accounts and Contracts. The Pledgor will mark its books and records pertaining to the Collateral to evidence this Security Agreement and the security interests continued and confirmed or granted, as the case may be, hereby. For the further security of the Administrative Agent and the Lenders, the Administrative Agent, for the ratable benefit of the Lenders, shall have a security interest in all of the Pledgor's books and records pertaining to the Collateral, and the Pledgor shall turn over any such books and records to the Administrative Agent or to its representatives during normal business hours at the request of the Administrative Agent. (d) Right of Inspection. The Pledgor will keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and, subject to restrictions imposed by any Governmental Authority governing access to classified information, permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of the Pledgor and its Subsidiaries with officers and employees of the Pledgor and its Subsidiaries and with its independent certified public accountants. (e) Compliance with Laws, etc. The Pledgor will comply in all material respects with all Requirements of Law applicable to the Collateral or any part thereof or to the 9 9 operation of the Pledgor's business; provided, however, that the Pledgor may contest any Requirement of Law in any reasonable manner which shall not, in the reasonable opinion of the Administrative Agent, adversely affect the Administrative Agent's or the Lenders' rights or the priority of their Liens on the Collateral. (f) Compliance with Terms of Contracts, etc. The Pledgor will perform and comply in all material respects with all its obligations under the Contracts and all its other Contractual Obligations relating to the Collateral. (g) Payment of Obligations. The Pledgor will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if (i) the validity thereof is being contested in good faith by appropriate proceedings, (ii) such proceedings do not involve any material danger of the sale, forfeiture or loss of any of the Collateral or any interest therein and (iii) such charge is adequately reserved against on the Pledgor's books in accordance with GAAP. (h) Limitation on Liens on Collateral. The Pledgor will not create, incur or permit to exist, will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Liens created or continued hereby or otherwise permitted in the Credit Agreement and will defend the right, title and interest of the Administrative Agent and the Lenders in and to any of the Collateral against the claims and demands of all Persons whosoever. (i) Limitations on Dispositions of Collateral. Except as otherwise permitted in the Credit Agreement, the Pledgor will not sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt, offer or contract to do so except for (x) sales of Inventory in the ordinary course of its business and (y) as permitted by subsection 7.5 of the Credit Agreement. (j) Limitations on Modifications, Waivers, Extensions of Contracts and Agreements Giving Rise to Accounts. Other than in the ordinary course of business, the Pledgor will not (i) amend, modify, terminate or waive any provision of any Contract or any agreement giving rise to an Account in any manner which could reasonably be expected to materially adversely affect the value of such Contract or Account as Collateral, (ii) fail to exercise promptly and diligently each and every material right which it may have under each Contract and each agreement giving rise to an Account (other than any right of termination) or (iii) fail to deliver to the Administrative Agent a copy of each material demand, notice or document received by it relating in any way to any Contract or any agreement giving rise to an Account. (k) Limitations on Discounts, Compromises, Extensions of Accounts. Other than in the ordinary course of business, the Pledgor will not grant any extension of the time of payment of any of the Accounts, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partially, any Person liable for the payment thereof, or allow any credit or discount whatsoever thereon. (l) Maintenance of Insurance. The Pledgor will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Inventory and Equipment 10 10 against loss by fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Administrative Agent and (ii) insuring the Pledgor, the Administrative Agent and the Lenders against liability for personal injury and property damage relating to such Inventory and Equipment, such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to the Administrative Agent and the Lenders, with losses payable to the Pledgor, the Administrative Agent and the Lenders as their respective interests may appear. All such insurance shall (i) contain a breach of warranty clause in favor of the Administrative Agent and the Lenders, (ii) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Administrative Agent and the Lenders of written notice thereof, (iii) name the Administrative Agent and the Lenders as insured parties and (iv) be reasonably satisfactory in all other respects to the Administrative Agent. The Pledgor shall deliver to the Administrative Agent and the Lenders a report of a reputable insurance broker with respect to such insurance during the month of April in each calendar year and such supplemental reports with respect thereto as the Administrative Agent may from time to time reasonably request. (m) Further Identification of Collateral. The Pledgor will furnish to the Administrative Agent and the Lenders from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail. (n) Notices. The Pledgor will advise the Administrative Agent and the Lenders promptly, in reasonable detail, at their respective addresses set forth in the Credit Agreement, (i) of any Lien (other than Liens created or continued hereby or permitted under the Credit Agreement) on, or claim asserted against, any of the Collateral and (ii) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereunder. (o) Changes in Locations, Name, etc. The Pledgor will not (i) change the location of its chief executive office/chief place of business from that specified in Subsection 4(f) hereof, (ii) permit any of the Inventory or Equipment to be kept at a location other than those listed on Schedule II hereto or (iii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Administrative Agent in connection with this Security Agreement would become seriously misleading, unless it shall have given the Administrative Agent and the Lenders at least 30 days prior written notice thereof and prior to effecting any such change taken such steps as the Administrative Agent may deem necessary or advisable to continue the perfection and priority of the security interest. (p) Governmental Obligors. At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of the Pledgor, the Pledgor will promptly take such actions required to comply with the Federal Assignment of Claims Act as set forth in 31 U.S.C. Section 3727 and 41 U.S.C. Section 15, as amended from time to time, with respect to any Accounts or Contracts of which the obligor is a Governmental Authority. 6. Administrative Agent's Appointment as Attorney-in-Fact. (a) Powers. The Pledgor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true 11 11 and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Pledgor and in the name of the Pledgor or in its own name, from time to time in the Administrative Agent's discretion, for the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Security Agreement, and, without limiting the generality of the foregoing, the Pledgor hereby gives the Administrative Agent the power and right, on behalf of the Pledgor, without notice to or assent by the Pledgor, to do the following: (i) in the case of any Account, at any time when the authority of the Pledgor to collect the Accounts has been curtailed or terminated pursuant to the first sentence of Section 3(c) hereof, or in the case of any other Collateral, at any time when any Event of Default shall have occurred and is continuing, in the name of the Pledgor or its own name, or otherwise, to take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under, or with respect to, any Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Administrative Agent for the purpose of collecting any and all such moneys due or with respect to such Collateral whenever payable; (ii) to pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Security Agreement and to pay all or any part of the premiums therefor and the costs thereof (with notice to the Pledgor that such payment or repair has been made); and (iii) upon the occurrence and during the continuance of any Event of Default, (a) to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (b) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (c) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (d) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (e) to defend any suit, action or proceeding brought against the Pledgor with respect to any Collateral; (f) to settle, compromise or adjust any suit, action or proceeding described in the preceding clause and, in connection therewith, to give such discharges or releases as the Administrative Agent may deem appropriate; and (g) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and to do, at the Administrative Agent's option and the Pledgor's expense, at any time, or from time to time, all acts and things which the Administrative Agent deems necessary to protect, preserve or realize upon the Collateral and the Liens of the Administrative Agent and the Lenders thereon and to effect the intent of this Security Agreement, all as fully and effectively as the Pledgor might do. 12 12 The Pledgor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. (b) Other Powers. The Pledgor also authorizes the Administrative Agent, at any time and from time to time, to execute, in connection with the sale provided for in Section 6 hereof, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. (c) No Duty on the Part of Administrative Agent or Lenders. The powers conferred on the Administrative Agent and the Lenders hereunder are solely to protect the interests of the Administrative Agents and the Lenders in the Collateral and shall not impose any duty upon the Administrative Agent or any to exercise any such powers. The Administrative Agent and the Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to the Pledgor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 7. Performance by Administrative Agent of Pledgor's Obligations. If the Pledgor fails to perform or comply with any of its agreements contained herein and the Administrative Agent, as provided for by the terms of this Security Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of the Administrative Agent incurred in connection with such performance or compliance, together with interest thereon at a rate per annum 2% above the ABR plus the then Applicable Margin, shall be payable by the Pledgor to the Administrative Agent on demand and shall constitute Obligations secured hereby. 8. Proceeds. In addition to the rights of the Administrative Agent and the Lenders specified in Section 3(c) with respect to payments of Accounts, it is agreed that if an Event of Default shall occur and be continuing (a) all Proceeds received by the Pledgor consisting of cash, checks and other similar items capable of exchange or conversion into money shall be held by the Pledgor in trust for the Administrative Agent and the Lenders, segregated from other funds of the Pledgor, and shall, forthwith upon receipt by the Pledgor, be turned over to the Administrative Agent in the exact form received by the Pledgor (duly indorsed by the Pledgor to the Administrative Agent, if required), and (b) any and all such Proceeds received by the Administrative Agent (whether from the Pledgor or otherwise) may, in the sole discretion of the Administrative Agent, be held by the Administrative Agent for the ratable benefit of the Lenders as collateral security for, and/or then or at any time thereafter may be applied by the Administrative Agent against, the Obligations (whether matured or unmatured), such application to be in such order as the Administrative Agent shall elect. Any balance of such Proceeds remaining after the Obligations shall have been paid in full shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive the same. 9. Remedies. If an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Lenders may exercise, in addition to all other rights and remedies granted to them in this Security Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, the Administrative Agent, 13 13 without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Pledgor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Administrative Agent or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Administrative Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Pledgor, which right or equity is hereby waived or released. The Pledgor further agrees, at the Administrative Agent's request, to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at the Pledgor's premises or elsewhere. The Administrative Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and the Lenders hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as the Administrative Agent may elect, and only after such application and after the payment by the Administrative Agent of any other amount required by any provision of law, need the Administrative Agent account for the surplus, if any, to the Pledgor. To the extent permitted by applicable law, the Pledgor waives all claims, damages and demands it may acquire against the Administrative Agent or any Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Pledgor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations and the fees and disbursements of any attorneys employed by the Administrative Agent or any Lender to collect such deficiency. 10. Limitation on Duties Regarding Preservation of Collateral. The Administrative Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. Neither the Administrative Agent, any Lender, nor any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Pledgor or otherwise. 11. Powers Coupled with an Interest. All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest. 12. Severability. Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of 14 14 such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13. Paragraph Headings. The paragraph headings used in this Security Agreement are for convenience of reference only and are not to affect the construction hereof or to be taken into consideration in the interpretation hereof. 14. No Waiver; Cumulative Remedies. Neither the Administrative Agent nor any Lender shall by any act (except by a written instrument pursuant to Section 15 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law. 15. Waivers and Amendments; Successors and Assigns; Governing Law. None of the terms or provisions of this Security Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Pledgor and the Administrative Agent, provided that any provision of this Security Agreement may be waived by the Administrative Agent in a written letter or agreement executed by the Administrative Agent or by telex or facsimile transmission from the Administrative Agent. This Security Agreement shall be binding upon the successors and assigns of the Pledgor and shall inure to the benefit of the Administrative Agent and the Lenders and their respective successors and assigns. This Security Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. 16. Notices. Notices hereunder may be given by mail, by telex or by facsimile transmission, addressed or transmitted to the Person to which it is being given at such Person's address or transmission number set forth in the Credit Agreement and shall be effective (a) in the case of mail, 2 days after deposit in the postal system, first class postage pre-paid and (b) in the case of telex or facsimile notices, when sent. The Pledgor may change its address and transmission number by written notice to the Administrative Agent, and the Administrative Agent or any Lender may change its address and transmission number by written notice to the Pledgor and, in the case of a Lender, to the Administrative Agent. 17. Authority of Administrative Agent. The Pledgor acknowledges that the rights and responsibilities of the Administrative Agent under this Security Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Security Agreement shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with 15 15 respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Pledgor, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and the Pledgor shall not be under any obligation, or entitlement, to make any inquiry respecting such authority. 18. No Subrogation. Notwithstanding any payment or payments made by the Pledgor hereunder, or any setoff or application of funds of the Pledgor by any Lender, or the receipt of any amounts by the Administrative Agent or any Lender with respect to any of the Collateral, the Pledgor shall not be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against any other Loan Party or against any other collateral security held by the Administrative Agent or any Lender for the payments of the Obligations, nor shall the Pledgor seek any reimbursement from any other Loan Party in respect of payments made by the Pledgor in connection with the Collateral, or amounts realized by the Administrative Agent or any Lender in connection with the Collateral, until all amounts owing to the Administrative Agent and the Lenders on account of the Obligations are paid in full. If any amount shall be paid to the Pledgor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by the Pledgor in trust for the Administrative Agent and the Lenders, segregated from other funds of the Pledgor, and shall, forthwith upon receipt by the Pledgor, be turned over to the Administrative Agent in the exact form received by the Pledgor (duly indorsed by the Pledgor to the Administrative Agent, if required) to be applied against the Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. 19. Amendments, etc. with respect to the Obligations. The Pledgor shall remain obligated hereunder and the Collateral shall remain subject to the Lien confirmed and continued or created, as the case may be, hereby, notwithstanding that, without any reservation of rights against the Pledgor, and without notice to the further assent by the Pledgor, any demand for payment of any of the Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such bank, and any of the Obligations continued, and the Obligations, or the liability of any other Loan Party or any other Person upon or for any part thereof, or any collateral security or guarantee therefor or rights of offset with respect thereto, may from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered, or released by the Administrative Agent or the Lenders (or the Required Lenders, as the case may be), and the Credit Agreement, the Notes, the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or part, as the Lenders (or the Required Lenders, as the case may be) may deem advisable from time to time, and any guarantee, right of offset or other collateral security at any time held by the Administrative Agent or any Lender for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any other Lien at any time held by it as security for the Obligations or any property subject thereto. The Pledgor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon this Security Agreement; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Security Agreement; and all dealings between the other Loan Parties and the Pledgor, on the one hand, and the Administrative Agent and the Lenders, on the other, shall likewise be 16 16 conclusively presumed to have been had or consummated in reliance upon this Security Agreement. The Pledgor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon any other Loan Party with respect to the Obligations. 20. Governing Law. This Security Agreement shall be governed by, and construed and interpreted in accordance with the laws of the State of New York. 17 17 IN WITNESS WHEREOF, the Pledgor has caused this Security Agreement to be duly executed and delivered as of the date first above written. AIRCRAFT BRAKING SYSTEMS CORPORATION By: /s/ KENNETH M. SCHWARTZ ________________________ Name: Title: 18 SCHEDULE I CONTRACTS
====================================================================================================== Award FAR 52-232-23 Contract Number Date Customer Award Value (Yes/No) - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-UB2N 11/1/95 Defense Supply Center 173,600.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-UB4B 7/29/96 Defense Supply Center 164,100.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-UB4S 8/8/96 Defense Supply Center 359,476.60 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP6C 6/26/90 Hill Air Force Base 857,490.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP24 8/31/94 Hill Air Force Base 3,639,129.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP44 2/2/95 Hill Air Force Base 177,072.83 Yes - ------------------------------------------------------------------------------------------------------ F42630-95-C-0450 6/23/95 Hill Air Force Base 1,559,070.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP91 6/28/95 Hill Air Force Base 410,040.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP97 8/11/95 Hill Air Force Base 198,008.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP1H 8/29/95 Hill Air Force Base 264,654.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP1B 9/13/95 Hill Air Force Base 167,095.72 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP3J 1/3/96 Hill Air Force Base 180,527.49 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP3V 2/6/96 Hill Air Force Base 288,416.70 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP4B 3/8/96 Hill Air Force Base 132,480.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP4F 3/13/96 Hill Air Force Base 424,560.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP5J 5/17/96 Hill Air Force Base 162,876.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP5E 5/21/96 Hill Air Force Base 292,591.74 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP5H 6/7/96 Hill Air Force Base 566,485.00 Yes - ------------------------------------------------------------------------------------------------------ F42630-96-C-0320 6/14/96 Hill Air Force Base 1,361,671.99 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-QP6B 7/1/96 Hill Air Force Base 1,613,850.00 Yes - ------------------------------------------------------------------------------------------------------ F04735-95-C-0044 8/23/95 US Air Force 112,968.00 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-6M01 9/27/95 US Air Force 115,161.38 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-6M03 9/27/95 US Air Force 259,493.08 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-6M02 10/2/95 US Air Force 121,823.52 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-6M13 3/12/96 US Air Force 458,890.56 Yes - ------------------------------------------------------------------------------------------------------ F09603-91G-0023-6M16 6/25/96 US Air Force 141,959.00 Yes ======================================================================================================
19 2
===================================================================================== Award FAR 52-232-23 Contract Number Date Customer Award Value (Yes/No) - ------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------- F09603-91G-0023-GB10 1/19/95 US Navy 238,500.00 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-GB11 1/19/95 US Navy 254,400.00 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-GB15 3/30/95 US Navy 286,580.00 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-GB17 5/23/95 US Navy 271,350.00 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-GB19 7/31/95 US Navy 499,871.82 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-GB20 8/21/95 US Navy 135,505.00 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-GC07 8/23/95 US Navy 481,140.00 Yes - ------------------------------------------------------------------------------------- N00383-94-G-0070-0002 9/29/95 US Navy 123,300.00 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-GB21 10/12/95 US Navy 262,975.00 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-GB27 3/6/96 US Navy 106,900.00 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-GB32 5/15/96 US Navy 282,125.00 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-GB36 5/24/96 US Navy 122,040.96 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-GB35 5/31/96 US Navy 252,070.00 Yes - ------------------------------------------------------------------------------------- F09603-91G-0023-BS03 1/17/96 USAAVSCOM 487,404.45 Yes =====================================================================================
20 SCHEDULE II LOCATION OF INVENTORY 1. Aerospace Industries, Inc. 2101 Front Street Riverfront Level Cuyahoga Falls, OH 44221 Attn: Stephen Linek Fax: 216-928-5283 2. Airtechnics 230 Ida Wichita, KS 67211 3. CrossAir Switzerland [borrower to provide full address] 4. Delta Air Lines Fulton County, Georgia [borrower to provide full address] 5. Derco Milwaukee County, Wisconsin [borrower to provide full address] 6. U.S. Air Piedmont Triad International Airport 815 Radar Road Greensboro, NC 27410 7. U.S. Air Indianapolis International Airport Indianapolis, IN 46241 EX-10.22 5 AMENDED AND RESTATED EFC SECURITY AGREEMENT 1 EXHIBIT 10.22 EXECUTION COPY AMENDED AND RESTATED EF SECURITY AGREEMENT AMENDED AND RESTATED EF SECURITY AGREEMENT, dated as of August 14, 1996, made by ENGINEERED FABRICS CORPORATION (the "Pledgor"), a Delaware corporation, in favor of The Chase Manhattan Bank (formerly known as Chemical Bank), as administrative agent (in such capacity, the "Administrative Agent"), for the lenders (the "Lenders"), parties to the Amended and Restated Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Pledgor, Aircraft Braking Systems Corporation, the Lenders, Lehman Commercial Paper Inc., as Documentation Agent, and the Administrative Agent. W I T N E S S E T H : WHEREAS, the Pledgor is party to an Amended and Restated Revolving Credit Agreement dated as of June 10, 1992 (as heretofore amended, the "Existing Revolving Credit Agreement"); WHEREAS, the Pledgor is party to an Amended and Restated Pledge and Security Agreement, dated as of June 10, 1992 (as heretofore amended, the "Existing Security Agreement"); WHEREAS, K & F Industries, Inc. ("K & F"), the parent of the Borrowers, has outstanding (i) an aggregate principal amount of $100,000,000 of its 11-7/8% Senior Secured Notes Due 2003 (the "Existing Senior Notes") and (ii) an aggregate principal amount of $170,000,000 of its 13-3/4% Senior Subordinated Debentures Due 2001 (the "Existing Subordinated Debentures"); WHEREAS, K & F and the Borrowers have requested that the Lenders and the Administrative Agent extend the credit facilities provided for in the Credit Agreement to refinance the credit facilities provided for in the Existing Revolving Credit Agreement, to finance the redemption of Existing Subordinated Debentures and, subject to certain restrictions, up to $60,000,000 in outstanding principal amount of the Existing Senior Notes, and to finance their working capital requirements; WHEREAS, the Lenders and the Administrative Agent are agreeable to the requested amendments on the terms and conditions set forth in the Credit Agreement and each of the parties thereto have agreed, for convenience, to restate the Existing Revolving Credit Agreement as so amended; WHEREAS, it is intended that this Amended and Restated EF Security Agreement be a continuation of the Existing Security Agreement; and WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective Loans under the Credit Agreement that the Pledgor shall have confirmed and agreed to continue the security interest granted pursuant to the Existing Security Agreement and 2 2 shall have executed the amendment and restatement thereof pursuant to this Amended and Restated EF Security Agreement; NOW, THEREFORE, in consideration of the premises and to induce the Lenders to extend and maintain the extensions of credit under the Credit Agreement, and to open and participate in the Letters of Credit under the Credit Agreement and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Pledgor hereby agrees with the Administrative Agent, for the benefit of the Lenders, as follows: 1. Defined Terms. Unless otherwise defined herein, terms which are defined in the Credit Agreement and used herein are so used as so defined, the following terms which are defined in the UCC in effect in the state of New York on the date hereof are used herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm Products, Instruments, Inventory and Proceeds; and the following terms shall have the following meanings: "Collateral" means, collectively, the Existing Collateral and the New Collateral, as such terms are defined in Section 2 of this Security Agreement. "Contracts" means the Contracts listed on Schedule I hereto and all other contracts executed from time to time by the Pledgor with respect to an Account, as any of the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (a) all rights of the Pledgor to receive moneys due and to become due to it thereunder or in connection therewith, (b) all rights of the Pledgor to damages arising out of, or for, breach or default in respect thereof and (c) all rights of the Pledgor to perform and to exercise all remedies thereunder. "Security Agreement" means this Amended and Restated EF Security Agreement, as amended, supplemented or otherwise modified from time to time. "UCC" means the Uniform Commercial Code as from time to time in effect in the State of New York. 2. Confirmation and Continuation of Security Interest; Grant of Security Interest. (a) The Pledgor hereby confirms and acknowledges that the security interest, as granted and created by the Pledgor pursuant to the Existing Security Agreement and confirmed and acknowledged by the Pledgor herein, constitutes security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, and the Pledgor agrees to maintain and continue the security interest in favor of the Administrative Agent for itself and for the ratable benefit of the Lenders, as a lien on and a security interest in all of the following property now owned or at any time hereafter acquired by the Pledgor or in which the Pledgor now has or at any time in the future may acquire any right, title or interest (collectively, the "Existing Collateral"): i) all Accounts; ii) all Chattel Paper; iii) all Contracts; iv) all Documents; v) all Instruments; 3 3 vi) all Inventory; and vii) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. (b) As additional collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, the Pledgor hereby grants to the Administrative Agent for itself and for the ratable benefit of the Lenders a security interest in all of the following property now owned or at any time hereafter acquired by the Pledgor or in which the Pledgor now has or at any time in the future may acquire any right, title or interest (collectively, the "New Collateral"): i) all Accounts; ii) all Chattel Paper; iii) all Contracts; iv) all Documents; v) all Equipment; vi) all Instruments; vii) all Inventory; viii) all books and records pertaining to the New Collateral; and ix) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing. 3. Rights of Administrative Agent and Lenders; Limitations on Administrative Agent's and Lenders' Obligations. (a) Pledgor Remains Liable under Accounts and Contracts. Anything herein to the contrary notwithstanding, the Pledgor shall remain liable under each of the Accounts and Contracts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise to each such Account or Contract in accordance with and pursuant to the terms and provisions of each such Contract. Neither the Administrative Agent nor any of the Lenders shall have any obligation or liability under any Account (or any agreement giving rise thereto) or Contract by reason of or arising out of this Security Agreement or the receipt by the Administrative Agent or any of such Lenders of any payment relating to such Account or Contract pursuant hereto, nor shall the Administrative Agent or any of the Lenders be obligated in any manner to perform any of the obligations of the Pledgor under or pursuant to any Account (or any agreement giving rise thereto) or under or pursuant to any Contract, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Account (or any agreement giving rise thereto) or under any Contract, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. (b) Notice to Account Debtors and Contracting Parties. Upon the request of the Administrative Agent at any time after the occurrence and during the continuation of an Event of Default, the Pledgor shall notify account debtors on the Accounts and parties to the Contracts that the Accounts and the Contracts have been assigned to the Administrative Agent for the ratable benefit of the Lenders and that payments in respect thereof shall be made directly to the 4 4 Administrative Agent. The Administrative Agent may in its own name or in the name of others communicate with account debtors on the Accounts and parties to the Contracts to verify with them to its satisfaction the existence, amount and terms of any Accounts or Contracts with a copy of such communication to the Pledgor. (c) Collections on Accounts and Contracts. The Administrative Agent hereby authorizes the Pledgor to collect the Accounts and Contracts, subject to the Administrative Agent's direction and control, and the Administrative Agent may curtail or terminate said authority at any time. If required by the Administrative Agent at any time, any payments of Accounts and Contracts, when collected by the Pledgor, shall be forthwith (and, in any event, within two Business Days) deposited by the Pledgor in the exact form received, duly indorsed by the Pledgor to the Administrative Agent if required, in a special collateral account maintained by the Administrative Agent, subject to withdrawal by the Administrative Agent for the account of the Lenders only, as hereinafter provided, and, until so turned over, shall be held by the Pledgor in trust for the Administrative Agent and the Lenders, segregated from other funds of the Pledgor. All Proceeds while held by the Administrative Agent (or by the Pledgor in trust for the Administrative Agent and the Lenders) shall continue to be collateral security for all of the Obligations and shall not constitute payment thereof until applied as hereinafter provided. At such intervals as may be agreed upon by the Pledgor and the Administrative Agent, or, if an Event of Default shall have occurred and be continuing, at any time at the Administrative Agent's election, the Administrative Agent shall apply all or any part of the funds on deposit in said special collateral account on account of the Obligations in such order as the Administrative Agent may elect, and any part of such funds which the Administrative Agent elects not so to apply and deems not required as collateral security for the Obligations shall be paid over from time to time by the Administrative Agent to the Pledgor or to whomsoever may be lawfully entitled to receive the same. At the Administrative Agent's request, the Pledgor shall deliver to the Administrative Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Accounts and Contracts, including, without limitation, all original orders, invoices and shipping receipts. (d) Analysis of Accounts. The Administrative Agent shall have the right at any time during normal business hours and without any unreasonable disruption of business to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and the Pledgor shall furnish all such assistance and information as the Administrative Agent may require in connection therewith. At any time during normal business hours and without any unreasonable disruption of business, upon the Administrative Agent's request, which examination and preparation, including reasonable travel and out-of-pocket expenses, shall be at the Pledgor's expense for up to one such examination and report annually, the Pledgor shall cause independent public accountants or others satisfactory to the Administrative Agent to furnish to the Administrative Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts. 4. Representations and Warranties. The Pledgor hereby represents and warrants that: (a) Title; No Other Liens. (i) Except for the Lien confirmed and continued on the Existing Collateral for the ratable benefit of the Lenders pursuant to this Security Agreement and the other Liens permitted to exist on the Existing Collateral pursuant to the Credit Agreement, 5 5 the Pledgor owns each item of the Existing Collateral free and clear of any and all Liens or claims of others. To the best of the Pledgor's knowledge, after reasonable inquiry, no security agreement, financing statement or other public notice with respect to all or any part of the Existing Collateral is on file or of record in any public office, except such as may have been filed in favor of the Administrative Agent, for the ratable benefit of the Lenders, pursuant to the Existing Security Agreement or as may be permitted pursuant to the Credit Agreement. (ii) Except for the Lien granted on the New Collateral to the Administrative Agent for the ratable benefit of the Lenders pursuant to this Security Agreement and the other Liens permitted to exist on the New Collateral pursuant to the Credit Agreement, the Pledgor owns each item of the New Collateral free and clear of any and all Liens or claims of others. To the best of the Pledgor's knowledge, after reasonable inquiry, no security agreement, financing statement or other public notice with respect to all or any part of the New Collateral is on file or of record in any public office, except such as may have been filed in favor of the Administrative Agent, for the ratable benefit of the Lenders, pursuant to this Security Agreement or as may be permitted pursuant to the Credit Agreement. (b) Perfected First Priority Liens. (i) The Liens continued and confirmed pursuant to this Security Agreement continue to constitute perfected Liens on the Existing Collateral in favor of the Administrative Agent, for the ratable benefit of the Lenders, which are, except for the Liens permitted to exist on the Existing Collateral pursuant to the Credit Agreement, prior to all other Liens on the Existing Collateral created by the Pledgor and in existence on the Effective Date and which are enforceable as such against all creditors of and purchasers from the Pledgor, except with respect to inchoate statutory liens having priority as a matter of law. (ii) The Liens granted pursuant to this Security Agreement constitute valid perfected Liens on the New Collateral in favor of the Administrative Agent, for the ratable benefit of the Lenders, which are, except for the Liens permitted to exist on the New Collateral pursuant to the Credit Agreement, prior to all other Liens on the New Collateral created by the Pledgor and in existence on the Effective Date and which are enforceable as such against all creditors of and purchasers from the Pledgor, except with respect to inchoate statutory liens having priority as a matter of law. (c) Accounts. The amount represented by the Pledgor to the Lenders from time to time as owing by each account debtor or by all account debtors in respect of the Accounts will at such time be the correct amount actually owing by such account debtor or debtors thereunder, subject to adjustment in the ordinary course of business. No amount payable to the Pledgor under or in connection with any Account is evidenced by any Instrument or Chattel Paper which has not been delivered to the Administrative Agent. (d) Consents. No consent of any party (other than the Pledgor) to any Contract or any obligor in respect of any Account is required, or purports to be required, in connection with the execution, delivery and performance of this Security Agreement. Each Account and each Contract is in full force and effect and constitutes a valid and enforceable obligation of the obligor in respect thereof or parties thereto, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor's rights generally and by general equitable principles (whether 6 6 enforcement is sought by proceedings in equity or at law), except that the Pledgor may not have complied with the Federal Assignment of Claims Act and except where failure to obtain the assignments and consent to Accounts and Contracts would have a Material Adverse Effect. No consent or authorization of, filing with or other act by or in respect of any Governmental Authority is required in connection with the execution, delivery, performance, validity or enforceability of any of the Accounts or Contracts by any party thereto other than those which have been duly obtained, made or performed, are in full force and effect and do not subject the scope of any such Account or Contract to any material adverse limitation, either specific or general in nature. Neither the Pledgor nor (to the best of the Pledgor's knowledge) any other party to any Account or Contract is in default or is likely to become in default in the performance or observance of any of the terms thereof. The Pledgor has fully performed all its obligations to the extent then due under each Contract. The right, title and interest of the Pledgor in, to and under each Account or Contract are not subject to any defense, offset, counterclaim or claim which would materially adversely affect the value of such Account or Contract as Collateral, nor have any of the foregoing been asserted or alleged against the Pledgor as to any of the foregoing. The Pledgor has delivered to the Administrative Agent a complete and correct copy of each Contract, including all amendments, supplements and other modifications thereto. No amount payable to the Pledgor under or in connection with any Account or Contract is evidenced by any Instrument which has not been delivered to the Administrative Agent. (e) Location of Tangible Property. The Inventory and Equipment is kept at the locations in the United States listed on Schedule II hereto; provided that the Pledgor may revise the information set forth on Schedule II upon notice to the Administrative Agent. (f) Chief Executive Office. (i) The Pledgor's chief executive office is located at: c/o K & F Industries, Inc. 600 Third Avenue New York, New York 10016 (ii) The Pledgor's chief place of business is located at: 669 Goodyear Street Rockmart, Georgia 30153 (g) Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products. (h) Power and Authority; Authorization. The Pledgor has the corporate power and authority to execute and deliver, to perform its obligations under, to continue and confirm the Lien on the Existing Collateral pursuant to Section 2(a) of this Security Agreement and to grant the Lien on the New Collateral pursuant to Section 2(b) of this Security Agreement, and has taken all necessary corporate action to authorize its execution, delivery and performance of, and continuation or grant, as the case may be, of the Lien on the Collateral pursuant to this Security Agreement. 7 7 (i) Enforceability. This Security Agreement constitutes a legal, valid and binding obligation of the Pledgor enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles (whether enforcement is sought by a proceeding in equity or at law). (j) No Conflict. The execution, delivery and performance of this Security Agreement will not violate any provision of any Requirement of Law or Contractual Obligation of the Pledgor and will not result in the creation or imposition of any Lien on any of the properties or revenues of the Pledgor pursuant to any Requirement of Law or Contractual Obligation of the Pledgor, except as contemplated hereby or which could not reasonably be expected to have a Material Adverse Effect. (k) No Consents, etc. No consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder or creditor of the Pledgor), is required in connection with the execution, delivery, performance, validity or enforceability of this Security Agreement, except that the Pledgor may not have complied with the Federal Assignment of Claims Act, except where the failure to have obtained consents to the assignment of Accounts and Contracts would have a Material Adverse Effect. (l) No Litigation. Except as disclosed in the Offering Memorandum, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Pledgor, threatened by or against the Pledgor or against any of its properties or revenues (a) with respect to this Security Agreement or the pledges contemplated hereby or (b) which could reasonably be expected to have a Material Adverse Effect. The Pledgor agrees that the foregoing representations and warranties shall be deemed to have been made by the Pledgor on the date of each borrowing by any Borrower and each other extension of credit under the Credit Agreement on and as of such date of borrowing or extension of credit as through made hereunder on and as of such date except as they may specifically relate to an earlier date. 5. Covenants. The Pledgor covenants and agrees with the Administrative Agent and the Lenders that, from and after the date of this Security Agreement until the Obligations are paid in full (other than indemnification and reimbursement obligations for which claims have not been made by the Administrative Agent or the Lenders), the Revolving Credit Commitments and the Facility A Commitments are terminated, and the expiration, termination or return to Chase of the Letters of Credit: (a) Further Documentation; Pledge of Instruments. At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of the Pledgor, the Pledgor will promptly and duly execute and deliver such further instruments and documents and take such further action as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Security Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the UCC in effect in any jurisdiction with respect to the Liens 8 8 confirmed and continued hereby. The Pledgor also hereby authorizes the Administrative Agent to file any such financing or continuation statement without the signature of the Pledgor to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Security Agreement shall be sufficient as a financing statement for filing in any jurisdiction. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument in an amount in excess of $10,000, such Instrument shall be immediately delivered to the Administrative Agent, duly endorsed in a manner satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Security Agreement. (b) Indemnification. The Pledgor agrees to pay, and to save the Administrative Agent and the Lenders harmless from, any and all liabilities, costs and expenses (including, without limitation, legal fees and expenses) (i) with respect to, or resulting from, any delay in paying, any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay in complying with any Requirement of Law applicable to any of the Collateral or (iii) in connection with the pledges contemplated by this Security Agreement. In any suit, proceeding or action brought by the Administrative Agent or any Lenders under any Account or Contract for any sum owing thereunder, or to enforce any provisions of any Account or Contract, the Pledgor will save, indemnify and keep the Administrative Agent and such Lender harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by the Pledgor of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from the Pledgor. (c) Maintenance of Records. The Pledgor will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Accounts and Contracts. The Pledgor will mark its books and records pertaining to the Collateral to evidence this Security Agreement and the security interests continued and confirmed or granted, as the case may be, hereby. For the further security of the Administrative Agent and the Lenders, the Administrative Agent, for the ratable benefit of the Lenders, shall have a security interest in all of the Pledgor's books and records pertaining to the Collateral, and the Pledgor shall turn over any such books and records to the Administrative Agent or to its representatives during normal business hours at the request of the Administrative Agent. (d) Right of Inspection. The Pledgor will keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and, subject to restrictions imposed by any Governmental Authority governing access to classified information, permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of the Pledgor and its Subsidiaries with officers and employees of the Pledgor and its Subsidiaries and with its independent certified public accountants. (e) Compliance with Laws, etc. The Pledgor will comply in all material respects with all Requirements of Law applicable to the Collateral or any part thereof or to the 9 9 operation of the Pledgor's business; provided, however, that the Pledgor may contest any Requirement of Law in any reasonable manner which shall not, in the reasonable opinion of the Administrative Agent, adversely affect the Administrative Agent's or the Lenders' rights or the priority of their Liens on the Collateral. (f) Compliance with Terms of Contracts, etc. The Pledgor will perform and comply in all material respects with all its obligations under the Contracts and all its other Contractual Obligations relating to the Collateral. (g) Payment of Obligations. The Pledgor will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if (i) the validity thereof is being contested in good faith by appropriate proceedings, (ii) such proceedings do not involve any material danger of the sale, forfeiture or loss of any of the Collateral or any interest therein and (iii) such charge is adequately reserved against on the Pledgor's books in accordance with GAAP. (h) Limitation on Liens on Collateral. The Pledgor will not create, incur or permit to exist, will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Liens created or continued hereby or otherwise permitted in the Credit Agreement and will defend the right, title and interest of the Administrative Agent and the Lenders in and to any of the Collateral against the claims and demands of all Persons whosoever. (i) Limitations on Dispositions of Collateral. Except as otherwise permitted in the Credit Agreement, the Pledgor will not sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt, offer or contract to do so except for (x) sales of Inventory in the ordinary course of its business and (y) as permitted by subsection 7.5 of the Credit Agreement. (j) Limitations on Modifications, Waivers, Extensions of Contracts and Agreements Giving Rise to Accounts. Other than in the ordinary course of business, the Pledgor will not (i) amend, modify, terminate or waive any provision of any Contract or any agreement giving rise to an Account in any manner which could reasonably be expected to materially adversely affect the value of such Contract or Account as Collateral, (ii) fail to exercise promptly and diligently each and every material right which it may have under each Contract and each agreement giving rise to an Account (other than any right of termination) or (iii) fail to deliver to the Administrative Agent a copy of each material demand, notice or document received by it relating in any way to any Contract or any agreement giving rise to an Account. (k) Limitations on Discounts, Compromises, Extensions of Accounts. Other than in the ordinary course of business, the Pledgor will not grant any extension of the time of payment of any of the Accounts, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partially, any Person liable for the payment thereof, or allow any credit or discount whatsoever thereon. (l) Maintenance of Insurance. The Pledgor will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Inventory and Equipment 10 10 against loss by fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Administrative Agent and (ii) insuring the Pledgor, the Administrative Agent and the Lenders against liability for personal injury and property damage relating to such Inventory and Equipment, such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to the Administrative Agent and the Lenders, with losses payable to the Pledgor, the Administrative Agent and the Lenders as their respective interests may appear. All such insurance shall (i) contain a breach of warranty clause in favor of the Administrative Agent and the Lenders, (ii) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Administrative Agent and the Lenders of written notice thereof, (iii) name the Administrative Agent and the Lenders as insured parties and (iv) be reasonably satisfactory in all other respects to the Administrative Agent. The Pledgor shall deliver to the Administrative Agent and the Lenders a report of a reputable insurance broker with respect to such insurance during the month of April in each calendar year and such supplemental reports with respect thereto as the Administrative Agent may from time to time reasonably request. (m) Further Identification of Collateral. The Pledgor will furnish to the Administrative Agent and the Lenders from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail. (n) Notices. The Pledgor will advise the Administrative Agent and the Lenders promptly, in reasonable detail, at their respective addresses set forth in the Credit Agreement, (i) of any Lien (other than Liens created or continued hereby or permitted under the Credit Agreement) on, or claim asserted against, any of the Collateral and (ii) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the Liens created hereunder. (o) Changes in Locations, Name, etc. The Pledgor will not (i) change the location of its chief executive office/chief place of business from that specified in Subsection 4(f) hereof, (ii) permit any of the Inventory or Equipment to be kept at a location other than those listed on Schedule II hereto or (iii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Administrative Agent in connection with this Security Agreement would become seriously misleading, unless it shall have given the Administrative Agent and the Lenders at least 30 days prior written notice thereof and prior to effecting any such change taken such steps as the Administrative Agent may deem necessary or advisable to continue the perfection and priority of the security interest. (p) Governmental Obligors. At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of the Pledgor, the Pledgor will promptly take such actions required to comply with the Federal Assignment of Claims Act as set forth in 31 U.S.C. Section 3727 and 41 U.S.C. Section 15, as amended from time to time, with respect to any Accounts or Contracts of which the obligor is a Governmental Authority. 6. Administrative Agent's Appointment as Attorney-in-Fact. (a) Powers. The Pledgor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true 11 11 and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Pledgor and in the name of the Pledgor or in its own name, from time to time in the Administrative Agent's discretion, for the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Security Agreement, and, without limiting the generality of the foregoing, the Pledgor hereby gives the Administrative Agent the power and right, on behalf of the Pledgor, without notice to or assent by the Pledgor, to do the following: (i) in the case of any Account, at any time when the authority of the Pledgor to collect the Accounts has been curtailed or terminated pursuant to the first sentence of Section 3(c) hereof, or in the case of any other Collateral, at any time when any Event of Default shall have occurred and is continuing, in the name of the Pledgor or its own name, or otherwise, to take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under, or with respect to, any Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Administrative Agent for the purpose of collecting any and all such moneys due or with respect to such Collateral whenever payable; (ii) to pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Security Agreement and to pay all or any part of the premiums therefor and the costs thereof (with notice to the Pledgor that such payment or repair has been made); and (iii) upon the occurrence and during the continuance of any Event of Default, (a) to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (b) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (c) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (d) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (e) to defend any suit, action or proceeding brought against the Pledgor with respect to any Collateral; (f) to settle, compromise or adjust any suit, action or proceeding described in the preceding clause and, in connection therewith, to give such discharges or releases as the Administrative Agent may deem appropriate; and (g) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and to do, at the Administrative Agent's option and the Pledgor's expense, at any time, or from time to time, all acts and things which the Administrative Agent deems necessary to protect, preserve or realize upon the Collateral and the Liens of the Administrative Agent and the Lenders thereon and to effect the intent of this Security Agreement, all as fully and effectively as the Pledgor might do. 12 12 The Pledgor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. (b) Other Powers. The Pledgor also authorizes the Administrative Agent, at any time and from time to time, to execute, in connection with the sale provided for in Section 6 hereof, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. (c) No Duty on the Part of Administrative Agent or Lenders. The powers conferred on the Administrative Agent and the Lenders hereunder are solely to protect the interests of the Administrative Agents and the Lenders in the Collateral and shall not impose any duty upon the Administrative Agent or any to exercise any such powers. The Administrative Agent and the Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to the Pledgor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 7. Performance by Administrative Agent of Pledgor's Obligations. If the Pledgor fails to perform or comply with any of its agreements contained herein and the Administrative Agent, as provided for by the terms of this Security Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of the Administrative Agent incurred in connection with such performance or compliance, together with interest thereon at a rate per annum 2% above the ABR plus the then Applicable Margin, shall be payable by the Pledgor to the Administrative Agent on demand and shall constitute Obligations secured hereby. 8. Proceeds. In addition to the rights of the Administrative Agent and the Lenders specified in Section 3(c) with respect to payments of Accounts, it is agreed that if an Event of Default shall occur and be continuing (a) all Proceeds received by the Pledgor consisting of cash, checks and other similar items capable of exchange or conversion into money shall be held by the Pledgor in trust for the Administrative Agent and the Lenders, segregated from other funds of the Pledgor, and shall, forthwith upon receipt by the Pledgor, be turned over to the Administrative Agent in the exact form received by the Pledgor (duly indorsed by the Pledgor to the Administrative Agent, if required), and (b) any and all such Proceeds received by the Administrative Agent (whether from the Pledgor or otherwise) may, in the sole discretion of the Administrative Agent, be held by the Administrative Agent for the ratable benefit of the Lenders as collateral security for, and/or then or at any time thereafter may be applied by the Administrative Agent against, the Obligations (whether matured or unmatured), such application to be in such order as the Administrative Agent shall elect. Any balance of such Proceeds remaining after the Obligations shall have been paid in full shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive the same. 9. Remedies. If an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Lenders may exercise, in addition to all other rights and remedies granted to them in this Security Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, the Administrative Agent, 13 13 without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Pledgor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Administrative Agent or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Administrative Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Pledgor, which right or equity is hereby waived or released. The Pledgor further agrees, at the Administrative Agent's request, to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at the Pledgor's premises or elsewhere. The Administrative Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and the Lenders hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as the Administrative Agent may elect, and only after such application and after the payment by the Administrative Agent of any other amount required by any provision of law, need the Administrative Agent account for the surplus, if any, to the Pledgor. To the extent permitted by applicable law, the Pledgor waives all claims, damages and demands it may acquire against the Administrative Agent or any Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Pledgor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations and the fees and disbursements of any attorneys employed by the Administrative Agent or any Lender to collect such deficiency. 10. Limitation on Duties Regarding Preservation of Collateral. The Administrative Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. Neither the Administrative Agent, any Lender, nor any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Pledgor or otherwise. 11. Powers Coupled with an Interest. All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest. 12. Severability. Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of 14 14 such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13. Paragraph Headings. The paragraph headings used in this Security Agreement are for convenience of reference only and are not to affect the construction hereof or to be taken into consideration in the interpretation hereof. 14. No Waiver; Cumulative Remedies. Neither the Administrative Agent nor any Lender shall by any act (except by a written instrument pursuant to Section 15 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law. 15. Waivers and Amendments; Successors and Assigns; Governing Law. None of the terms or provisions of this Security Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Pledgor and the Administrative Agent; provided that any provision of this Security Agreement may be waived by the Administrative Agent in a written letter or agreement executed by the Administrative Agent or by telex or facsimile transmission from the Administrative Agent. This Security Agreement shall be binding upon the successors and assigns of the Pledgor and shall inure to the benefit of the Administrative Agent and the Lenders and their respective successors and assigns. This Security Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. 16. Notices. Notices hereunder may be given by mail, by telex or by facsimile transmission, addressed or transmitted to the Person to which it is being given at such Person's address or transmission number set forth in the Credit Agreement and shall be effective (a) in the case of mail, 2 days after deposit in the postal system, first class postage pre-paid and (b) in the case of telex or facsimile notices, when sent. The Pledgor may change its address and transmission number by written notice to the Administrative Agent, and the Administrative Agent or any Lender may change its address and transmission number by written notice to the Pledgor and, in the case of a Lender, to the Administrative Agent. 17. Authority of Administrative Agent. The Pledgor acknowledges that the rights and responsibilities of the Administrative Agent under this Security Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Security Agreement shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with 15 15 respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Pledgor, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and the Pledgor shall not be under any obligation, or entitlement, to make any inquiry respecting such authority. 18. No Subrogation. Notwithstanding any payment or payments made by the Pledgor hereunder, or any setoff or application of funds of the Pledgor by any Lender, or the receipt of any amounts by the Administrative Agent or any Lender with respect to any of the Collateral, the Pledgor shall not be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against any other Loan Party or against any other collateral security held by the Administrative Agent or any Lender for the payments of the Obligations, nor shall the Pledgor seek any reimbursement from any other Loan Party in respect of payments made by the Pledgor in connection with the Collateral, or amounts realized by the Administrative Agent or any Lender in connection with the Collateral, until all amounts owing to the Administrative Agent and the Lenders on account of the Obligations are paid in full. If any amount shall be paid to the Pledgor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by the Pledgor in trust for the Administrative Agent and the Lenders, segregated from other funds of the Pledgor, and shall, forthwith upon receipt by the Pledgor, be turned over to the Administrative Agent in the exact form received by the Pledgor (duly indorsed by the Pledgor to the Administrative Agent, if required) to be applied against the Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. 19. Amendments, etc. with respect to the Obligations. The Pledgor shall remain obligated hereunder and the Collateral shall remain subject to the Lien confirmed and continued or created, as the case may be, hereby, notwithstanding that, without any reservation of rights against the Pledgor, and without notice to the further assent by the Pledgor, any demand for payment of any of the Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such bank, and any of the Obligations continued, and the Obligations, or the liability of any other Loan Party or any other Person upon or for any part thereof, or any collateral security or guarantee therefor or rights of offset with respect thereto, may from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered, or released by the Administrative Agent or the Lenders (or the Required Lenders, as the case may be), and the Credit Agreement, the Notes, the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or part, as the Lenders (or the Required Lenders, as the case may be) may deem advisable from time to time, and any guarantee, right of offset or other collateral security at any time held by the Administrative Agent or any Lender for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any other Lien at any time held by it as security for the Obligations or any property subject thereto. The Pledgor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon this Security Agreement; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Security Agreement; and all dealings between the other Loan Parties and the Pledgor, on the one hand, and the Administrative Agent and the Lenders, on the other, shall likewise be 16 16 conclusively presumed to have been had or consummated in reliance upon this Security Agreement. The Pledgor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon any other Loan Party with respect to the Obligations. 20. Governing Law. This Security Agreement shall be governed by, and construed and interpreted in accordance with the laws of the State of New York. 17 17 IN WITNESS WHEREOF, the Pledgor has caused this Security Agreement to be duly executed and delivered as of the date first above written. ENGINEERED FABRICS CORPORATION By /s/ Kenneth M. Schwartz ________________________________ Title: 18 SCHEDULE I CONTRACTS
TOTAL AWARD ----------- CONTRACT NUMBER CUSTOMER AMOUNT - --------------- -------- ------ F34601-96-M-0225 TINKER AFB $22,956.00 F34601-96-M-0608 TINKER AFB $18,963.00 F34601-96-M-0620 TINKER AFB $41,644.00 F34601-96-M-1345 TINKER AFB $31,233.00 F34601-96-M-0791 TINKER AFB $19,971.00 F09603-95-C-1124 WARNER ROBINS ALC $1,775,050.02 DAAJ09-96-C-0203 ARMY ATCOM $245,000.00 SP0460-96-M-V912 DEFENSE GENERAL SUPPLY $19,032.00 SP0460-96-M-W026 DEFENSE GENERAL SUPPLY $8,832.00 SP0460-96-M-W714 DEFENSE GENERAL SUPPLY $4,992.00 SP0460-96-M-0441 DEFENSE GENERAL SUPPLY $95,000.00 N00244-96-M-M144 FLEET INDUSTRIAL SUPPLY $9,096.00 N00383-96-C-N098 NAVAL INDUSTRIAL SUPPLY $1,126,173.00 N00383-96-D-0048 NAVAL INDUSTRIAL SUPPLY $1,472,911.25 N00383-96-P-N216 NAVAL INDUSTRIAL SUPPLY $92,475.00 TOTAL $4,983,328.02
19 SCHEDULE II LOCATION OF INVENTORY 1. 669 Goodyear Street Rockmart, Georgia 2. Gunfire Test Facility Rockmart, Georgia EX-10.23 6 REVOLVING CREDIT NOTE DATED AUGUST 14, 1996 1 EXHIBIT 10.23 REVOLVING CREDIT NOTE $5,727,272.73 New York, New York August 14, 1996 FOR VALUE RECEIVED, the undersigned, AIRCRAFT BRAKING SYSTEMS CORPORATION and ENGINEERED FABRICS CORPORATION (collectively, the "Borrowers"), hereby jointly and severally and unconditionally promise to pay to the order of NBD BANK (the "Lender") at the office of The Chase Manhattan Bank (formerly known as Chemical Bank) located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States and in immediately available funds, the principal amount of the lesser of (a) FIVE MILLION SEVEN HUNDRED AND TWENTY-SEVEN THOUSAND TWO HUNDRED AND SEVENTYTWO AND SEVENTY-THREE ONE HUNDREDTHS Dollars ($5,727,272.73) and (b) the aggregate unpaid principal amount of all loans made by the Lender to the undersigned pursuant to subsection 2.1 of the Credit Agreement, as hereinafter defined. The undersigned further jointly and severally agree to pay interest in like money at such office on the unpaid principal amount hereof from time to time from the date hereof until such amount shall become due and payable (whether at the stated maturity, by acceleration or otherwise) at a rate or rates per annum as specified in subsection 2.13 of the Credit Agreement until such amount is paid in full (as well after and before judgment, to the extent permitted by law). The holder of this Revolving Credit Note is authorized to endorse the date, Type, and amount of each Revolving Credit Loan made pursuant to subsection 2.1 of the Credit Agreement, the date and amount of each payment or prepayment of principal with respect thereto and each conversion of all or a portion thereof made pursuant to subsection 2.11 of the Credit Agreement, and, in the case of Eurodollar Loans, the interest rate and the Interest Period with respect thereto, on Schedules A and B annexed hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, which endorsement shall constitute prima facie evidence of the accuracy of the information endorsed, provided that neither the failure to make (nor any error in the making of) any such recordation shall limit or otherwise affect the obligation of the undersigned hereunder or under the Credit Agreement with respect to any loan and payments of principal or interest under this Revolving Credit Note. This Revolving Credit Note is one of the Revolving Credit Notes referred to in the Amended and Restated Credit Agreement, dated as of August 14, 1996 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the undersigned, the Lender, the other financial institutions party thereto, Lehman Commercial Paper Inc., as Documentation Agent, and The Chase Manhattan Bank, as Administrative Agent, and is entitled to the benefits thereof and is subject to optional and mandatory prepayment in whole or in part as provided therein. Upon the occurrence of any one or more of the Events of Default specified in such Credit Agreement, all amounts then remaining unpaid on this Revolving Credit Note shall become, or may be declared to be, immediately due and payable, all as provided therein. 2 2 This Revolving Credit Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. AIRCRAFT BRAKING SYSTEMS CORPORATION By: /s/ Kenneth M. Schwartz __________________________ Name: Title: ENGINEERED FABRICS CORPORATION By: /s/ Kenneth M. Schwartz __________________________ Name: Title: 3 SCHEDULE A ABR LOANS AND REPAYMENT OF ABR LOANS
=================================================================================================================================== Amount of Unpaid Principal Amount of ABR Loans Balance of ABR Notation Date ABR Loan Repaid Loans Made by - -----------------------------------------------------------------------------------------------------------------------------------
4 SCHEDULE B EURODOLLAR LOANS AND REPAYMENTS OF EURODOLLAR LOANS
=================================================================================================================================== Eurodollar Unpaid Interest Period Principal and Eurodollar Amount of Balance of Amount of Rate with Eurodollar Eurodollar Notation Made Date Eurodollar Loan Respect Thereto Loans Repaid Loans by - -----------------------------------------------------------------------------------------------------------------------------------
EX-10.24 7 FACILITY A NOTES DATED AS OF AUGUST 14, 1996 1 EXHIBIT 10.24 FACILITY A NOTE $3,272,727.27 New York, New York August 14, 1996 FOR VALUE RECEIVED, the undersigned (the "Borrowers"), hereby jointly and severally unconditionally promise to pay to the order of NBD BANK (the "Lender") at the office of The Chase Manhattan Bank (formerly known as Chemical Bank), located at 270 Park Avenue, New York, New York 10017 in lawful money of the United States and in immediately available funds, the principal amount of THREE MILLION TWO HUNDRED AND SEVENTY-TWO THOUSAND SEVEN HUNDRED AND TWENTY-SEVEN AND TWENTY-SEVEN ONE HUNDREDTHS Dollars ($3,272,727.27), or, if less, the unpaid principal amount of the Facility A Loan made by the Lender pursuant to Section 2.6 of the Credit Agreement, as hereinafter defined. The principal amount shall be paid in the amounts and on the dates specified in Section 2.8 of the Credit Agreement. The Borrowers further jointly and severally agree to pay interest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in Section 2.13 of such Credit Agreement. The holder of this Facility A Note is authorized to endorse on the schedules annexed hereto and made a part hereof or on a continuation thereof, which shall be attached hereto and made a part hereof, the date, Type and amount of the Facility A Loan and the date and amount of each payment or prepayment of principal with respect thereto, each conversion of all or a portion thereof to another Type, each continuation of all or a portion thereof as the same Type and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement or any error in any such endorsement shall not affect the obligations of the Borrowers in respect of the Facility A Loan evidenced hereby. This Facility A Note (a) is one of the Facility A Notes referred to in the Amended and Restated Credit Agreement dated as of August 14, 1996 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrowers, the Lender and other financial institutions or entities from time to time parties thereto, The Chase Manhattan Bank, as Administrative Agent, and Lehman Commercial Paper Inc., as Documentation Agent, (b) is subject to the provisions of the Credit Agreement, and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Facility A Note is secured as provided in the Loan Documents. Reference is hereby made to the Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security, the terms and conditions upon which the security interests were granted and the rights of the holder of this Facility A Note in respect thereof. Upon the occurrence of any one or more of the Events of Default, all amounts then remaining unpaid on this Facility A Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. All parties now and hereafter liable with respect to this Facility A Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. 2 2 Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. This Facility A Note shall be governed by, and construed and interpreted in accordance with, the law of the state of New York. AIRCRAFT BRAKING SYSTEMS CORPORATION By: /s/ Kenneth M. Schwartz __________________________ Name: Title: ENGINEERED FABRICS CORPORATION By: /s/ Kenneth M. Schwartz __________________________ Name: Title: 3 Schedule A to Facility A Note LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS
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4 Schedule B to Facility A Note LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
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- --------------------------------------------------------------------------------------- Amount of Principal of Amount of Eurodollar Unpaid Principal Eurodollar Loans Loans Converted to Balance of Eurodollar Notation Repaid ABR Loans Loans Made By - ---------------------------------------------------------------------------------------
EX-10.25 8 AMENDED AND RESTATED K AND F AGREEMENT 1 EXHIBIT 10.25 EXECUTION COPY AMENDED AND RESTATED K&F AGREEMENT AMENDED AND RESTATED K&F AGREEMENT, dated as of August 14, 1996 (this "K&F Agreement"), by K&F Industries, Inc. ("K&F"), in favor of The Chase Manhattan Bank (formerly known as Chemical Bank), a New York banking corporation, as administrative agent (in such capacity, the "Administrative Agent") for the lenders (the "Lenders") that are parties to the Credit Agreement described below. W I T N E S S E T H : WHEREAS, Aircraft Braking Systems Corporation ("ABS") and Engineered Fabrics Corporation ("EF"; together with ABS, the "Borrowers"), each Delaware corporations, are parties to the Amended and Restated Credit Agreement, dated as of August 14, 1996, with the Administrative Agent, the Lenders and Lehman Commercial Paper Inc., as Documentation Agent (as the same may from time to time be amended, supplemented or otherwise modified, the "Credit Agreement"); WHEREAS, pursuant to the terms of the Credit Agreement and the other Loan Documents, the Lenders have agreed to make and maintain certain extensions of credit to or for the benefit of the Borrowers; WHEREAS, K&F owns directly or indirectly all of the issued and outstanding stock of each of the Borrowers; WHEREAS, K&F will derive substantial direct and indirect benefit from the making and maintaining of the extensions of credit; and WHEREAS, the obligation of the Lenders to make and maintain the extensions of credit is conditioned upon, among other things, the execution and delivery by K&F of this K&F Agreement; NOW, THEREFORE, in consideration of the premises and to induce the Lenders to enter into the Credit Agreement and to make and maintain the Extensions of Credit, K&F hereby agrees with and for the benefit of the Administrative Agent and the Lenders as follows: 1. Defined Terms. As used in this K&F Agreement, terms defined in the Credit Agreement are used herein as therein defined. 2. Covenants. K&F hereby covenants and agrees with the Administrative Agent and each Lender, from and after the date of this K&F Agreement until the Obligations are paid in full (other than indemnification and reimbursement obligations for which claims have not been made by the Administrative Agent or the Lenders), the Revolving Credit Commitments and the Facility A Commitments are terminated, and the expiration, termination or return to Chase of the Letters of Credit, that: 2 2 (a) K&F will furnish the Borrowers with all financial statements and other information and documents concerning K&F and its consolidated Subsidiaries required to enable the Borrowers timely to comply with Subsections 6.1 and 6.2 of the Credit Agreement; (b) K&F will not create, incur, assume or suffer to exist any Indebtedness, except (i) Indebtedness outstanding on the Effective Date and listed on Schedule I hereto, (ii) Indebtedness owed by K&F to either Borrower and (iii) Indebtedness in respect of the Subordinated Notes; (c) K&F will not make any payment or expenditure of any kind or nature, including, without limitation, any payment to any stockholder of K&F, except for (i) payments of interest in respect of Indebtedness permitted by clause (b) above and payments of premiums in respect of Permitted Redemptions, (ii) up to $10,000,000 in operating expenses during each fiscal year of K&F and (iii) payments in respect of United States federal and New York state taxes in an amount not to exceed $1,000,000 per fiscal year, or, to the extent that such amount is unused in a fiscal year, in an amount in a succeeding year not to exceed the sum of $1,000,000 plus such unused amounts cumulatively carried over from preceding years; (d) K&F will not (i) make any optional payment or optional prepayment on or optional redemption of any Indebtedness or other obligation, except Permitted Redemptions, or (ii) amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms relating to the payment or prepayment of principal of or interest on any Indebtedness (other than any such amendment, modification or change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon), including but not limited to the subordination provisions of the Existing Subordinated Debentures and the Subordinated Notes; (e) K&F will not change its fiscal year from the year ended March 31; provided, however, that K&F may change its fiscal year one time, provided that it gives notice of such change to the Administrative Agent and the Lenders at least 45 days prior to the date such change becomes effective and K&F, the Borrowers and the Administrative Agent negotiate in good faith to determine prior to such effective date the amendments, if any, required to be made to the Credit Agreement and the documents contemplated thereby (including this K&F Agreement) as a result of such change in the fiscal year (which amendments shall be approved by the Required Lenders as required by subsection 10.1 of the Credit Agreement); (f) Unless required by changes in GAAP, K&F will not (except with the consent of the Required Lenders) change any of its accounting or financial practices or policies in a manner that affects the way in which it currently accounts for (and expenses currently) its product development costs and its discounts on sales; and 3 3 3. Representations and Warranties. K&F hereby represents and warrants that: (a) K&F is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the corporate power and authority and the legal right to own and operate its property, to lease the property it operates and to conduct the business in which it is currently engaged; (b) K&F has the corporate power and authority and the legal right to execute and deliver, and to perform its obligations under, this K&F Agreement, and has taken all necessary corporate action to authorize its execution, delivery and performance of this K&F Agreement; (c) this K&F Agreement constitutes a legal, valid and binding obligation of K&F enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally; (d) the execution, delivery and performance of this K&F Agreement will not violate any provision of any Requirement of Law or Contractual Obligation of K&F and will not result in or require the creation or imposition of any Lien on any of the properties or revenues of K&F pursuant to any Requirement of Law or Contractual Obligation of K&F the consequences of which violation, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; (e) no consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder or creditor of K&F) is required in connection with the execution, delivery, performance, validity or enforceability of this K&F Agreement; (f) except as disclosed in the Offering Memorandum, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of K&F, threatened by or against K&F or any of its properties or revenues (i) with respect to this K&F Agreement or any of the transactions contemplated hereby or (ii) which could have a Material Adverse Effect; (g) K&F has filed or caused to be filed all tax returns required to be filed by it, and has paid all taxes due on said returns or on any assessments made against it other than those being contested in good faith by appropriate proceedings for which adequate reserves have been provided on its books); and (h) the audited consolidated balance sheets of K&F and its consolidated Subsidiaries as at March 31, 1995 and 1996 and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of K&F and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the fiscal years then ended and the unaudited consolidated balance sheet of K&F and its 4 4 consolidated Subsidiaries as at May 31, 1996 and the related unaudited consolidated statements of income and of cash flows for the two-month period ended on such date, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of K&F and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the two-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). Neither K&F nor any of its consolidated Subsidiaries had, at the date of the most recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto. During the period from March 31, 1996 to and including the date hereof, there has been no sale, transfer or other disposition by K&F or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the consolidated financial condition of K&F and its consolidated Subsidiaries at March 31, 1996 other than purchases or sales of inventory and capital expenditures in the ordinary course of business. Since June 30, 1996, there has been no material adverse change in the business, operations, property or financial or other condition of K&F and its subsidiaries. K&F agrees that the foregoing representations and warranties shall be deemed to have been made by K&F on the date of each borrowing by the Borrowers under the Credit Agreement on and as of such date of borrowing as though made hereunder on and as of such date. 4. Severability. Any provision of this K&F Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 5. No Waiver; Cumulative Remedies. Neither the Administrative Agent nor any Lender shall by any act (except by a written instrument pursuant to paragraph 7 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising any right, power or privilege hereunder, on the part of the Administrative Agent or any Lender, shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Lender would otherwise have on any future occasion. The rights 5 5 and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law. 6. Integration; Waivers and Amendments; Successors and Assigns; Governing Law. This K&F Agreement represents the agreement of K&F with respect to the subject matter hereof and there are no promises or representations by the Administrative Agent or any Lender relative to the subject matter hereof not reflected herein. None of the terms or provisions of this K&F Agreement may be waived, amended or supplemented or otherwise modified except by a written instrument executed by K&F and the Administrative Agent, provided that any provision of this K&F Agreement may be waived by the Administrative Agent and the Lenders in a letter or agreement executed by the Administrative Agent or by telex or facsimile transmission from the Administrative Agent. This K&F Agreement shall be binding upon the successors and assigns of K&F and shall inure to the benefit of the Administrative Agent and the Lenders and their respective successors and assigns. THIS K&F AGREEMENT SHALL BE GOVERNED BY AND BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 7. Notices. All notices, requests and demands to or upon K&F or the Administrative Agent or any Lender to be effective shall be in writing or by telegraph or telex and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or, in the case of mail, three days after deposit in the postal system, first class postage prepaid, or, in the case of telegraphic notice, when sent, answerback received, addressed to the Administrative Agent at the address set forth in subsection 10.2 of the Credit Agreement and to K&F as follows: K&F Industries, Inc. 600 Third Avenue New York, New York 10016 Attention: Kenneth M. Schwartz Executive Vice President Telecopy: (212) 867-1182 8. Paragraph Headings. The paragraph headings used in this K&F Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 6 6 IN WITNESS WHEREOF, the undersigned has caused this K&F Agreement to be duly executed and delivered by its duly authorized officer as of the day and year first above written. K&F INDUSTRIES, INC. By: /s/ Kenneth M. Schwartz -------------------------- Name: Title: 7 SCHEDULE 1 EXISTING INDEBTEDNESS 1. $100,000,000 11-7/8% Senior Secured Notes due 2003 issued by K & F Industries, Inc. under an Indenture dated as of June 1, 1992. 2. $170,000,000 13-3/4% Senior Subordinated Debentures due 2001 issued by K & F Industries, Inc. under an Indenture dated as of August 1, 1989. EX-10.26 9 AMENDED AND RESTATED ABS SUBORDINATION AGREEMENT 1 EXHIBIT 10.26 ABS SUBORDINATION AGREEMENT AMENDED AND RESTATED ABS SUBORDINATION AGREEMENT, dated as of August 14, 1996, among AIRCRAFT BRAKING SYSTEMS CORPORATION, a Delaware corporation (the "Borrower"), K & F INDUSTRIES, INC., a Delaware corporation ("K&F"), and THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), a New York banking corporation ("Chase"), as administrative agent (in such capacity, the "Administrative Agent") for the Senior Lenders (as defined below). W I T N E S S E T H : WHEREAS, the Borrower has entered into the Amended and Restated Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Agreement") with Engineered Fabrics Corporation, the Senior Lenders, and the Administrative Agent, pursuant to which the Senior Lenders will make Senior Loans (as defined below) to the Borrower and Chase will issue Letters of Credit for the account of the Borrower; and WHEREAS, pursuant to the terms of the Intercompany Note, dated as of April 28, 1989, made by the Borrower in favor of K&F (the "Intercompany Note"), K&F has made a loan in the amount of $304,600,000 (the "Subordinated Loan") to the Borrower; and WHEREAS, it is a condition precedent to the making and maintaining of the Senior Loans by the Senior Lenders to the Borrower under the Senior Credit Agreement and the issuance of the Letters of Credit by Chase for the account of the Borrower that K&F and the Borrower shall have entered into this Agreement; and WHEREAS, the Borrower is a wholly-owned subsidiary of K&F; and WHEREAS, K&F will benefit from the making of the Senior Loans by the Senior Lenders to the Borrower and the issuance of the Letters of Credit for the account of the Borrower by Chase under the Senior Credit Agreement; NOW, THEREFORE, in consideration of the premises and in order to induce the Senior Lenders to make the Senior Loans under the Senior Credit Agreement and Chase to issue the Letters of Credit for the account of the Borrower, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Definitions. Each capitalized term used herein and not otherwise defined shall have the definition assigned to such term in the Senior Credit Agreement, and the following terms shall have the following meanings: "Agreement" means this Amended and Restated ABS Subordination Agreement, as the same may from time to time be amended or supplemented. 2 2 "Junior Debt" means all indebtedness, obligations and liabilities of the Borrower arising out of or in connection with the Subordinated Loan or the Intercompany Note, including, without limitation, all principal of, premium (if any) and interest on the Subordinated Loan and any and all renewals and extensions thereof. "Senior Debt" means all Obligations of the Borrower, including, without limitation, all principal of, premium (if any) and interest on all extensions of credit made to or for the account of the Borrower under the Senior Credit Agreement and any and all renewals and extensions thereof (including any interest accruing subsequent to the commencement of bankruptcy, insolvency or similar proceedings with respect to the Borrower). "Senior Loans" has the meaning assigned to the term "Loan" in subsection 1.1 of the Senior Credit Agreement. "Subordinated Lender" means K&F and any successor or assignee of K&F which at any time shall be the holder of or obligee on any Junior Debt. SECTION 2. SUBORDINATION 2.1 Subordination to Senior Secured Obligations. The Borrower, for itself and its successors and assigns, and the Subordinated Lender, on its behalf and on behalf of each of its successors and assigns that is a holder of Junior Debt, agree that the Junior Debt shall be subordinate and junior in right of payment on the terms of this subsection 2.1 to the prior payment in full in cash of all of the Senior Debt. 2.2 No Payment. No payment on account of principal of, premium (if any) or interest on Junior Debt shall be made except in accordance with Section 7.7 of the Credit Agreement. In addition, no payment on account of principal of, premium (if any) or interest on Junior Debt shall be made (a) unless full payment of all amounts then due in respect of all Senior Debt has been made or (b) if, at the time of such payment or immediately after giving effect thereto, there shall exist any Event of Default or Default (as such terms are defined in the Senior Credit Agreement). In the event that, notwithstanding the foregoing, the Borrower shall make any payment or distribution to the Subordinated Lender prohibited by the foregoing sentence, such payment or distribution shall be held in trust for the benefit of, and shall be paid over to, the Senior Lenders (pro rata to each Senior Lender on the basis of the respective amounts of Senior Debt held by such Senior Lender). 2.3 Payment Over of Proceeds Upon Dissolution, etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Borrower or its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Borrower, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Borrower, then and in any such event. (1) the Senior Debt (including, without limitation, any such amounts declared due prior to their stated maturity and any interest accruing after the occurrence of any 3 3 default or event of default specified in subsection 8(k) of the Senior Credit Agreement, whether or not such interest is allowed as a claim in any bankruptcy or insolvency proceeding) shall be entitled to receive payment in full in cash of all amounts due or to become due on or in respect of all Senior Debt, before the Subordinated Leader is entitled to receive any payment on account of principal of (or premium, if any) or interest or otherwise on the Junior Debt; (2) any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Subordinated Lender would be entitled but for the provisions hereof, including, with respect to the Junior Debt, any such payment or distribution which may be payable or deliverable by reason of the payment of any other debt of the Borrower being subordinated to the payment of the Junior Debt, shall be paid by the liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the Senior Lenders (pro rata to each such Senior Lender on the basis of the respective amounts of Senior Debt held by such Senior Lender), to the extent necessary to make payment in full in cash of all Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the Senior Lenders; and (3) in the event that, notwithstanding the foregoing, the Subordinated Lender shall have received any such payment or distribution of assets of the Borrower of any kind or character whether in cash, property or securities, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other debt of the Borrower being subordinated to the payment of the Junior Debt, before all Senior Debt is paid in full in cash, then and in such event such payment or distribution shall be paid over or delivered forthwith to the Senior Lenders (pro rata to each Senior Lender on the basis of the respective amounts of the Senior Debt held by such Senior Lender) to the extent necessary to make payment in full cash of all Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the Senior Lenders. 2.4 Authorization of Holders of Senior Debt to File Claims, etc. The Subordinated Lender hereby irrevocably authorizes and empowers (without imposing any obligation on) each Senior Lender and such Senior Lender's representatives, under the circumstances set forth in the immediately preceding paragraph, to demand, sue for, collect and receive every such payment or distribution described therein and give acquittance therefor, to file claims and proofs of claims in any statutory or nonstatutory proceeding, to vote such Senior Lender's ratable share of the full amount of Junior Debt in its sole discretion in connection with any resolution, arrangement, plan of reorganization, compromise, settlement or extension and to take all such other action (including, without limitation, the right to participate in any composition of creditors and the right to vote such Senior Lender's ratable share of Junior Debt at creditors' meetings for the election of trustees, acceptances of plans and otherwise), in the name of the Subordinated Lender or otherwise, as such Senior Lender's representatives may deem necessary or desirable for the enforcement of the subordination provisions hereof. The Subordinated Lender shall execute and deliver to each Senior Lender and such Senior Lender's representatives all such further instruments confirming the foregoing authorization, and all such powers of attorney, proofs 4 4 of claim, assignments of claim and other instruments, and shall take all such other action as may be reasonably requested by such holder or such holder's representatives in order to enable such holder to enforce all claims upon or in respect of such Senior Lender's ratable share of Junior Debt. 2.5 Limitation on Remedies. The Subordinated Lender shall not, without the prior written consent of the Senior Lenders, have any right to accelerate the maturity of, or institute any proceedings to enforce, any Junior Debt so long as any Senior Debt is outstanding or otherwise commence, prosecute or participate in any administrative, legal or equitable action against the Borrower. If the Subordinated Lender, in violation of the provisions herein set forth, shall commence, prosecute or participate in any suit, action, case or proceeding against the Borrower, the Borrower may interpose as a defense or plea the provisions hereof, and any Senior Lender may intervene and interpose such defense or plea in its own name or in the name of the Borrower, and shall, in any event, be entitled to restrain the enforcement of the payment provisions of the Junior Debt in its own name or in the name of the Borrower, as the case may be, in the same suit, action, case or proceeding or in any independent suit, action, case or proceeding. 2.6 Subrogation. After the payment in full of all amounts due in respect of Senior Debt, the Subordinated Lender shall be subrogated to the rights of the Senior Lenders to receive payments or distributions of cash, property or securities of the Borrower applicable to Senior Debt until the principal of, premium, if any, interest on and all other amounts due or to become due with respect to Junior Debt shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the Senior Lenders of any cash, property or securities to which the Subordinated Lender would be entitled except for these provisions, and no payment over pursuant to these provisions to the Senior Lenders by the Subordinated Lender shall, as among the Borrower, its creditors other than the Senior Lenders and the Subordinated Lender, be deemed to be a payment by the Borrower to or on account of Senior Debt. No payments or distributions to the Senior Lenders which the Subordinated Lender shall be entitled to receive pursuant to such subrogation shall, as among the Borrower, its creditors other than the Senior Lenders and the Subordinated Lender, be deemed to be a payment by the Borrower to or on account of Junior Debt. 2.7 Provisions Solely to Define Relative Rights. Nothing contained in this Agreement is intended to or shall impair as between the Borrower, its creditors other than the Senior Lenders, and the Subordinated Lender, the obligation of the Borrower to pay the Junior Debt to the Subordinated Lender, as and when the same shall become due and payable in accordance with its terms, or to affect the relative rights of the Subordinated Lender and creditors of the Borrower other than the Senior Lenders. 2.8 Further Assurances. Each holder of Junior Debt by its acceptance thereof authorizes and directs the Borrower on its behalf to take such further action as may be necessary or appropriate from time to time to effectuate the subordination as provided herein and appoints the Borrower its attorney-in-fact for any and all such purposes. 2.9 No Waiver of Subordination Provisions. The subordination effected hereby, and the rights of the Senior Lender, shall not be affected by (a) any amendment of, or addition or 5 5 supplement to, the Senior Credit Agreement or any of the Loan Documents or any instrument or agreement relating thereto or to any Senior Debt, (b) any exercise or non-exercise of any right, power or remedy under or in respect of the Senior Credit Agreement or any of the Loan Documents or any instrument or agreement relating thereto or to any Senior Debt, (c) any waiver, consent, release, indulgence, extension, renewal, modification, delay, or other action, inaction or omission, in respect of the Senior Credit Agreement or any of the other Loan Documents or any instrument or agreement relating thereto or to any Senior Debt, (d) any extension, renewal, modification or refunding of the Senior Debt, or (e) any sale of the Borrower or any interest therein or any sale, lease or transfer of any or all assets of the Borrower to any other person; whether or not the Subordinated Lender shall have had notice or knowledge of any of the foregoing. 2.10 Reinstatement of Subordination. The obligations of the Subordinated Lender under this Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Debt, or any other payment to any Senior Lender, is rescinded or must otherwise be restored or returned by such Senior Lender upon the occurrence of any proceeding referred to in subsection 2.3 hereof, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any substantial part of its property, or otherwise, all as though such payment had not been made. 2.11 Legend on Junior Debt. Each instrument evidencing any Junior Debt including, without limitation, the Intercompany Note, shall contain the following legend conspicuously noted on the face thereof. "THIS [NAME OF INSTRUMENT] IS SUBJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN THE ABS SUBORDINATION AGREEMENT, DATED AS OF AUGUST 14, 1996, AMONG AIRCRAFT BRAKING SYSTEMS CORPORATION, K & F INDUSTRIES, INC., AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT, AS THE SAME MAY FROM TIME TO TIME BE AMENDED" and shall specifically state that a copy of this Agreement is on file with the Borrower and is available for inspection at the Borrower's offices. SECTION 3. MISCELLANEOUS 3.1 No Waiver. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Senior Lender, any right, remedy, power or privilege provided herein or by statute or at law or in equity shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 3.2 Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. 3.3 Succession. This Agreement shall be binding upon and inure to the benefit of Senior Lenders and the parties hereto and their respective successors and assigns, but not assignment hereof shall in any event relieve the Subordinated Lender of its obligations hereunder. 6 6 3.4 Amendments, etc. This Agreement may be amended or modified only with the written consent of the Borrower, the Administrative Agent and the Subordinated Lender. 3.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. 3.6 Notices. Except as otherwise specified herein, all notices, requests, demands, consents, instructions or other communications hereunder shall be duly given or made if sent in writing by registered or certified mail, or by tested or otherwise authenticated telex or telecopy, in each case addressed to the party to which such notice is requested or permitted to be given or made, at the address specified beneath the heading "Address for Notices" under the name of the applicable party on the signature pages hereof, or at such other address of which such Person shall have notified in writing the party giving such notice. All notices shall be deemed given when received by the party to whom such notice was sent. 3.7 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and the parties hereto may execute this Agreement by signing any such counterpart. 7 7 IN WITNESS WHEREOF, the parties hereto, by their officers duly authorized, have caused this ABS Subordination Agreement to be duly executed and delivered as of the date first above written. AIRCRAFT BRAKING SYSTEMS CORPORATION By: /s/ -------------------------------- Name: Title: Address for Notices: Aircraft Braking Systems Corporation c/o K & F Industries, Inc. 600 Third Avenue New York, New York 10016 Attention: Kenneth M. Schwartz Executive vice President Telecopy: (212) 867-1182 K & F INDUSTRIES, INC. By: /s/ -------------------------------- Name: Title: Address for Notices: K & F Industries, Inc. 600 Third Avenue New York, New York 10016 Attention: Kenneth M. Schwartz Executive Vice President Telecopy: (212) 867-1182 8 8 THE CHASE MANHATTAN BANK, as Administrative Agent By: /s/ J. B. Treger ---------------------------- Name: JAMES B. TREGER Title: VICE PRESIDENT Address for Notices: The Chase Manhattan Bank 270 Park Avenue, 10th Floor New York, New York 10017 Attention: James B. Treger Vice President Telecopy: (212) 270-7890 EX-10.27 10 AMENDED AND RESTATED EFC SUBORDINATION AGREEMENT 1 EXHIBIT 10.27 EXECUTION COPY EF SUBORDINATION AGREEMENT AMENDED AND RESTATED EF SUBORDINATION AGREEMENT, dated as of August 14, 1996, among ENGINEERED FABRICS CORPORATION, a Delaware corporation (the "Borrower"), K & F INDUSTRIES, INC., a Delaware corporation ("K&F"), and THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), a New York banking corporation ("Chase"), as administrative agent (in such capacity, the "Administrative Agent") for the Senior Lenders (as defined below). W I T N E S S E T H : WHEREAS, the Borrower has entered into the Amended and Restated Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Senior Credit Agreement") with Aircraft Banking Systems Corporation, the Senior Lenders, and the Administrative Agent, pursuant to which the Senior Lenders will make Senior Loans (as defined below) to the Borrower and Chase will issue Letters of Credit for the account of the Borrower; and WHEREAS, pursuant to the terms of the Intercompany Note, dated as of April 28, 1989, made by the Borrower in favor of K&F (the "Intercompany Note"), K&F has made a loan in the amount of $48,400,000 (the "Subordinated Loan") to the Borrower; and WHEREAS, it is a condition precedent to the making and maintaining of the Senior Loans by the Senior Lenders to the Borrower under the Senior Credit Agreement and the issuance of the Letters of Credit by Chase for the account of the Borrower that K&F and the Borrower shall have entered into this Agreement; and WHEREAS, the Borrower is a wholly-owned subsidiary of K&F; and WHEREAS, K&F will benefit from the making of the Senior Loans by the Senior Lenders to the Borrower and the issuance of the Letters of Credit for the account of the Borrower by Chase under the Senior Credit Agreement; NOW, THEREFORE, in consideration of the premises and in order to induce the Senior Lenders to make the Senior Loans under the Senior Credit Agreement and Chase to issue the Letters of Credit for the account of the Borrower, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Definitions. Each capitalized term used herein and not otherwise defined shall have the definition assigned to such term in the Senior Credit Agreement, and the following terms shall have the following meanings: "Agreement" means this Amended and Restated EF Subordination Agreement, as the same may from time to time be amended or supplemented. 2 2 "Junior Debt" means all indebtedness, obligations and liabilities of the Borrower arising out of or in connection with the Subordinated Loan or the Intercompany Note, including, without limitation, all principal of, premium (if any) and interest on the Subordinated Loan and any and all renewals and extensions thereof. "Senior Debt" means all Obligations of the Borrower, including, without limitation, all principal of, premium (if any) and interest on all extensions of credit made to or for the account of the Borrower under the Senior Credit Agreement and any and all renewals and extensions thereof (including any interest accruing subsequent to the commencement of bankruptcy, insolvency or similar proceedings with respect to the Borrower). "Senior Loans" has the meaning assigned to the term "Loan" in subsection 1.1 of the Senior Credit Agreement. "Subordinated Lender" means K&F and any successor or assignee of K&F which at any time shall be the holder of or obligee on any Junior Debt. SECTION 2. SUBORDINATION 2.1 Subordination to Senior Secured Obligations. The Borrower, for itself and its successors and assigns, and the Subordinated Lender, on its behalf and on behalf of each of its successors and assigns that is a holder of Junior Debt, agree that the Junior Debt shall be subordinate and junior in right of payment on the terms of this subsection 2.1 to the prior payment in full in cash of all of the Senior Debt. 2.2 No Payment. No payment on account of principal of, premium (if any) or interest on Junior Debt shall be made except in accordance with Section 7.7 of the Credit Agreement. In addition, no payment on account of principal of, premium (if any) or interest on Junior Debt shall be made (a) unless full payment of all amounts then due in respect of all Senior Debt has been made or (b) if, at the time of such payment or immediately after giving effect thereto, there shall exist any Event of Default or Default (as such terms are defined in the Senior Credit Agreement). In the event that, notwithstanding the foregoing, the Borrower shall make any payment or distribution to the Subordinated Lender prohibited by the foregoing sentence, such payment or distribution shall be held in trust for the benefit of, and shall be paid over to, the Senior Lenders (pro rata to each Senior Lender on the basis of the respective amounts of Senior Debt held by such Senior Lender). 2.3 Payment Over of Proceeds Upon Dissolution, etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Borrower or its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Borrower, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Borrower, then and in any such event 3 3 (1) the Senior Debt (including, without limitation, any such amounts declared due prior to their stated maturity and any interest accruing after the occurrence of any default or event of default specified in subsection 8(k) of the Senior Credit Agreement, whether or not such interest is allowed as a claim in any bankruptcy or insolvency proceeding) shall be entitled to receive payment in full in cash of all amounts due or to become due on or in respect of all Senior Debt, before the Subordinated Lender is entitled to receive any payment on account of principal of (or premium, if any) or interest or otherwise on the Junior Debt; (2) any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Subordinated Lender would be entitled but for the provisions hereof, including, with respect to the Junior Debt, any such payment or distribution which may be payable or deliverable by reason of the payment of any other debt of the Borrower being subordinated to the payment of the Junior Debt, shall be paid by the liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the Senior Lenders (pro rata to each such Senior Lender on the basis of the respective amounts of Senior Debt held by such Senior Lender), to the extent necessary to make payment in full in cash of all Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the Senior Lenders; and (3) in the event that, notwithstanding the foregoing, the Subordinated Lender shall have received any such payment or distribution of assets of the Borrower of any kind or character whether in cash, property or securities, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other debt of the Borrower being subordinated to the payment of the Junior Debt, before all Senior Debt is paid in full in cash, then and in such event such payment or distribution shall be paid over or delivered forthwith to the Senior Lenders (pro rata to each Senior Lender on the basis of the respective amounts of the Senior Debt held by such Senior Lender) to the extent necessary to make payment in full in cash of all Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the Senior Lenders. 2.4 Authorization of Holders of Senior Debt to File Claims, etc. The Subordinated Lender hereby irrevocably authorizes and empowers (without imposing any obligation on) each Senior Lender and such Senior Lender's representatives, under the circumstances set forth in the immediately preceding paragraph, to demand, sue for, collect and receive every such payment or distribution described therein and give acquittance therefor, to file claims and proofs of claims in any statutory or nonstatutory proceeding, to vote such Senior Lender's ratable share of the full amount of Junior Debt in its sole discretion in connection with any resolution, arrangement, plan of reorganization, compromise, settlement or extension and to take all such other action (including, without limitation, the right to participate in any composition of creditors and the right to vote such Senior Lender's ratable share of Junior Debt at creditors' meetings for the election of trustees, acceptances of plans and otherwise), in the name of the Subordinated Lender or otherwise, as such Senior Lender's representatives may deem necessary or desirable for the enforcement of the subordination provisions hereof. The Subordinated Lender 4 4 shall execute and deliver to each Senior Lender and such Senior Lender's representatives all such further instruments confirming the foregoing authorization, and all such powers of attorney, proofs of claim, assignments of claim and other instruments, and shall take all such other action as may be reasonably requested by such holder or such holder's representatives in order to enable such holder to enforce all claims upon or in respect of such Senior Lender's ratable share of Junior Debt. 2.5 Limitation on Remedies. The Subordinated Lender shall not, without the prior written consent of the Senior Lenders, have any right to accelerate the maturity of, or institute any proceedings to enforce, any Junior Debt so long as any Senior Debt is outstanding or otherwise commence, prosecute or participate in any administrative, legal or equitable action against the Borrower. If the Subordinated Lender, in violation of the provisions herein set forth, shall commence, prosecute or participate in any suit, action, case or proceeding against the Borrower, the Borrower may interpose as a defense or plea the provisions hereof, and any Senior Lender may intervene and interpose such defense or plea in its own name or in the name of the Borrower, and shall, in any event, be entitled to restrain the enforcement of the payment provisions of the Junior Debt in its own name or in the name of the Borrower, as the case may be, in the same suit, action, case or proceeding or in any independent suit, action, case or proceeding. 2.6 Subrogation. After the payment in full of all amounts due in respect of Senior Debt, the Subordinated Lender shall be subrogated to the rights of the Senior Lenders to receive payments or distributions of cash, property or securities of the Borrower applicable to Senior Debt until the principal of, premium, if any, interest on and all other amounts due or to become due with respect to Junior Debt shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the Senior Lenders of any cash, property or securities to which the Subordinated Lender would be entitled except for these provisions, and no payment over pursuant to these provisions to the Senior Lenders by the Subordinated Lender shall, as among the Borrower, its creditors other than the Senior Lenders and the Subordinated Lender, be deemed to be a payment by the Borrower to or on account of Senior Debt. No payments or distributions to the Senior Lenders which the Subordinated Lender shall be entitled to receive pursuant to such subrogation shall, as among the Borrower, its creditors other than the Senior Lenders and the Subordinated Lender, be deemed to be a payment by the Borrower to or on account of Junior Debt. 2.7 Provisions Solely to Define Relative Rights. Nothing contained in this Agreement is intended to or shall impair as between the Borrower, its creditors other than the Senior Lenders, and the Subordinated Lender, the obligation of the Borrower to pay the Junior Debt to the Subordinated Lender, as and when the same shall become due and payable in accordance with its terms, or to affect the relative rights of the Subordinated Lender and creditors of the Borrower other than the Senior Lenders. 2.8 Further Assurances. Each holder of Junior Debt by its acceptance thereof authorizes and directs the Borrower on its behalf to take such further action as may be necessary or appropriate from time to time to effectuate the subordination as provided herein and appoints the Borrower its attorney-in-fact for any and all such purposes. 5 5 2.9 No Waiver of Subordination Provisions. The subordination effected hereby, and the rights of the Senior Lender, shall not be affected by (a) any amendment of, or addition or supplement to, the Senior Credit Agreement or any of the Loan Documents or any instrument or agreement relating thereto or to any Senior Debt, (b) any exercise or non-exercise of any right, power or remedy under or in respect of the Senior Credit Agreement or any of the Loan Documents or any instrument or agreement relating thereto or to any Senior Debt, (c) any waiver, consent, release, indulgence, extension, renewal, modification, delay, or other action, inaction or omission, in respect of the Senior Credit Agreement or any of the other Loan Documents or any instrument or agreement relating thereto or to any Senior Debt, (d) any extension, renewal, modification or refunding of the Senior Debt, or (e) any sale of the Borrower or any interest therein or any sale, lease or transfer of any or all assets of the Borrower to any other person; whether or not the Subordinated Lender shall have had notice or knowledge of any of the foregoing. 2.10 Reinstatement of Subordination. The obligations of the Subordinated Lender under this Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Debt, or any other payment to any Senior Lender, is rescinded or must otherwise be restored or returned by such Senior Lender upon the occurrence of any proceeding referred to in subsection 2.3 hereof, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any substantial part of its property, or otherwise, all as though such payment had not been made. 2.11 Legend on Junior Debt. Each instrument evidencing any Junior Debt including, without limitation, the Intercompany Note, shall contain the following legend conspicuously noted on the face thereof: "THIS [NAME OF INSTRUMENT] IS SUBJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN THE EF SUBORDINATION AGREEMENT, DATED AS OF AUGUST 14, 1996, AMONG ENGINEERED FABRICS CORPORATION, K & F INDUSTRIES, INC., AND THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT, AS THE SAME MAY FROM TIME TO TIME BE AMENDED" and shall specifically state that a copy of this Agreement is on file with the Borrower and is available for inspection at the Borrower's offices. SECTION 3. MISCELLANEOUS. 3.1 No Waiver. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Senior Lender, any right, remedy, power or privilege provided herein or by statute or at law or in equity shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 3.2 Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. 3.3 Succession. This Agreement shall be binding upon and inure to the benefit of the Senior Lenders and the parties hereto and their respective successors and assigns, but no assignment hereof shall in any event relieve the Subordinated Lender of its obligations hereunder. 6 6 3.4 Amendments, etc. This Agreement may be amended or modified only with the written consent of the Borrower, the Administrative Agent and the Subordinated Lender. 3.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. 3.6 Notices. Except as otherwise specified herein, all notices, requests, demands, consents, instructions or other communications hereunder shall be duly given or made if sent in writing by registered or certified mail, or by tested or otherwise authenticated telex or telecopy, in each case addressed to the party to which such notice is requested or permitted to be given or made, at the address specified beneath the heading "Address for Notices" under the name of the applicable party on the signature pages hereof, or at such other address of which such Person shall have notified in writing the party giving such notice. All notices shall be deemed given when received by the party to whom such notice was sent. 3.7 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and the parties hereto may execute this Agreement by signing any such counterpart. 7 7 IN WITNESS WHEREOF, the parties hereto, by their officers duly authorized, have caused this EF Subordination Agreement to be duly executed and delivered as of the date first above written. ENGINEERED FABRICS CORPORATION By: /s/ Kenneth M. Schwartz ____________________________ Name: Title: Address for Notices: Engineered Fabrics Corporation c/o K & F Industries, Inc. 600 Third Avenue New York, New York 10016 Attention: Kenneth M. Schwartz Executive Vice President Telecopy: (212) 867-1182 K & F INDUSTRIES, INC. By: /s/ Kenneth M. Schwartz ____________________________ Name: Title: Address for Notices: K & F Industries, Inc. 600 Third Avenue New York, New York 10016 Attention: Kenneth M. Schwartz Executive Vice President Telecopy: (212) 867-1182 8 8 THE CHASE MANHATTAN BANK, as Administrative Agent By: /s/ James B. Treger __________________________ Name: JAMES B. TREGER Title: VICE PRESIDENT Address for Notices: The Chase Manhattan Bank 270 Park Avenue, 10th Floor New York, New York 10017 Attention: James B. Treger Vice President Telecopy: (212) 270-7890 EX-10.28 11 PURCHASE AGREEMENT DATED AUGUST 12, 1996 1 EXHIBIT 10.28 $140,000,000 K & F INDUSTRIES, INC. 10 3/8% SENIOR SUBORDINATED NOTES DUE 2004 PURCHASE AGREEMENT August 12, 1996 Lehman Brothers Inc. Three World Financial Center New York, New York 10285 Chase Securities Inc. 270 Park Avenue New York, New York 10017 Ladies and Gentlemen: K & F Industries, Inc., a Delaware corporation (the "Company"), proposes to issue and sell to Lehman Brothers Inc. and Chase Securities Inc. (each an "Initial Purchaser" and together the "Initial Purchasers") $140,000,000 in aggregate principal amount of the Company's 10 3/8% Senior Subordinated Notes due 2004 (the "Notes"). The Company's 10 3/8% Senior Subordinated Notes due 2004, which are to be issued in exchange for the Notes pursuant to the terms of the Registration Rights Agreement (as defined), are referred to herein as the "Exchange Notes." The Notes and the Exchange Notes are to be issued pursuant to an indenture to be dated as of August 15, 1996 (the "Indenture") between the Company and Fleet National Bank, as trustee (the "Trustee"). Capitalized terms used herein and not otherwise defined are used as defined in the Offering Memorandum (as defined below) or the Indenture. Upon original issuance thereof, and until such time as the Company determines (based upon an opinion of counsel, if the Company so requests) it to be no longer required under the applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), the Notes (and all securities issued in exchange therefor or in substitution thereof) shall bear the following legend: "THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES 1 2 ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(a) INSIDE THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE." The Notes will be offered and sold to the Initial Purchasers without being registered under the Securities Act in reliance on an exemption from such registration requirements. The Company has prepared a preliminary offering memorandum, dated July 25, 1996 (the "Preliminary Offering Memorandum"), and will prepare a final offering memorandum to be dated the date hereof (the "Offering Memorandum," and together with the Preliminary Offering Memorandum, the "Offering Documents") setting forth or including a description of the terms of the Notes, the terms of the Offering, a description of the business of the Company and any material developments relating to the Company occurring after March 31, 1996. Copies of the Preliminary Offering Memorandum have been, and copies of the Offering Memorandum will be, delivered by the Company to the Initial Purchasers pursuant to the terms of this Agreement. The Company hereby confirms that it has authorized the use of the Offering Documents in connection with the offering and resale of the Notes by the Initial Purchasers in accordance with Section 3 hereof. It is understood by the parties hereto that (i) on or prior to the Closing Date (as defined herein) the Company, as borrower, and the other parties thereto will have entered into an amendment to its senior credit facility (the "Amended and Restated Credit Agreement") and (ii) following the Closing Date, the Company will use the proceeds from the Offering, together with borrowings under the Amended and Restated Credit Agreement, to redeem $170 million 2 3 in aggregate principal amount of the Company's 13 3/4% Senior Subordinated Debentures due 2001 (such debentures referred to herein as the "13 3/4% Debentures," and such redemption with respect to the 13 3/4% Debentures referred to herein as the "13 3/4% Debenture Redemption"), constituting all of the currently outstanding 13 3/4% Debentures. Pending the 13 3/4% Debenture Redemption, the proceeds of this Offering will be irrevocably deposited with Fleet National Bank, successor in interest to the Connecticut National Bank, in its capacity as trustee under the indenture pursuant to which the 13 3/4% Debentures were issued (the "13 3/4% Debenture Indenture"). The Initial Purchasers and their direct and indirect transferees will be entitled to the benefits of the Registration Rights Agreement, substantially in the form attached hereto as Exhibit A, pursuant to which the Company will agree to use its best efforts to commence an offer to exchange the Notes for Exchange Notes that have been registered under the Securities Act, and that otherwise are identical in all respects to the Notes, or to cause a shelf registration statement to become effective under the Securities Act and to remain effective for the period designated in such Registration Rights Agreement. 1. Representations, Warranties and Agreements of the Company. The Company represents, warrants and agrees that: (a) Each of the Offering Documents as of its date did not, and the Offering Memorandum as of the Closing Date will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representation or warranty as to information contained in or omitted from an Offering Document, as amended or supplemented, in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Initial Purchasers specifically for inclusion in such Offering Document. (b) The Company and each of its Subsidiaries (as defined below) has been duly organized and is validly existing and in good standing under the laws of its respective jurisdiction of incorporation, is duly qualified to do business as a foreign corporation, and are corporations in good standing in each jurisdiction in which its ownership or leasing of property or the conduct of its business requires such qualification (except where the failure to be so qualified and in good standing would not have a Material Adverse Effect), and has all necessary corporate power and authority necessary to own or hold its properties and to conduct the business in which it is engaged. As used herein, "Material Adverse Effect" means a material adverse effect on the condition (financial or otherwise), results of operations, business or prospects of the Company and its Subsidiaries taken as a whole. The term "Subsidiaries" as used herein shall refer only to Aircraft Braking Systems Corporation ("ABS") and Engineered Fabrics Corporation 3 4 ("EFC"). The Subsidiaries are the only "significant" subsidiaries" of the Company within the meaning of Rule 1-02(v) of Regulation S-K. (c) Assuming (i) that the Notes are issued, sold and delivered under the circumstances contemplated by the Offering Memorandum and this Agreement, (ii) that the representations and warranties and covenants of the Initial Purchasers contained in Section 3 hereof are true, correct and complete, (iii) that the Initial Purchasers comply with their covenants in Section 3 hereof, and (iv) that each purchaser who buys the Notes from the Initial Purchasers is a Qualified Institutional Buyer or an Accredited Investor, (A) registration under the Securities Act of the Notes or qualification of the Indenture in respect of the Notes under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), is not required in connection with the offer and sale of the Notes to the Initial Purchasers in the manner contemplated by the Offering Memorandum or this Agreement and (B) initial resales of the Notes by the Initial Purchasers on the terms and in the manner set forth in the Offering Memorandum and Section 3 hereof are exempt from the registration requirements of the Securities Act. (d) The authorized and outstanding capital stock of the Company at June 30, 1996 was as set forth in the "Actual" column under the caption "Capitalization" in the Offering Memorandum. All of the shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable. (e) Except as described in the Offering Memorandum, the Company owns 100% of the outstanding shares of capital stock of its Subsidiaries and all of such shares of capital stock are duly authorized and validly issued and are fully paid and nonassessable. All of the shares of capital stock of the Company's Subsidiaries are owned by the Company free and clear of any security interest, claim, lien or encumbrance (except for the Senior Notes). Except as described in or expressly contemplated by the Offering Memorandum, there are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, the shares of capital stock of the Company. (f) This Agreement has been duly authorized, executed and delivered by the Company and (assuming the due execution and delivery thereof by the Initial Purchasers) is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws. 4 5 (g) The Indenture has been duly authorized, executed and delivered by the Company and (assuming the due execution and delivery thereof by the Trustee) is a legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws. (h) The Notes have been duly authorized, and, when duly executed, authenticated, issued and delivered upon payment therefor as provided herein, will be validly issued and outstanding, and will constitute the legally valid and binding obligations of the Company, entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws. (i) The Exchange Notes have been duly authorized, and, when duly executed, authenticated, issued and delivered, will be validly issued and outstanding, and will constitute the valid and binding obligations of the Company, entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws. (j) The Registration Rights Agreement has been duly authorized by the Company, and when duly executed and delivered by the Company (assuming the due execution and delivery by the Initial Purchasers), will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding 5 6 in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws. (k) The Amended and Restated Credit Agreement has been duly authorized, executed and delivered by the Subsidiaries and constitutes the valid and binding agreement of the Subsidiaries, enforceable against the Subsidiaries in accordance with its terms, except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws. (l) The execution, delivery and performance of this Agreement, the Indenture and the Registration Rights Agreement by the Company, and the consummation of the transactions contemplated hereby and thereby (including, without limitation, the 13 3/4% Debenture Redemption), and the issuance and sale of the Notes and Exchange Notes by the Company will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument to which either the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of the properties or assets of the Company or any of its Subsidiaries are subject, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any of its Subsidiaries or any statute to which it may be subject or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its Subsidiaries or any of their properties or assets (except to the extent any such conflict, breach, violation or default does not or will not, as the case may be, have a Material Adverse Effect); and except for such consents, approvals, authorizations, registrations or qualifications as may be required under applicable state securities and Blue Sky laws in connection with the purchase and distribution of the Notes by the Initial Purchasers or as set forth in the Registration Rights Agreement, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Indenture and the Registration Rights Agreement by the Company, the consummation of the transactions contemplated hereby and thereby (including the 13 3/4% Debenture Redemption), and the issuance and sale of the Notes and Exchange Notes by the Company. (m) Neither the Company nor any of its Subsidiaries is in breach or violation of any of the terms or provisions of any indenture, mortgage, deed of trust, 6 7 loan agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of the properties or assets of the Company or any of its Subsidiaries are subject, nor is the Company or any of its Subsidiaries in violation of the provisions of its respective charter or by-laws or any statute or any judgment, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, any of its Subsidiaries or any of their properties or assets (except to the extent any such conflict, breach, violation or default is cured at or prior to the Closing Date and within the grace period applicable thereto or would not have a Material Adverse Effect). (n) The Notes and Exchange Notes, the Indenture and the Registration Rights Agreement conform or will conform, as applicable, in all material respects to the descriptions thereof contained in the Offering Memorandum. (o) There are no legal or governmental proceedings pending or, to the Company's or any of its Subsidiaries' knowledge, threatened to which the Company or any of its Subsidiaries is a party or of which any property or asset of the Company or any of its Subsidiaries is the subject which, if determined adversely to the Company or any of its Subsidiaries, could reasonably be expected to have a Material Adverse Effect, other than as set forth or contemplated in the Offering Memorandum. (p) Except as set forth in the Registration Rights Agreement, there are no contracts, agreements or understandings between the Company or any of its Subsidiaries and any person granting such person the right to require the Company or any of its Subsidiaries to file a registration statement under the Securities Act with respect to any securities owned or to be owned by such person or to require the Company or any of its Subsidiaries to include such securities in any securities being registered pursuant to any registration statement filed by the Company or any of its Subsidiaries under the Securities Act. (q) Neither the Company nor any of its Subsidiaries has sustained, since the date of the latest audited financial statements included in the Offering Memorandum, any material losses or interferences with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, other than as set forth or contemplated in the Offering Memorandum; and, since such date, there have not been any material changes in the capital stock or long-term debt of the Company or any of its Subsidiaries or any material adverse changes in the condition (financial or otherwise), results of operations, business or prospects of the Company or any of its Subsidiaries, taken as a whole (a "Material Adverse Change"), or any developments that could reasonably be expected to involve a prospective Material Adverse Change, other than as set forth or contemplated in the Offering Memorandum. 7 8 (r) The consolidated financial statements (including the related notes) of the Company which appear in the Offering Memorandum comply as to form in all material respects with the requirements of the Securities Act, present fairly the financial condition and results of operations of such entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved, except as described in the notes thereto; the pro forma information included in the Offering Memorandum has been properly computed on the bases described therein, is based on good faith estimates and assumptions believed by the Company to be reasonable, and the adjustments used therein are appropriate to give effect to the transactions referred to therein; and the other historical financial and operating and other financial data set forth in the Offering Memorandum are fairly presented. (s) Deloitte & Touche, LLP, who has certified certain financial statements of the Company, and whose reports appear in the Offering Documents, is an independent public accounting firm within the meaning of the Securities Act and the rules and regulations thereunder. (t) The Company and each of its Subsidiaries has good and marketable title in fee simple to all real property and good title to all personal property owned by each of them, in each case free and clear of all liens, encumbrances and defects except (i) such as are described in the Offering Memorandum or (ii) such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries; and all real property and buildings held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries. The Company and its Subsidiaries enjoy peaceful and undisturbed possession under all leases to which they are parties as lessee, except for such leases that, singly or in the aggregate, would not have a Material Adverse Effect. The Company and each of its Subsidiaries maintains such insurance as may be required by law and such other insurance, to such extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated (which may include self-insurance in the same form as is customarily maintained by companies similarly situated). (u) The Company and its Subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, tradenames, trademark registrations, service mark registrations, copyrights and licenses necessary for the conduct of their businesses, and to the Company's knowledge, the conduct of their businesses will not conflict with, and neither the Company nor any of its Subsidiaries has received any notice of any claim of conflict with, any such rights of others (except in any such case for any conflict that would not have a Material Adverse Effect). 8 9 (v) Except as described in the Offering Documents, the Company and each of its Subsidiaries owns or has the right to use in accordance with the terms thereof all necessary franchises, licenses, permits, consents, approvals or authorizations of any public or governmental agency (including any permits required by the Department of Defense (the "DOD") and the Federal Aviation Administration (the "FAA") that are in a material respect necessary for the ownership, maintenance and operation of its properties, assets and business operations, and that, if not obtained, could have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. Each of the foregoing is valid and in full force and effect and, except as disclosed in the Offering Documents, no event has occurred and is continuing which permits, or after notice or lapse of time or both would permit, modifications or terminations of the foregoing which, in the aggregate, would have a Material Adverse Effect. The Company and its Subsidiaries are presently conducting their respective businesses in substantial compliance with the rules and regulations of the DOD and the FAA and all other material applicable laws. (w) The Company and its Subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a Material Adverse Effect. (x) In the ordinary course of its business, the Company conducts a periodic review of the effect of Environmental Laws on the business, operations and properties of the Company and its Subsidiaries, in the course of which it identifies and evaluates associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such review, the Company has reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a Material Adverse Effect. (y) The Company and its Subsidiaries are in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company or any of its Subsidiaries would have any liability; neither the Company nor any of its Subsidiaries 9 10 has incurred or expects to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company and its Subsidiaries would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (z) The Company and each of its Subsidiaries (i) make and keep accurate books and records and (ii) maintain internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's general or specific authorization, (B) transactions are recorded as necessary to permit preparation of their consolidated financial statements in accordance with GAAP and to maintain accountability for their assets, (C) access to their assets is permitted only in accordance with management's general or specific authorization and (D) the reported accountability for their assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (aa) No relationship, direct or indirect, exists between or among the Company or any of its Subsidiaries on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of its Subsidiaries on the other hand, which would be required by the Act or by the Rules and Regulations to be described in the Offering Documents, if the Act and the rules and regulations were applicable thereto, which is not so described. (ab) Except as described in the Offering Documents, no labor problem or disturbance with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is threatened which might reasonably be expected to have a Material Adverse Effect. (ac) Neither the Company nor any of its Subsidiaries, nor, to the Company's or any Subsidiary's knowledge, any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its Subsidiaries, has used any corporate funds during the last five years for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (ad) Neither the Company nor any of its Subsidiaries is (i) an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or (ii) a "holding company" or a "subsidiary company" or an "affiliate" of a 10 11 holding company within the meaning of the Public Utility Holding Company Act of 1935, as amended. (ae) No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Notes or the Exchange Notes are listed on any national securities exchange registered under Section 6 of the Exchange Act or quoted on an automated inter-dealer quotation system. (af) Neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act ("Regulation D")) of the Company has, directly or through any agent (provided that no representation is made as to the Initial Purchasers or any person acting on their behalf), (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of any security (as defined in the Securities Act) that is or will be integrated with the offering and sale of the Notes in a manner that would require the registration of the Notes under the Securities Act or (ii) engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offering of the Notes. (ag) Neither the Company nor any of its Subsidiaries has taken, nor will any of them take, directly or indirectly, any action designed to, or that could reasonably be expected to, cause or result in stabilization or manipulation of the price of the Notes to facilitate the sale and resale of the Notes. (ah) The Offering Documents and each amendment or supplement thereto, as of its date, contains the information specified in Rule 144A(d)(4) under the Act. (ai) Neither the Company nor any of its Subsidiaries has taken, and none of them will take, any action that might cause this Agreement or the issuance or sale of the Notes and Exchange Notes to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System or analogous foreign laws and regulations. (aj) The 13 3/4% Debenture Redemption has been duly authorized by the Company. (ak) The Company and each of its Subsidiaries has complied with all provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida). 2. Purchase of the Notes by the Initial Purchasers. On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, the Company agrees to sell to the Initial Purchasers, severally but not jointly, and each of the Initial Purchasers agrees to purchase the aggregate 11 12 principal amount of Notes set forth opposite its name as shown in Schedule A hereto, at a purchase price equal to 97.25% of such principal amount thereof. The Company shall not be obligated to deliver any of the Notes to be delivered except upon payment for all the Notes to be purchased as provided herein. 3. Sale and Resale of the Notes by the Initial Purchasers. Each Initial Purchaser represents and warrants to the Company that it will offer the Notes to be purchased hereunder for resale only upon the terms and conditions set forth in this Agreement and in the Offering Memorandum. Each of the Initial Purchasers hereby represents and warrants to, and agrees with, the Company that such Initial Purchaser (i) is a qualified institutional buyer ("Qualified Institutional Buyer") as defined in Rule 144A under the Securities Act, as such rule may be amended from time to time ("Rule 144A"), and/or an institutional accredited investor ("Accredited Investor") as defined in Rule 501(a)(1), (2), (3), (5) or (6) under Regulation D, (ii) is purchasing the Notes pursuant to a private sale exempt from registration under the Securities Act, (iii) will not solicit offers for, or offer or sell, the Notes by means of any form of general solicitation or general advertising within the meaning of Regulation D or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act, and (iv) will solicit offers for the Notes only from, and will offer, sell or deliver the Notes, as part of its initial offering, only to the following persons (each an "Eligible Purchaser") (A) persons in the United States whom such Initial Purchaser reasonably believes to be Qualified Institutional Buyers or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to such Initial Purchaser that each such account is a Qualified Institutional Buyer, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, and (B) to a limited number of other Accredited Investors that, prior to their purchase of the Notes, executes and delivers a letter containing certain representations and agreements in the form attached as Annex A to the Offering Memorandum, and in each case, in transactions under Rule 144A or Regulation D in private sales exempt from registration under the Securities Act. 4. Delivery of and Payment for the Notes. Delivery of and payment for the Notes shall be made at the office of Latham & Watkins, 885 Third Avenue, New York, NY 10022, at 9:00 A.M., New York City time, on the second full business day following the date of this Agreement or at such other date or place as shall be determined by agreement between the Initial Purchasers and the Company. This date and time are sometimes referred to as the "Closing Date." On the Closing Date, the Company shall deliver or cause to be delivered the Notes to the Initial Purchasers for the account of the Initial Purchasers against payment to or upon the order of the Company of the purchase price by wire transfer in federal (same-day) funds. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of 12 13 the Initial Purchasers hereunder. Upon delivery, the Notes shall be in global or definitive fully registered form (collectively, the "Global Note") and registered in such name or names and in such denominations as the Initial Purchasers shall request in writing not less than two full business days prior to the Closing Date. For the purpose of expediting the checking and packaging of the Global Note, the Company shall make the Global Note available for inspection by the Initial Purchasers in New York, New York, not later than 2:00 P.M., New York City time, on the business day prior to the Closing Date. 5. Further Agreements of the Company. The Company agrees: (a) To furnish to the Initial Purchasers, without charge, as many copies of the Offering Documents and any supplements and amendments thereto as they may reasonably request. (b) Prior to making any amendment or supplement to the Offering Memorandum, the Company shall furnish a copy thereof to the Initial Purchasers and counsel to the Initial Purchasers and will not effect any such amendment or supplement to which the Initial Purchasers shall reasonably object by notice to the Company after a reasonable period to review, which shall not in any case be longer than five business days after receipt of such copy. (c) If, at any time prior to completion of the distribution of the Notes by the Initial Purchasers to eligible purchasers, any event shall occur or condition exist as a result of which it is necessary, in the opinion of counsel for the Initial Purchasers or counsel for the Company, to amend or supplement the Offering Memorandum in order that the Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in light of the circumstances existing at the time it is delivered to a purchaser, or if it is necessary to amend or supplement the Offering Memorandum to comply with applicable law, to promptly prepare such amendment or supplement as may be necessary to correct such untrue statement or omission or so that the Offering Memorandum, as so amended or supplemented, will comply with applicable law and to furnish to the Initial Purchasers such number of copies of such amendment or supplement as they may reasonably request. (d) So long as any Notes are outstanding and are "Restricted Securities" within the meaning of Rule 144(a)(3) under the Securities Act and during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to furnish to holders of the Notes and prospective purchasers of Notes designated by such holders, upon request of such holders or such prospective purchasers, the information, if any, required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. 13 14 (e) So long as the Notes and Exchange Notes are outstanding, to furnish to the Initial Purchasers copies of any annual reports, quarterly reports and current reports filed with the SEC on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the SEC, and such other documents, reports and information as shall be furnished by the Company to the Trustee or to the holders of the Notes and Exchange Notes pursuant to the Indenture. (f) To use its reasonable best efforts to qualify the Notes for sale under the securities or Blue Sky laws of such jurisdictions as the Initial Purchasers reasonably designate and to continue such qualifications in effect so long as reasonably required for the distribution of the Notes. The Company will also arrange for the determination of the eligibility for investment of the Notes under the laws of such jurisdictions as the Initial Purchasers reasonably request. Notwithstanding the foregoing, the Company shall not be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to file a general consent to service of process or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise subject. (g) To use its best efforts to permit the Notes to be designated Private Offerings, Resales and Trading through Automated Linkages Market ("PORTAL") securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. relating to trading in the PORTAL market and to permit the Notes to be eligible for clearance and settlement through The Depository Trust Company ("DTC"). (h) Not to, and will cause its affiliates not to, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) in a transaction that could be integrated with the sale of the Notes in a manner which would require the registration under the Securities Act of the Notes. (i) Except following the effectiveness of any Registration Statement (as defined in the Registration Rights Agreement) and except for such offers as may be made as a result of, or subsequent to, filing such Registration Statement or amendments thereto prior to the effectiveness thereof, not to, and will cause its affiliates not to, solicit any offer to buy or offer to sell the Notes by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (j) To consummate the 13 3/4% Debenture Redemption in accordance with the terms of Articles Ten and Twelve of the 13 3/4% Debenture Indenture and to apply the net proceeds from the sale of the Notes, in each case, as set forth in the Offering Memorandum. 14 15 (k) To take such steps as shall be necessary to ensure that neither the Company nor any of its Subsidiaries shall become an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or (ii) a "holding company" or a "subsidiary company" or an "affiliate" of a holding company within the meaning of the Public Utility Holding Company Act of 1935, as amended. (l) Not to, and will cause its affiliates not to, take any actions which would require the registration under the Securities Act of the Notes. (m) Prior to the consummation of the Exchange Offer or the effectiveness of an applicable shelf registration statement if, in the reasonable judgment of the Initial Purchasers, the Initial Purchasers or any of their affiliates (as such term is defined in the rules and regulations under the Securities Act) are required to deliver an offering memorandum in connection with sales of, or market-making activities with respect to, the Notes, (A) to periodically amend or supplement the Offering Documents so that the information contained in the Offering Documents complies with the requirements of Rule 144A of the Securities Act, (B) to amend or supplement the Offering Documents when necessary to reflect any material changes in the information provided therein so that the Offering Documents will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances existing as of the date the Offering Documents are so delivered, not misleading and (C) to provide the Initial Purchasers with copies of each such amended or supplemented Offering Documents, as the Initial Purchasers may reasonably request. The Company hereby expressly acknowledges that the indemnification and contribution provisions of Section 8 hereof are specifically applicable and relate to each offering memorandum, registration statement, prospectus, amendment or supplement referred to in this Section 5(m). (n) To do all things necessary to satisfy the closing conditions set forth in Section 7 hereof. 6. Expenses. The Company agrees to pay (a) the costs incident to the authorization, issuance, sale and delivery of the Notes and Exchange Notes and any issue or stamp taxes payable in that connection; (b) the costs incident to the preparation and printing of the Offering Documents and any amendments and exhibits thereto; (c) the costs of distributing the Offering Documents and any amendment or supplement thereto or any document incorporated by reference therein; (d) the fees and expenses of qualifying the Notes and Exchange Notes under the securities laws of the several jurisdictions as provided in Section 5(f) and of preparing, printing and distributing a Blue Sky Memorandum (including related fees and expenses of counsel to the Initial Purchasers); (e) the cost of printing the Notes and the Exchange Notes; (f) the fees and expenses of the Trustee and any agent of the Trustee and the 15 16 fees and disbursements of any counsel for the Trustee in connection with the Indenture and the Notes and Exchange Notes; (g) any fees paid to rating agencies in connection with the rating of the Notes and Exchange Notes; (h) the costs and expenses of DTC and its nominee, including its book-entry system; (i) all expenses and listing fees incurred in connection with the application for quotation of the Notes on the PORTAL market; (j) any fees and expenses of the trustee under the 13 3/4% Debenture Indenture, in connection with the 13 3/4% Debenture Redemption; and (i) all other costs and expenses incident to the performance of the obligations of the Company under this Agreement. 7. Conditions of Initial Purchasers' Obligations. The obligations of the Initial Purchasers hereunder are subject to each of the following terms and conditions: (a) The Initial Purchasers shall not have discovered and disclosed to the Company on or prior to the Closing Date that the Offering Documents or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of Latham & Watkins, counsel for the Initial Purchasers, is material or omits to state a fact which, in the opinion of such counsel, is material and is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) All of the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on the date hereof and on the Closing Date with the same force and effect as if made on and as of the date hereof and the Closing Date, respectively. The Company shall have performed or complied in all material respects with all of the agreements herein contained and required to be performed or complied with by it at or prior to the Closing Date. (c) The Offering Memorandum shall have been printed and copies distributed to the Initial Purchasers on the next Business Day following the date of this Agreement or at such later date and time as to which the Initial Purchasers may agree, and no stop order suspending the qualification or exemption from qualification of the Notes in any jurisdiction referred to in Section 5(f) shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or threatened. (d) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency which would, as of the Closing Date, have a Material Adverse Effect; no action, suit or proceeding shall have been commenced and be pending against or affecting or, to the best knowledge of the Company, threatened against, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official that, if 16 17 adversely determined, could reasonably be expected to result in a Material Adverse Effect; and no stop order shall have been issued by the SEC or any governmental agency of any jurisdiction referred to in Section 5(f) preventing the use of the Offering Memorandum, or any amendment or supplement thereto, or which could reasonably be expected to have a Material Adverse Effect. (e) Since the dates as of which information is given in the Offering Memorandum and other than as set forth in the Offering Memorandum, (i) there shall not have been any Material Adverse Change, or any development that is reasonably likely to result in a Material Adverse Change, or any material change in the long-term debt, or material increase in the short-term debt, from that set forth in the Offering Memorandum; (ii) no dividend or distribution of any kind shall have been declared, paid or made by the Company on any class of its capital stock; (iii) the Company and its Subsidiaries shall not have incurred any liabilities or obligations, direct or contingent, that are material, individually or in the aggregate, to the Company and its Subsidiaries, taken as a whole, and that are required to be disclosed on a balance sheet or notes thereto in accordance with generally accepted accounting principles and are not disclosed on the latest balance sheet or notes thereto included in the Offering Memorandum. (f) The Initial Purchasers shall have received a certificate, dated the Closing Date, signed on behalf of the Company by (i) Kenneth M. Schwartz, Executive Vice President and (ii) Dirkson Charles, Chief Financial Officer, confirming that (A) such officers, have participated in conferences with other officers and representatives of the Company, representatives of the independent public accountants of the Company and representatives of counsel to the Company at which the contents of the Offering Memorandum and related matters were discussed and (B) the matters set forth in paragraphs (b), (c), (d) and (e) of this Section 7 are true and correct as of the Closing Date. (g) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Notes and Exchange Notes, the Indenture, the Registration Rights Agreement, the Offering Documents, the Amended and Restated Credit Agreement and all other legal matters relating to this Agreement and the transactions contemplated hereby (including, without limitation, the 13 3/4% Debenture Redemption), shall be satisfactory in all material respects to counsel for the Initial Purchasers, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (h) O'Sullivan Graev & Karabell, LLP, counsel for the Company, shall have furnished to the Initial Purchasers its written opinion, as counsel to the Company, addressed to the Initial Purchasers and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers, to the effect that: 17 18 (i) The Company and each of its Subsidiaries is validly existing as a corporation and in good standing under the laws of its jurisdiction of incorporation. Each of ABS and EFC is qualified to do business and is in good standing as a foreign corporation in the States of Ohio and Georgia; (ii) Assuming, without independent investigation, (i) that the Notes are sold to the Initial Purchasers, and initially resold by the Initial Purchasers, in accordance with the terms of, and in the manner contemplated by, this Agreement and the Offering Memorandum, (ii) the accuracy of the representations, warranties and covenants of the Company set forth in clauses (af), (ag), (ah) and (ai) of Section 1 of this Agreement, (iii) the accuracy of the Initial Purchasers' representations and warranties set forth in this Agreement, (iv) the due performance by the Company of the covenants and agreements set forth in Sections 5(h) and 5(i) of this Agreement, (v) the Initial Purchasers' compliance with the offering and transfer procedures and restrictions described in the Offering Memorandum, (vi) the accuracy of the representations and warranties made in accordance with this Agreement and the Offering Memorandum by each purchaser to whom the Initial Purchasers initially resell the Notes and (vii) that each purchaser to whom the Initial Purchasers initially resell the Notes receives a copy of the Offering Memorandum if requested by such purchaser prior to such sale, the offer, issuance, sale and delivery of the Notes to the Initial Purchasers, and the initial reoffer, resale and delivery of the Notes by the Initial Purchasers, as contemplated by this Agreement and the Offering Memorandum, do not require registration under the Act, or qualification of the Indenture under the TIA, it being understood that no opinion is expressed as to any subsequent resale of Notes or any resale of Notes by any person other than the Initial Purchasers. (iii) The Company has the corporate power and authority to execute and deliver, and to consummate the transactions contemplated by, this Agreement; and the Company has the corporate power and authority to issue, sell and deliver the Notes as contemplated by this Agreement; (iv) The execution and delivery of this Agreement have been duly authorized by all requisite corporate action of the Company, and this Agreement has been duly executed and delivered by the Company; (v) The execution and delivery of the Indenture have been duly authorized by all requisite corporate action of the Company; and the Indenture has been duly executed and delivered by the Company, and assuming due authorization, execution and delivery by the Trustee, is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar 18 19 laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws; (vi) The execution and delivery of the Notes have been duly authorized by all requisite corporate action of the Company; and the Notes have been duly executed and delivered by the Company and, assuming due authentication by the Trustee, are valid and binding obligations of the Company, entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms, except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws; (vii) The execution and delivery of the Exchange Notes have been duly authorized by all requisite corporate action of the Company; and, when duly executed and delivered by the Company and duly authenticated by the Trustee, will be valid and binding obligations of the Company, entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms, except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws; (viii) The execution and delivery of the Registration Rights Agreement have been duly authorized by all requisite corporate action of the Company; the Registration Rights Agreement has been duly executed and delivered by the Company and, assuming due authorization, execution and delivery by the Initial Purchasers, the Registration Rights Agreement (other than the indemnification and contribution provisions thereof, as to which such counsel need express no opinion) is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter 19 20 in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws; (ix) The execution and delivery of the Amended and Restated Credit Agreement have been duly authorized by all requisite corporate action of the Subsidiaries; and the Amended and Restated Credit Agreement has been duly executed and delivered by the Subsidiaries and, assuming the due authorization, execution and delivery by the lenders party thereto, is a valid and binding agreement of the Subsidiaries, enforceable against the Subsidiaries in accordance with its terms, except that (i) enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and (ii) the enforceability of any indemnification or contribution provisions thereof may be limited under applicable securities laws or the public policies underlying such laws; (x) The Company is the record owner of 100 shares of the common stock, $.01 par value, of ABS (the "ABS Shares") and 100 shares of the common stock, $.01 par value, of EFC (the "EFC Shares" and the EFC shares collectively with the ABS shares, the "Shares"). The Shares have been duly authorized and validly issued, are fully paid and nonassessable and to the knowledge of such counsel constitute all of the issued and outstanding shares of capital stock of the Subsidiaries. Except as disclosed in the Offering Documents, to the knowledge of such counsel, the shares are owned by the Company free and clear of any security interests, liens, pledges or encumbrances. (xi) The execution and delivery by the Company of this Agreement, the Indenture and the Registration Rights Agreement, the consummation by the Company of the transactions contemplated hereby and thereby and by the Offering Documents (including the 13 3/4% Debenture Redemption), the issuance and sale of the Notes and Exchange Notes by the Company will not (A) to the knowledge of such counsel, and subject to the following paragraph, result in a breach or violation of any of the terms or provisions of, or constitute a default under, any agreement or instrument listed on Exhibit A to the opinion or (B) result in any violation of the provisions of the charter or bylaws of the Company or, to the knowledge of such counsel, any Applicable Law with respect to the Company, except for such violations that would not, singly or in the aggregate, have a Material Adverse Effect; and except 20 21 for such consents, approvals or authorizations of, or registrations or qualifications with, Governmental Authorities as may be required under the Securities Act and the rules and regulations thereunder or applicable states securities or Blue Sky laws in connection with the purchase and distribution of the Notes by the Initial Purchasers and as set forth in the Registration Rights Agreement, no consent, approval, authorization or order of, or filing or registration with, any Governmental Authority, is required in connection with the execution and delivery by the Company of this Agreement, the Indenture and the Registration Rights Agreement, the consummation by the Company of the transactions contemplated hereby and thereby, and the issuance and sale of the Notes and Exchange Notes by the Company; provided, however, that the foregoing opinion with respect to Governmental Authorities is limited to such consents, approvals, authorizations, orders and filings which are actually known to such counsel and which, in such counsel's experience, are typically applicable to offerings of the type contemplated by this Agreement. The term "Applicable Laws" means those statutes, judgments, rules, regulations, orders or decrees of any Governmental Authority of the State of Delaware, the State of New York and the United States of America by which the Company is bound, the existence of which is actually known to such counsel and which,in such counsel's experience, are typically applicable to offerings of the type contemplated by this Agreement. The term "Governmental Authority" means any governmental, legislative, judicial, administrative or regulatory body of the State of Delaware, the State of New York or the United States of America. The Initial Purchasers' attention is called to the indenture (the "Senior Note Indenture"), dated as of June 1, 1992, governing the Company's 117/8% Senior Notes due 2003 (the "Senior Notes"). Capitalized terms used in this paragraph and not defined shall have the meanings set forth in the Senior Note Indenture. Section 3.6 of the Senior Note Indenture limits the amount of Restricted Payments the Company and its Subsidiaries may make and sets forth the calculations the Company must make to determine the cumulative amount of Restricted Payments that may be made. The Company's redemption of the Subordinated Debentures with Senior Indebtedness constitutes a Restricted Payment under the Senior Note Indenture and thus may only be effected if the Company's Restricted Payment basket under Section 3.6(b) of the Senior Note Indenture is sufficient to permit such redemption. Counsel to the Company has been informed by the Company that it retired all of its outstanding Convertible Debentures on September 2, 1994 by (i) issuing Common Stock and Preferred Stock and using the $12,763,636 of proceeds therefrom to repurchase Convertible Debentures and (ii) issuing Common Stock (the "Exchange Stock") in exchange for [$52,607,266] of Convertible Debentures (the "Exchange"). Counsel to the Company has also been informed by the Company that the Company's Restricted Payment basket is sufficient to permit the redemption of Subordinated Debentures 21 22 with additional Senior Indebtedness as currently contemplated if the Exchange constituted a Permitted Payment under the Senior Note Indenture because a Permitted Payment is not a Restricted Payment under the Senior Note Indenture. The determination of whether the Exchange constituted a Permitted Payment depends on whether the issuance of the Exchange Stock for Convertible Debentures is viewed as an acquisition of the Convertible Debentures for value with the proceeds from the issuance of Exchange Stock. Counsel for the Company believes that, based upon the language of the Senior Note Indenture, the Exchange should constitute a Permitted Payment. The proceeds from the issuance of the Exchange Stock should be considered under the Senior Note Indenture to consist of the fair market value (as determined in good faith by the Company's Board of Directors) of the property other than cash, in this case the Convertible Debentures, received by the Company from the issuance of the Exchange Stock. However, the Initial Purchasers should be aware that contrary interpretations of the language of the Senior Note Indenture may exist and there can be no assurance as to whether a court would conclude that the Exchange constituted a Permitted Payment. Counsel for the Company has been advised by the Company that its understanding of the terms of the Senior Note Indenture at the time it entered into such Indenture is consistent with the foregoing. (xii) The Indenture, the Notes, and the Registration Rights Agreement conform in all material respects to the descriptions thereof contained in the Offering Memorandum; (xiii) To such counsel's knowledge, no legal or governmental proceedings are pending to which the Company is a party that would be required under the Securities Act to be described in a registration statement or a prospectus delivered at the time of the confirmation of the sale of an offering of securities registered under the Securities Act and are not described in the Offering Memorandum, or, to such counsel's knowledge, which seek to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Notes to the Initial Purchasers or the consummation of the transactions described in the Offering Memorandum under the caption "Use of Proceeds"; (xiv) Neither the Company nor any of its Subsidiaries is (i) subject to registration and regulation as an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or (ii) a "holding company" or a "subsidiary company" or, to the knowledge of such counsel, an "affiliate" of a holding company within the meaning of the Public Utility Holding Company Act of 1935, as amended; (xv) When the Notes are issued and delivered pursuant to this Agreement, such Notes will not be of the same class (within the meaning of Rule 22 23 144A(d)(3) under the Securities Act) as securities of the Company that are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted on an automated inter-dealer quotation system; and (xvi) Assuming the Initial Purchasers purchase the Notes in accordance with Rule 144A under the Securities Act, neither the issuance or sale of the Notes nor the application by the Company of the net proceeds thereof as set forth in the Offering Memorandum will not violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. In addition, such counsel shall state that it has participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants of the Company, representatives of the Initial Purchasers and representatives of counsel for the Initial Purchasers at which the contents of the Offering Memorandum and related matters were discussed and, although such counsel has not undertaken to investigate or verify independently, and does not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Offering Memorandum, on the basis of the foregoing (relying as to materiality upon the opinions of officers and other representatives of the Company) no information has come to the attention of such counsel that causes such counsel to believe that the Offering Memorandum (except as to financial statements, including the notes thereto and other financial, statistical and accounting data included therein or omitted therefrom, as to which no belief need be expressed), as of its date or the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may state that its opinion is limited to matters governed by the federal laws of the United States of America and the General Corporation Law of the State of Delaware. (i) Michael B. Targoff, General Counsel for Loral Space, shall have furnished to the Initial Purchasers his written opinion, as counsel to the Company, addressed to the Initial Purchasers and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers, to the effect that: (i) The Company and each of its Subsidiaries are duly qualified to do business and in good standing as foreign corporations in each jurisdiction in which their respective businesses require such qualification (except whether failure to so qualify would not have a Material Adverse Effect; (ii) To the best knowledge of such counsel, the Company and each of its Subsidiaries are not in violation of its corporate charter or by-laws, or 23 24 in default under any agreement (including loan and credit agreements), indenture or instrument known to such counsel, which default would have a Material Adverse Effect; to the best knowledge of such counsel, the Company is not in violation of any law, ordinance, governmental rule or regulation or court decree to which it may be subject and has obtained each license, permit, patent, certificate, franchise or other governmental authorization or permit (collectively, "permits") necessary to the ownership of its properties or to the conduct of its business as described in the Offering Memorandum, other than permits being applied for in the ordinary course of business of the Subsidiaries and other than permits violation of or failure to obtain which would not have a Material Adverse Effect; provided, however that to the extent of permits that have been applied for, the ownership of such property and the conduct of such business during the pendency of receipt of such permits would not to the knowledge of such counsel, be expected to have a Material Adverse Effect; (iii) The execution and delivery by the Company of this Agreement, the Indenture and the Registration Rights Agreement, the consummation by the Company of the transactions contemplated hereby and thereby and by the Offering Documents (including the 13 3/4% Debenture Redemption), the issuance and sale of the Notes and Exchange Notes by the Company will not (A) to the knowledge of such counsel, conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan or credit agreement, or other agreement or instrument known to such counsel to which the Company is a party or by which the Company or any of its properties are subject, which conflict, breach, violation or default has or would have a Material Adverse Effect, except as set forth below, or (B) result in any violation of the provisions of the charter or bylaws of the Company or, to the knowledge of such counsel, any statute, or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its Subsidiaries or any of their properties or assets, which violation has or would have a Material Adverse Effect; and, except for such consents, approvals, authorizations, registrations or qualifications as may be required under applicable states or Blue Sky securities laws in connection with the purchase and distribution of the Notes and Exchange Notes by the Initial Purchasers and as set forth in the Registration Rights Agreement, no consent, approval, authorization or order of, or filing or registration with, any court or governmental agency or body having jurisdiction over the Company or any of its Subsidiaries or any of their properties or assets, is required in connection with the execution and delivery by the Company of this Agreement, the Indenture and the Registration Rights Agreement, the consummation by the Company of the transactions contemplated hereby and thereby, and the issuance and sale of the Notes and Exchange Notes by the Company. 24 25 The Initial Purchasers' attention is called to the indenture (the "Senior Note Indenture"), dated as of June 1, 1992, governing the Company's 11 7/8% Senior Notes due 2003 (the "Senior Notes"). Capitalized terms used in this paragraph and not defined shall have the meanings set forth in the Senior Note Indenture. Section 3.6 of the Senior Note Indenture limits the amount of Restricted Payments the Company and its Subsidiaries may make and sets forth the calculations the Company must make to determine the cumulative amount of Restricted Payments that may be made. The Company's redemption of the Subordinated Debentures with Senior Indebtedness constitutes a Restricted Payment under the Senior Note Indenture and thus may only be effected if the Company's Restricted Payment basket under Section 3.6(b) of the Senior Note Indenture is sufficient to permit such redemption. Counsel to the Company has been informed by the Company that it retired all of its outstanding Convertible Debentures on September 2, 1994 by (i) issuing Common Stock and Preferred Stock and using the $12,763,636 of proceeds therefrom to repurchase Convertible Debentures and (ii) issuing Common Stock (the "Exchange Stock") in exchange for $52,607,266 of Convertible Debentures (the "Exchange"). Counsel to the Company has also been informed by the Company that the Company's Restricted Payment basket is sufficient to permit the redemption of Subordinated Debentures with additional Senior Indebtedness as currently contemplated if the Exchange constituted a Permitted Payment under the Senior Note Indenture because a Permitted Payment is not a Restricted Payment under the Senior Note Indenture. The determination of whether the Exchange constituted a Permitted Payment depends on whether the issuance of the Exchange Stock for Convertible Debentures is viewed as an acquisition of the Convertible Debentures for value with the proceeds from the issuance of Exchange Stock. Counsel for the Company believes that, based upon the language of the Senior Note Indenture, the Exchange should constitute a Permitted Payment. The proceeds from the issuance of the Exchange Stock should be considered under the Senior Note Indenture to consist of the fair market value (as determined in good faith by the Company's Board of Directors) of the property other than cash, in this case the Convertible Debentures, received by the Company from the issuance of the Exchange Stock. However, the Initial Purchasers should be aware that contrary interpretations of the language of the Senior Note Indenture may exist and there can be no assurance as to whether a court would conclude that the Exchange constituted a Permitted Payment. Counsel for the Company has been advised by the Company that its understanding of the terms of the Senior Note Indenture at the time it entered into such Indenture is consistent with the foregoing; (iv) To the knowledge of such counsel, and except as set forth or referred to in the Offering Memorandum, no legal or governmental proceedings are pending or threatened against the Company or any of its Subsidiaries is party or of which any property or asset of the Company or any of 25 26 its Subsidiaries which would affect the subject matter of this Agreement or would be required under the Securities Act to be described in a registration statement or a prospectus delivered at the time of the confirmation of an offering of securities registered under the Securities Act and are not described in the Offering Memorandum; and (v) To the knowledge of such counsel, the statements made in the Offering Documents under the headings "Business -- Government Contracts," "Business -- Patents and Licenses," "Business -- Legal Proceedings" and "Business -- Environmental Matters" to the extent they constitute matters of law or legal conclusions, have been reviewed by such counsel and fairly present the information disclosed therein. (j) You shall have received on the Closing Date an opinion of Latham & Watkins, counsel for the Initial Purchasers, dated the Closing Date and addressed to you, in form and substance reasonably satisfactory to you. (k) With respect to the letter of Deloitte & Touche LLP delivered to the Initial Purchasers concurrently with the execution of this Agreement (the "initial letter"), the Company shall have furnished to the Initial Purchasers a letter (as used in this paragraph, the "bring-down letter") of such accountant, addressed to the Initial Purchasers and dated such Closing Date (i) confirming that it is an independent public accountant under the Securities Act, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Offering Memorandum, as of a date not more than two days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter. (l) The Company and the Trustee shall have entered into the Indenture and the Initial Purchasers shall have received counterparts, conformed as executed, thereof. (m) The Company and the Initial Purchasers shall have entered into the Registration Rights Agreement and the Initial Purchasers shall have received counterparts, conformed as executed, thereof. (n) The Subsidiaries shall have entered into the Amended and Restated Credit Agreement (the form and substance of which shall be reasonably acceptable to the Initial Purchasers) and the Initial Purchasers shall have received counterparts, conformed as executed, thereof and of all other documents and agreements entered into in connection therewith. 26 27 (o) The Company shall have furnished to the Initial Purchasers a certificate, dated such Closing Date, of its Chief Financial Officer as to the solvency of the Company following consummation of the transactions contemplated hereby. (p) The Company shall have sent notice (in form and substance reasonable satisfactory to the Initial Purchasers) to the holders of the 13 3/4% Debentures to the effect that such 13 3/4% Debentures shall be redeemed within 30 days of such notice, and shall have irrevocably deposited with the trustee under the 13 3/4% Debenture Indenture, prior to 5:00 P.M., New York City time, on the Closing Date, $140 million to commence the 13 3/4% Debenture Redemption. (q) (i) Neither the Company nor its Subsidiaries shall have sustained since the date of the latest audited financial statements included in the Offering Memorandum losses or interferences with their businesses, taken as a whole, from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Memorandum or (ii) since such date there shall not have been any change in the capital stock or long-term debt of the Company or any of its Subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company or its Subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the Offering Memorandum, the effect of which, in any such case described in clause (i) or (ii), is, in the reasonable judgment of the Initial Purchasers, so material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Notes being delivered on the Closing Date on the terms and in the manner contemplated herein and in the Offering Memorandum. (r) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange or The Nasdaq Stock Market's National Market or in the over-the-counter market shall have been suspended or materially limited, or minimum prices shall have been established on such exchange by the SEC, or by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by Federal or state authorities, (iii) the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) as to make it, in the reasonable judgment of the Initial Purchasers, impracticable or inadvisable to proceed with the offering or delivery of the Notes being delivered on the Closing Date on the terms and in the manner contemplated herein and in the Offering Memorandum. 27 28 (s) Subsequent to the execution and delivery of this Agreement, (i) no downgrading shall have occurred in the rating accorded the Notes or any other Indebtedness of the Company by a nationally recognized statistical rating organization, as that term is defined by the SEC for purposes of Rule 436(g)(2) under the Securities Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Notes or any other Indebtedness of the Company. (t) There shall exist at and as of the Closing Date no conditions that would constitute a default (or an event that with notice or the lapse of time, or both, would constitute a default) under the Amended and Restated Credit Agreement, the Senior Note Indenture or the 13 3/4% Debenture Indenture. On the Closing Date, the Amended and Restated Credit Agreement shall be in full force and effect and shall not have been modified. (u) Latham & Watkins shall have been furnished with such documents, in addition to those set forth above, as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Section 7 and in order to evidence the accuracy, completeness or satisfaction in all material respects of any of the representations, warranties or conditions herein contained. (v) Prior to the Closing Date, the Company shall have furnished to the Initial Purchasers such further information, certificates and documents as the Initial Purchasers may reasonably request. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Initial Purchasers. 8. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless the Initial Purchasers and each person, if any, who controls an Initial Purchaser within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Notes), to which the Initial Purchasers or any such controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Offering Documents or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse the Initial Purchasers and each such controlling person on a quarterly basis for any legal 28 29 or other expenses reasonably incurred by the Initial Purchasers or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable to an Initial Purchaser or controlling person of such Initial Purchaser in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in the Offering Documents or in any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Initial Purchaser specifically for inclusion therein; and provided further that with respect to any such untrue statement or omission made in the Preliminary Offering Memorandum, the indemnity agreement contained in this Section 8(a) shall not inure to the benefit of an Initial Purchaser from whom the person asserting any such losses, claims, damages, liabilities, judgments, actions or expenses purchased Notes, or any controlling person of such Initial Purchaser, if a copy of the Offering Memorandum was not sent or given by or on behalf of such Initial Purchaser to such person at or prior to the written confirmation of the sale of Notes to such person, and the Offering Memorandum cured the defect giving rise to such losses, claims, damages, liabilities, judgments, actions or expenses, unless, such failure to deliver the Offering Memorandum was a result of non-compliance by the Company with Section 5(c) hereof. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to the Initial Purchasers or to any controlling person of the Initial Purchasers. (b) Each Initial Purchaser, severally but not jointly, shall indemnify and hold harmless the Company, its respective directors and officers and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or any such director, officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Offering Documents, or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Initial Purchaser specifically for inclusion therein, and shall reimburse the Company and any such director, officer or controlling person on a quarterly basis for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which the Initial Purchasers may otherwise have to the Company or any such director, officer or controlling person. 29 30 (c) Promptly after receipt by an indemnified party under this Section 8 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been materially prejudiced by such failure and, provided further, that the failure to notify the indemnifying party pursuant to this Section 8 shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment thereof has been specifically authorized by the indemnifying party in writing, (ii) such indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party and in the reasonable judgment of such counsel it is advisable for such indemnified party to employ separate counsel or (iii) the indemnifying party has failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties, which firm shall be designated in writing by the Initial Purchasers, if the indemnified parties under this Section 8 consist of the Initial Purchasers or any of its controlling persons, or by the Company, if the indemnified parties under this Section 8 consist of the Company or any of its respective directors, officers or controlling persons. Each indemnified party, as a condition of the indemnity agreements contained in Sections 8(a) and 8(b), shall use its best efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be 30 31 unreasonably withheld), but if settled with its written consent or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 8 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other from the offering of the Notes or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Initial Purchasers on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Notes purchased under this Agreement (before deducting expenses) received by the Company, on the one hand, and the total discounts and commissions received by the Initial Purchasers with respect to the Notes purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the Notes under this Agreement, in each case as set forth in the table on the cover page of the Offering Memorandum. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Initial Purchasers, on the other hand, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchasers agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 8(d) shall be deemed to include, for purposes of this Section 8(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8(d), the Initial Purchasers shall not be required to contribute any amount in excess of the amount by which the total discounts and commissions with respect to the Notes purchased by it and distributed to the public was offered to the public exceeds the amount of any damages 31 32 which the Initial Purchasers has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The Initial Purchasers confirm that the statements with respect to the offering of the Notes set forth on the cover page of, and under the caption "Plan of Distribution" in, the Offering Memorandum and the stabilization legend on page ii of the Offering Memorandum are correct and constitute the only information furnished in writing to the Company by or on behalf of the Initial Purchasers specifically for inclusion in the Offering Memorandum. 9. Termination. The obligations of the Initial Purchasers hereunder may be terminated by the Initial Purchasers by notice given to and received by the Company prior to delivery of and payment for the Notes if, prior to that time, any of the events described in Sections 7(e) or 7(r) shall have occurred or if the Initial Purchasers shall decline to purchase the Notes for any reason permitted under this Agreement. 10. Reimbursement of Initial Purchasers's Expenses. If (a) the Company shall fail to tender the Notes for delivery to the Initial Purchasers otherwise than for any reason permitted under this Agreement or (b) the Initial Purchasers shall decline to purchase the Notes for any reason permitted under this Agreement (other than termination of this Agreement pursuant to Section 7(r), but including termination of this Agreement pursuant to Section 9 as a result of events described in Section 7(e)), the Company shall reimburse the Initial Purchasers for the reasonable fees and expenses of their counsel and for such other out-of-pocket expenses as shall have been incurred by them in connection with this Agreement and the proposed purchase of the Notes, and upon demand the Company shall pay the full amount thereof to the Initial Purchasers. 11. Notices, etc. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Initial Purchasers, shall be delivered or sent by mail, telex or facsimile transmission to Lehman Brothers Inc., Three World Financial Center, New York, New York 10285, Attention: Syndicate Department (Fax: 212-528-8822), with a copy to Latham & Watkins, 885 Third Avenue, New York, New York 10022, Attention: Raymond Y. Lin (Fax: 212-751-4864); (b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Offering Memorandum, Attention: Kenneth M. Schwartz (Fax: 212-867-1182), with a copy to 32 33 O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza, New York, New York 10112, Attention: John Suydam (Fax: 212-405-2420); Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Initial Purchasers. 12. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (A) the representations, warranties, indemnities and agreements of the Company contained in this Agreement shall also be deemed to be for the benefit of the person or persons, if any, who control an Initial Purchaser within the meaning of Section 15 of the Securities Act and (B) the indemnity agreement of the Initial Purchasers contained in Section 8(b) of this Agreement shall be deemed to be for the benefit of directors of the Company, officers of the Company and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 12, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 13. Survival. The respective indemnities, representations, warranties and agreements of the Company and the Initial Purchasers contained in this Agreement or made by or on behalf on them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Notes and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any person controlling any of them. 14. Definition of "Business Day." For purposes of this Agreement, "business day" means any day on which the New York Stock Exchange, Inc. is open for trading. 15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK. 16. Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. 17. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. [Signature page follows] 33 34 If the foregoing correctly sets forth the agreement between the Company and the Initial Purchasers, please indicate your acceptance in the space provided for that purpose below. Very truly yours, K & F INDUSTRIES, INC. By: /s/ Kenneth M. Schwartz ---------------------------------- Name: Kenneth M. Schwartz Title: Executive Vice President 35 Acknowledged and accepted on the date first described herein: LEHMAN BROTHERS INC. CHASE SECURITIES INC. By: Lehman Brothers Inc. By: /s/ Stephen Mehos ------------------------------- Name: Stephen Mehos Title: Senior Vice President 36 SCHEDULE A K & F INDUSTRIES, INC.
Principal Initial Purchaser Amount - ----------------- ------ Lehman Brothers Inc. 93,333,000 Chase Securities Inc. 46,667,000 Total $140,000,000 ============
EX-10.29 12 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.29 REGISTRATION RIGHTS AGREEMENT Dated as of August 15, 1996 by and among K & F Industries, Inc. and LEHMAN BROTHERS INC. AND CHASE SECURITIES INC. 2 This Registration Rights Agreement (this "Agreement") is made and entered into as of August 15, 1996, by and among K & F Industries, Inc., a Delaware corporation (the "Company"), and Lehman Brothers Inc. and Chase Securities Inc. (each an "Initial Purchasers" and together the "Initial Purchasers"), who have agreed to purchase the Company's 103/8% Senior Subordinated Notes due 2004 (the "Notes") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated as of August 12, 1996, (the "Purchase Agreement"), by and among the Company and the Initial Purchasers. In order to induce the Initial Purchasers to purchase the Notes, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers set forth in Section 3 of the Purchase Agreement. The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Act: The Securities Act of 1933, as amended. Business Day: Any day except a Saturday, Sunday or other day in the City of New York, or in the city of the corporate trust office of the Trustee, on which banks are authorized to close. Broker-Dealer: Any broker or dealer registered under the Exchange Act. Broker-Dealer Transfer Restricted Securities: Exchange Notes that are acquired by a Broker- Dealer in the Exchange Offer in exchange for Notes that such Broker-Dealer acquired for its own account as a result of market making activities or other trading activities (other than Notes acquired directly from the Company or any of its affiliates). Certificated Notes: As defined in the Indenture. Closing Date: The date hereof. Commission: The Securities and Exchange Commission. Consummate: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (a) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Exchange Notes to be issued in the Exchange Offer, (b) the maintenance of such Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the minimum period required pursuant to Section 3(b) hereof and (c) the delivery by the Company to the Registrar under the Indenture of Exchange Notes in the same aggregate principal amount as the aggregate principal amount of Notes tendered by Holders thereof pursuant to the Exchange Offer. Damages Payment Date: Each Interest Payment Date. Exchange Act: The Securities Exchange Act of 1934, as amended. 1 3 Exchange Offer: The registration by the Company under the Act of the Exchange Notes pursuant to the Exchange Offer Registration Statement pursuant to which the Company shall offer the Holders of all outstanding Transfer Restricted Securities the opportunity to exchange all such outstanding Transfer Restricted Securities for Exchange Notes in an aggregate principal amount equal to the aggregate principal amount of the Transfer Restricted Securities tendered in such exchange offer by such Holders. Exchange Offer Registration Statement: The Registration Statement relating to the Exchange Offer, including the related Prospectus. Exchange Notes: The Company's 103/8% Senior Subordinated Notes due 2004 to be issued pursuant to the Indenture (i) in the Exchange Offer or (ii) upon the request of any Holder of Notes covered by a Shelf Registration Statement, in exchange for such Notes. Exempt Resales: The transactions in which the Initial Purchasers propose to sell the Notes to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act, and to certain "accredited investors," as such term is defined in Rule 501(a)(1), (2), (3), (5) or (6) of Regulation D under the Act. Holders: As defined in Section 2 hereof. Indemnified Holder: As defined in Section 8(a) hereof. Indenture: The Indenture, dated the Closing Date, between the Company and Fleet National Bank as trustee (the "Trustee"), pursuant to which the Notes are to be issued, as such Indenture is amended or supplemented from time to time in accordance with the terms thereof. Interest Payment Date: As defined in the Indenture and the Notes. NASD: National Association of Securities Dealers, Inc. Person: An individual, partnership, corporation, trust, unincorporated organization, or a governmental agency or political subdivision thereof. Prospectus: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Record Holder: With respect to any Damages Payment Date, each Person who is a Holder of Notes or Exchange Notes, as the case may be, on the record date with respect to the Interest Payment Date on which such Damages Payment Date shall occur. Registration Default: As defined in Section 5 hereof. Registration Statement: Any registration statement of the Company relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, in each case, (i) which is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus included therein, all amendments and 2 4 supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer Transfer Restricted Securities. Shelf Registration Statement: As defined in Section 4 hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. Transfer Restricted Securities: Each Note, until (i) the date on which such Note has been exchanged by a person other than a broker-dealer for an Exchange Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of a Note for an Exchange Note, the date on which such a Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Note is distributed to the public pursuant to Rule 144 under the Act. Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. SECTION 2. HOLDERS A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permitted by applicable federal law (after the procedures set forth in Section 6(a)(i) below have been complied with), the Company shall (i) cause to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 30 days after the Closing Date, the Exchange Offer Registration Statement, (ii) use its best efforts to cause such Exchange Offer Registration Statement to become effective at the earliest possible time, but in no event later than 90 days after the Closing Date, (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause such Exchange Offer Registration Statement to become effective, (B) file, if applicable, a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings, if any, in connection with the registration and qualification of the Exchange Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting registration of the Exchange Notes to be offered in exchange for the Notes that are Transfer Restricted Securities and to permit sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers as contemplated by Section 3(c) below. 3 5 (b) The Company shall use its best efforts to cause the Exchange Offer Registration Statement to be effective continuously, and shall keep the Exchange Offer referred to in the second paragraph of Section 3(c) open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 Business Days. The Company shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the Exchange Notes shall be included in the Exchange Offer Registration Statement. The Company shall use its best efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 30 Business Days thereafter. (c) The Company shall include a "Plan of Distribution" section in the Prospectus contained in the Exchange Offer Registration Statement and indicate therein that any Restricted Broker-Dealer who holds Notes that are Transfer Restricted Securities and that were acquired for the account of such Broker- Dealer as a result of market-making activities or other trading activities, may exchange such Notes (other than Transfer Restricted Securities acquired directly from the Company or any Affiliate of the Company) pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with its initial sale of each Exchange Note received by such Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may be satisfied by the delivery by such Broker- Dealer of the Prospectus contained in the Exchange Offer Registration Statement. Such "Plan of Distribution" section shall also contain all other information with respect to such sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers that the Commission may require in order to permit such sales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker- Dealer or disclose the amount of Notes held by any such Broker-Dealer, except to the extent required by the Commission. The Company shall use its best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(c) below to the extent necessary to ensure that it is available for sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers, and to ensure that such Registration Statement conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of one year from the date on which the Exchange Offer is Consummated (or such longer period if extended pursuant to Section 6(d) hereof). The Company shall promptly provide sufficient copies of the latest version of such Prospectus to such Restricted Broker-Dealers promptly upon request, and in no event later than one day after such request, at any time during such one-year period in order to facilitate such sales. SECTION 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Company is not required to file an Exchange Offer Registration Statement with respect to the Exchange Notes or permitted to Consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy (after the procedures set forth in Section 6(a)(i) below have been complied with) or (ii) any Holder shall notify the Company within 20 Business Days following the Consummation of the Exchange Offer that (A) such Holder was prohibited by law or Commission policy from participating in the Exchange Offer or (B) such Holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Offer Registration Statement is not 4 6 appropriate or available for such resales by such Holder or (C) such Holder is a Broker-Dealer and holds Notes acquired directly from the Company or one of its affiliates, then the Company shall (x) cause to be filed, on or prior to 60 days after the date on which the Company determines that it is not required to file the Exchange Offer Registration Statement pursuant to clause (i) above or 60 days after the date on which the Company receives the notice specified in clause (ii) above (and in any event within 120 days after the Closing Date), a shelf registration statement pursuant to Rule 415 under the Act (which may be an amendment to the Exchange Offer Registration Statement (in either event, the "Shelf Registration Statement")), relating to all Transfer Restricted Securities the Holders of which shall have provided the information required pursuant to Section 4(b) hereof, and shall (y) use its best efforts to cause such Shelf Registration Statement to be declared effective by the Commission as promptly as possible, but not later than 60 days after the date on which the Company becomes obligated to file such Shelf Registration Statement. If, after the Company has filed an Exchange Offer Registration Statement which satisfies the requirements of Section 3(a) above, the Company is required to file and make effective a Shelf Registration Statement solely because the Exchange Offer shall not be permitted under applicable federal law, then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above. Such an event shall have no effect on the requirements of clause (y) above. The Company shall use its best efforts to keep the Shelf Registration Statement discussed in this Section 4(a) continuously effective, supplemented and amended as required by and subject to the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 4(a), and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least three years (as extended pursuant to Section 6(d)) following the date on which such Shelf Registration Statement first becomes effective under the Act, or such shorter period ending when all Transfer Restricted Securities covered by the Shelf Registration Statement cease to be Transfer Restricted Securities. (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 days after receipt of a request therefor, such information specified in item 507 of Regulation S-K under the Act for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder shall be entitled to liquidated damages pursuant to Section 5 hereof unless and until such Holder shall have used its best efforts to provide all such information. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. SECTION 5. LIQUIDATED DAMAGES If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the date specified for such filing in this Agreement, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the date specified for such effectiveness in this Agreement, (iii) the Exchange Offer has not been Consummated within 30 Business Days after the Exchange Offer Registration Statement is first declared effective by the Commission or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective immediately (each such event referred to in clauses (i) through (iv), a "Registration Default"), 5 7 then the Company hereby agrees to pay liquidated damages to each Holder with respect to the first 90-day period immediately following the occurrence of such Registration Default, in an amount equal to $.05 per week per $1,000 principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues. The amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.50 per week per $1,000 principal amount of Transfer Restricted Securities. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable in the case of (iv) above, the liquidated damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. All accrued liquidated damages shall be paid by the Company in cash on each Damage Payment Date. All accrued liquidated damages shall be paid by wire transfer of immediately available funds or by federal funds check and to Holders of Certificated Securities by mailing checks to their registered addresses on each Damages Payment Date. All obligations of the Company set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security shall have been satisfied in full. SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Company shall comply with all applicable provisions of Section 6(c) below, shall use its best efforts to effect such exchange and to permit the sale of Broker-Dealer Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and shall comply with all of the following provisions: (i) If, following the date hereof there has been published a change in Commission policy with respect to exchange offers such as the Exchange Offer, such that in the reasonable opinion of counsel to the Company there is a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Company hereby agrees to seek a no-action letter or other favorable decision from the Commission allowing the Company to Consummate an Exchange Offer for such Notes. The Company hereby agrees to pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Company hereby agrees to take all such other actions as are requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (A) participating in telephonic conferences with the Commission, (B) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursuing a resolution (which need not be favorable) by the Commission staff of such submission. 6 8 (ii) As a condition to its participation in the Exchange Offer pursuant to the terms of this Agreement, each Holder shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring the Exchange Notes in its ordinary course of business. Each Holder hereby acknowledges and agrees that any Broker-Dealer and any such Holder using the Exchange Offer to participate in a distribution of the securities to be acquired in the Exchange Offer (1) could not under Commission policy as in effect on the date of this Agreement rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (including, if applicable, any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K if the resales are of Exchange Notes obtained by such Holder in exchange for Series Notes acquired by such Holder directly from the Company or an affiliate thereof. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company shall provide a supplemental letter to the Commission (A) stating that the Company is registering the Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) and, if applicable, any no-action letter obtained pursuant to clause (i) above, (B) including a representation that the Company has not entered into any arrangement or understanding with any Person to distribute the Exchange Notes to be received in the Exchange Offer and that, to the best of the Company's information and belief, each Holder participating in the Exchange Offer is acquiring the Exchange Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes received in the Exchange Offer and (C) any other undertaking or representation required by the Commission as set forth in any no-action letter obtained pursuant to clause (i) above. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company shall comply with all the provisions of Section 6(c) below and shall use its best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company will prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof. (c) General Provisions. In connection with any Registration Statement and any related Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities (including, without limitation, any Exchange Offer Registration Statement and the related Prospectus, to the extent that the same are required to be available to permit sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers), the Company shall: 7 9 (i) use its best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company shall file promptly an appropriate amendment to such Registration Statement, (1) in the case of clause (A), correcting any such misstatement or omission, and (2) in the case of clauses (A) and (B), use its best efforts to cause such amendment to be declared effective and such Registration Statement and the related Prospectus to become usable for its intended purpose(s) as soon as practicable thereafter; (ii) prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise the underwriter(s), if any, and selling Holders promptly and, if requested by such Persons, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) furnish to the Initial Purchasers, each selling Holder named in any Registration Statement or Prospectus and each of the underwriter(s) in connection with such sale, if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such Holders and underwriter(s) in 8 10 connection with such sale, if any, for a period of at least five Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which the selling Holders of the Transfer Restricted Securities covered by such Registration Statement or the underwriter(s) in connection with such sale, if any, shall reasonably object within five Business Days after the receipt thereof, or if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission or fails to comply with the applicable requirements of the Act; (v) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document, upon request, to the selling Holders and to the underwriter(s) in connection with such sale, if any, make the Company's representatives available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as such selling Holders or underwriter(s), if any, reasonably may request; (vi) make available at reasonable times for inspection by the selling Holders, any managing underwriter participating in any disposition pursuant to such Registration Statement and any attorney or accountant retained by such selling Holders or any of such underwriter(s), all financial and other records, pertinent corporate documents and properties of the Company and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney or accountant in connection with such Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; (vii) if requested by any selling Holders or the underwriter(s) in connection with such sale, if any, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and underwriter(s), if any, may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities, information with respect to the principal amount of Transfer Restricted Securities being sold to such underwriter(s), the purchase price being paid therefor and any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (viii) furnish to each selling Holder and each of the underwriter(s) in connection with such sale, if any, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (ix) deliver to each selling Holder and each of the underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Company hereby consents to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each of the selling Holders and each of the underwriter(s), if any, in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; 9 11 (x) enter into such agreements (including an underwriting agreement) and make such representations and warranties that are reasonably acceptable to the Company and take all such other reasonable actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any Registration Statement contemplated by this Agreement as may be reasonably requested by any Holder or underwriter in connection with any sale or resale pursuant to any Registration Statement contemplated by this Agreement, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration, the Company shall: (A) furnish (or in the case of paragraphs (2) and (3), use its best efforts to furnish) to each selling Holder and each underwriter, if any, upon the effectiveness of the Shelf Registration Statement and to each Restricted Broker-Dealer upon Consummation of the Exchange Offer: (1) a certificate, dated the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, signed on behalf of the Company by (x) the President or any Vice President and (y) a principal financial or accounting officer of the Company, confirming, as of the date thereof, the type of matters set forth in paragraphs (b)-(e) of Section 7 of the Purchase Agreement with respect to the relevant Registration Statement and the securities registered hereunder, and such other similar matters as the Holders, underwriter(s) and/or Restricted Broker Dealers may reasonably request; (2) an opinion, dated the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, of counsel for the Company covering matters similar to those set forth in paragraph (h) of Section 7 of the Purchase Agreement and such other matters as the Holders, underwriters and/or Restricted Broker Dealers may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company and have considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing (relying as to materiality to a large extent upon facts provided to such counsel by officers and other representatives of the Company and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the applicable Registration Statement, at the time such Registration Statement or any post-effective amendment thereto became effective and, in the case of the Exchange Offer Registration Statement, as of the date of Consummation of the Exchange Offer, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Registration Statement as of its date and, in the case of the opinion dated the date of Consummation of the Exchange Offer, as of the date of Consummation, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and 10 12 (3) a customary comfort letter, dated as of the date of effectiveness of the Shelf Registration Statement or the date of Consummation of the Exchange Offer, as the case may be, from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with primary underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 7 of the Purchase Agreement, without exception; (B) set forth in full or incorporate by reference in the underwriting agreement, if any, in connection with any sale or resale pursuant to any Shelf Registration Statement the indemnification provisions and procedures of Section 8 hereof with respect to all parties to be indemnified pursuant to said Section ; and (C) deliver such other documents and certificates as may be reasonably requested by the selling Holders, the underwriter(s), if any, and Restricted Broker Dealers, if any, to evidence compliance with clause (A) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company pursuant to this clause (x). The above shall be done at each closing under such underwriting or similar agreement, as and to the extent required thereunder, and if at any time the representations and warranties of the Company contemplated in (A)(1) above cease to be true and correct, the Company shall so advise the underwriter(s), if any, the selling Holders and each Restricted Broker-Dealer promptly and if requested by such Persons, shall confirm such advice in writing; (xi) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders or underwriter(s), if any, may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not now so subject; (xii) issue, upon the request of any Holder of Notes covered by any Shelf Registration Statement contemplated by this Agreement, Exchange Notes having an aggregate principal amount equal to the aggregate principal amount of Notes surrendered to the Company by such Holder in exchange therefor or being sold by such Holder; such Exchange Notes to be registered in the name of such Holder or in the name of the purchaser(s) of such Notes, as the case may be; in return, the Notes held by such Holder shall be surrendered to the Company for cancellation; (xiii) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the selling Holders and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Securities in such denominations and such names as the Holders or the underwriter(s), if any, may request at least two Business Days prior to such sale of Transfer Restricted Securities; 11 13 (xiv) use its best efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xi) above; (xv) subject to Section 6(c)(i), if any fact or event contemplated by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (xvi) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depository Trust Company; (xvii) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter") that is required to be retained in accordance with the rules and regulations of the NASD, and use its best efforts to cause such Registration Statement to become effective and approved by such governmental agencies or authorities as may be necessary to enable the Holders selling Transfer Restricted Securities to consummate the disposition of such Transfer Restricted Securities; (xviii) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders with regard to any applicable Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in paragraph (c) of Rule 158 under the Act); (xix) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement and, in connection therewith, cooperate with the Trustee and the Holders of Notes to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use its best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and (xx) provide promptly to each Holder upon request each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (d) Restrictions on Holders. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of the notice referred to in Section 6(c)(i) or any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(C) or (D) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement 12 14 until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof, or until it is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (the "Advice"). If so directed by the Company, each Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of either such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof to and including the date when each selling Holder covered by such Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof or shall have received the Advice. SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses (including filings made by the Initial Purchasers or any Holder with the NASD (and, if applicable, the fees and expenses of any "qualified independent underwriter") and its counsel that may be required by the rules and regulations of the NASD); (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Exchange Notes to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all reasonable fees and disbursements of counsel for the Company and the Holders (subject to the provisions of Section 7(b) below); (v) all application and filing fees in connection with listing the Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company will reimburse the Initial Purchasers and the Holders being tendered in the Exchange Offer and/or resold pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or registered pursuant to the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8. INDEMNIFICATION (a) The Company agrees to indemnify and hold harmless (i) each Holder and (ii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any 13 15 Holder (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person") and (iii) the respective officers, directors, partners, employees, representatives and agents of any Holder or any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Holder) directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by an untrue statement or omission or alleged untrue statement or omission that is made in reliance upon and in conformity with information relating to any of the Holders furnished in writing to the Company by any of the Holders expressly for use therein; provided, however, that the Company shall not be required to indemnify any such Person if such untrue statement or omission or alleged untrue statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus or any amendment or supplement thereto and the Prospectus does not contain any other untrue statement or omission or alleged untrue statement or omission of a material fact that was the subject matter of the related proceeding and any such loss, liability, claim, damage or expense suffered or incurred by the Indemnified Holder resulted from any action, claim or suit by any Person who purchased Transfer Restricted Securities or Exchange Notes which are the subject thereof from such Indemnified Holder and it is established in the related proceeding that such Indemnified Holder failed to deliver or provide a copy of the Prospectus (as amended or supplemented) to such Person with or prior to the confirmation of the sale of such Transfer Restricted Securities or Exchange Notes sold to such Person if required by applicable law, unless such failure to deliver or provide a copy of the Prospectus (as amended or supplemented) was a result of noncompliance by the Company with Section 6 of this Agreement. In case any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any of the Indemnified Holders with respect to which indemnity may be sought against the Company, such Indemnified Holder (or the Indemnified Holder controlled by such controlling person) shall promptly notify the Company in writing (provided, that the failure to give such notice shall not relieve the Company of its obligations pursuant to this Agreement, unless and only to the extent that such failure directly results in the loss or compromise of any material rights or defenses by the Company and the Company was not otherwise aware of such action or claim). In such event, the Company shall retain counsel reasonably satisfactory to the Indemnified Holders to represent the Indemnified Holders and any others the Company may reasonably designate in such proceeding and shall pay the reasonable fees and expenses actually incurred by such counsel related to such proceeding. The Company shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such Indemnified Holders, which firm shall be designated by the Holders. The Company shall be liable for any settlement of any such action or proceeding effected with the Company's prior written consent, which consent shall not be withheld unreasonably, and the Company agrees to indemnify and hold harmless each Indemnified Holder from and against any loss, claim, damage, liability or expense by reason of any settlement of any action effected with the written consent of the Company. The Company shall not, without the prior written consent of each Indemnified Holder, which shall not be unreasonably withheld, settle or compromise or 14 16 consent to the entry of judgment in or otherwise seek to terminate any pending or threatened action, claim, litigation or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not any Indemnified Holder is a party thereto), unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Holder from all liability arising out of such action, claim, litigation or proceeding. (b) Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, and its directors, officers, and any person controlling (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company, and the respective officers, directors, partners, employees, representatives and agents of each such person, to the same extent as the foregoing indemnity from the Company to each of the Indemnified Holders, but only with respect to claims and actions based on information relating to such Holder furnished in writing by such Holder expressly for use in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto). In case any action or proceeding shall be brought against the Company or its directors or officers or any such controlling person in respect of which indemnity may be sought against a Holder, such Holder shall have the rights and duties given the Company, and the Company, such directors or officers or such controlling person shall have the rights and duties given to each Holder by the preceding paragraph. The liability of any Holder under this paragraph shall in no event exceed the proceeds received by such Holder from sales of Transfer Restricted Securities or Exchange Notes giving rise to such obligations. (c) If the indemnification provided for in this Section 8 is unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof (other than by reason of exceptions provided in those Sections ) in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or if such allocation is not permitted by applicable law, the relative fault of the Company, on the one hand, and of the Indemnified Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Indemnified Holders on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of discounts and commissions but before deducting expenses) of the Notes received by the Company bears to the total proceeds received by such Indemnified Holder from the sale of Transfer Restricted Securities or Exchange Notes, as the case may be. The relative fault of the Company, on the one hand, and of the Indemnified Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Indemnified Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission and any other equitable consideration appropriate in the circumstances. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of Section 8(a), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 8(c) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable 15 17 by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, no Holder or its related Indemnified Holders shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total received by such Holder with respect to the sale of its Transfer Restricted Securities pursuant to a Registration Statement exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(c) are several in proportion to the respective principal amount of Notes held by each of the Holders hereunder and not joint. SECTION 9. RULE 144A The Company hereby agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company is not subject to Section 13 or 15(d) of the Securities Exchange Act, to make available, upon request of any Holder, to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. SECTION 10. UNDERWRITTEN REGISTRATIONS No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. SECTION 11. SELECTION OF UNDERWRITERS For any Underwritten Offering, the investment banker or investment bankers and manager or managers for any Underwritten Offering that will administer such offering will be selected by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in such offering and reasonably acceptable to the Company. Such investment bankers and managers are referred to herein as the "underwriters." SECTION 12. MARKET-MAKING PROSPECTUSES (a) Following the consummation of any Exchange Offer or the effectiveness of a Shelf Registration Statement and for so long as the Notes are outstanding if, in the reasonable judgment of the Initial Purchasers, the Initial Purchasers or any of their affiliates (as such term is defined in the rules and 16 18 regulations under the Act) are required to deliver a prospectus in connection with sales of, or market-making activities with respect to, such securities, the Company agrees (A) to periodically amend the applicable Registration Statement so that the information contained therein complies with the requirements of Section 10(a) of the Act, (B) to amend the applicable Registration Statement or supplement the related prospectus or the documents incorporated therein when necessary to reflect any material changes in the information provided therein so that the Registration Statement, and the prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances existing as of the date the prospectus is so delivered, not misleading and (C) to provide the Initial Purchasers with copies of each such amendment or supplement as the Initial Purchasers may reasonably request. SECTION 13. MISCELLANEOUS (a) Remedies. Each Holder, in addition to being entitled to exercise all rights provided herein, in the Indenture, the Purchase Agreement or granted by law, including recovery of liquidated or other damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by them of the provisions of this Agreement and hereby agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Company hereby represents and warrants that the rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. (c) Adjustments Affecting the Notes. The Company will not take any action, or voluntarily permit any change to occur, with respect to the Notes or Exchange Notes that would materially and adversely affect the ability of the Holders to Consummate any Exchange Offer. (d) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) the consent of the Company is obtained, which shall not be unreasonably withheld, (ii) in the case of Section 5 hereof and this Section 13(d)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities and (iii) in the case of all other provisions hereof, the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose securities are being tendered pursuant to the Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose securities are not being tendered pursuant to such Exchange Offer may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities subject to such Exchange Offer. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: 17 19 (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Company: K & F Industries, Inc. 600 Third Avenue New York, New York 10016 Telecopier No.: (212) 867-1182 Attention: Chief Financial Officer With a copy to: O'Sullivan, Graev & Karabell, LLP 30 Rockefeller Plaza New York, New York 10112 Telecopier No.: (212) 408-2420 Attention: John Suydam, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities directly from such Holder. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 18 20 (k) Entire Agreement. This Agreement and the other agreements referenced herein are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (l) Underwriting Agreement. Notwithstanding the provisions of Section 6 hereof, in the event of a Shelf Registration pursuant to Section 4 hereof, to the extent that the Holders shall enter into an underwriting or similar agreement, which agreement contains provisions covering one or more issues addressed in such Section 4 with substantially similar effect, the provisions contained in such Sections addressing such issue or issues shall be of no force or effect with respect to the registration of securities being effected in connection with such underwriting or similar agreement. (m) Termination. This Agreement shall terminate and be of no further force or effect when there shall not be any Transfer Restricted Securities, except that the provisions of Section 5, 7, 8, 12, and 13 shall survive any such termination. 19 21 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. K & F INDUSTRIES, INC. By: /s/ Kenneth M. Schwartz --------------------------------- Name: Kenneth M. Schwartz Title: Executive Vice President 20 22 LEHMAN BROTHERS INC. CHASE SECURITIES INC. By: Lehman Brothers Inc. By: /s/ Stephen Mehos -------------------------------- Name: Stephen Mehos Title: Associate 21 EX-12.01 13 STATEMENT OF COMPUTATION 1 EXHIBIT 12.01 K & F INDUSTRIES, INC. STATEMENT OF COMPUTATION OF EARNINGS (DEFICIENCY) TO FIXED CHARGES (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED JUNE 30, YEAR ENDED MARCH 31, ----------------- --------------------------------------------------- 1996 1995 1996 1995 1994 1993 1992 ------- ------- ------- -------- -------- -------- -------- Income (loss) before income taxes.............. $ 5,490 ($1,299) $ 507 ($10,173) ($31,736) ($21,210) ($14,724) Fixed charges (a).............................. 10,013 11,032 43,340 48,171 53,446 54,908 53,728 Less: capitalized interest..................... (201) 0 (105) 0 0 0 0 ------- ------- ------- -------- -------- -------- -------- Earnings (b)................................... $15,302 $ 9,733 $43,742 $ 37,998 $ 21,710 $ 33,698 $ 39,004 ======= ======= ======= ======== ======== ======== ======== Ratio of earnings available to cover fixed charges...................................... 1.53x 1.01x Deficiency of earnings available to cover fixed charges...................................... ($1,299) ($10,173) ($31,736) ($21,210) ($14,724)
- --------------- (a) 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). (b) Earnings consist of income (loss) before income taxes plus fixed charges (excluding capitalized interest). EX-23.02 14 CONSENT OF DELOITTE AND TOUCHE LLP 1 EXHIBIT 23.02 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement on Form S-4 (No. 33- ) of K & F Industries, Inc. of our report dated May 22, 1996, appearing in the Prospectus, which is a part of such Registration Statement. We also consent to the reference to us under the headings "Prospectus Summary -- Summary Consolidated Financial Information," "Selected Consolidated Financial Information" and "Experts" in such Prospectus. DELOITTE & TOUCHE LLP New York, New York August 28, 1996 EX-25.01 15 FORM T-1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM T-1 ---------- STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ---------- / / CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) FLEET NATIONAL BANK --------------------------------------------------------- (Exact name of trustee as specified in its charter) Not applicable 04-317415 - ------------------------------- ----------------------------- (State of incorporation (I.R.S. Employer if not a national bank) Identification No.) One Monarch Place, Springfield, MA 01102 - ---------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code)
Pat Beaudry, 777 Main Street, Hartford, CT 06115 (203) 728-2065 -------------------------------------------------------------- (Name, address and telephone number of agent for service) K & F Industries, Inc. --------------------------------------------------- (Exact name of obligor as specified in its charter) Delaware 34-1614845 - ------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 600 Third Avenue New York, New York 10016 - ---------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code)
10 3/8% Series B Senior Subordinated Notes due 2004 ------------------------------------------------------------------ (Title of the indenture securities) 2 Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject, The Comptroller of the Currency, Washington, D.C. Federal Reserve Bank of Boston Boston, Massachusetts Federal Deposit Insurance Corporation Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers: The trustee is so authorized. Item 2. Affiliations with obligor and underwriter. If the obligor or any underwriter for the obligor is an affiliate of the trustee, describe each such affiliation. None with respect to the trustee. Item 16. List of exhibits. List below all exhibits filed as a part of this statement of eligibility and qualification. (1) A copy of the Articles of Association of the trustee as now in effect. (2) A copy of the Certificate of Authority of the trustee to do business. (3) A copy of the Certification of Fiduciary Powers of the trustee. (4) A copy of the By-Laws of the trustee as now in effect. (5) Consent of the trustee required by Section 321(b) of the Act. (6) A copy of the latest Consolidated Reports of Condition and Income of the trustee published pursuant to law or the requirements of its supervising or examining authority. NOTES In as much as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base answers to Item 2, the answers to said Items are based upon imcomplete information. Said Items may, however, be considered correct unless amended by an amendment to this Form T-1. 3 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, Fleet National Bank, a national banking association organized and existing under the laws of the United States, has duly caused this statement of of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Hartford, and State of Connecticut, on the 29th day of August, 1996. FLEET NATIONAL BANK, AS TRUSTEE By: /s/ Jacqueline Connor ------------------------- Jacqueline Connor Its: Assistant Vice President 4 EXHIBIT 1 ARTICLES OF ASSOCIATION OF FLEET NATIONAL BANK FIRST. The title of this Association, which shall carry on the business of banking under the laws of the United States, shall be "Fleet National Bank." SECOND. The main office of the Association shall be in Springfield, Hampden County Commonwealth of Massachusetts. The general business of the Association shall be conducted at its main office and its branches. THIRD. The board of directors of this Association shall consist of not less than five (5) nor more than twenty-five (25) shareholders, the exact number of directors within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the full board of directors or by resolution of the shareholders at any annual or special meeting thereof. Unless otherwise provided by the laws of the United States, any vacancy in the board of directors for any reason, including an increase in the number thereof, may be filled by action of the board of directors. FOURTH. The annual meeting of the shareholders for the election of directors and the transaction of whatever other business may be brought before said meeting shall be held at the main office or such other place as the board of directors may designate, on the day of each year specified therefore in the bylaws, but if no election is held on that day, it may be held on any subsequent day according to the provisions of law; and all elections shall be held according to such lawful regulations as may be prescribed by the board of directors. FIFTH. The authorized amount of capital stock of this Association shall be eight million five hundred thousand (8,500,000) shares of which three million five hundred thousand (3,500,000) shares shall be common stock with a par value of six and 25/100 dollars ($6.25) each, and of which five million (5,000,000) shares without par value shall be preferred stock. The capital stock may be increased or decreased from time to time, in accordance with the provisions of the laws of the United States. No holder of shares of the capital stock of any class of the Association shall have any pre-emptive or preferential right of subscription to any shares of any class of stock of the Association, whether now or hereafter authorized, or to any obligations convertible into stock of the Association, issued or sold, nor any right of subscription to any thereof other than such, if any, as the board of directors, in its discretion, may from time to time determine and at such price as the board of directors may from time to time fix. 5 The board of directors of the Association is authorized, subject to limitations prescribed by law and the provisions of this Article, to provide for the issuance from time to time in one or more series of any number of the preferred shares, and to establish the number of shares be included in each series, and to fix the designation, relative rights, preferences, qualifications and limitations of the shares of each such series. The authority of the board of directors with respect to each series shall include, but not be limited to, determination of the following: a. The number of shares constituting that series and the distinctive designation of that series; b. The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and whether they shall be payable in preference to, or in another relation to, the dividends payable to any other class or classes or series of stock; c. Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; d. Whether that series shall have conversion or exchange privileges, and, if so, the terms and conditions of such conversion or exchange, including provision for the adjustment of the conversion or exchange rate in such events as the board of directors shall determine; e. Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the manner of selecting shares for redemption if less than all shares are to be redeemed, the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; f. Whether that series shall be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of that series, and, if so, the terms and amounts of such sinking fund; g. The right of the shares of that series to the benefit of conditions and restrictions upon the creation of indebtedness of the Association or any subsidiary, upon the issue of any additional stock (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Association or any subsidiary of any outstanding stock of the Association; h. The right of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Association and whether such rights shall be in preference to, or in another relation to, the comparable rights of any other class or classes or series of stock; and i. Any other relative, participating, optional or other special rights, qualifications, limitations or restrictions of that series. Shares of any series of preferred stock which have been redeemed (whether through the operation of a sinking fund or otherwise) or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes shall have the status of authorized and unissued shares of preferred stock of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of preferred stock to be created by resolution or resolutions of the board of directors or as part of any other series or preferred stock, all subject to the conditions and the restrictions adopted by the board of directors providing for the issue of any series of preferred stock and by the provisions of any applicable law. Subject to the provisions of any applicable law, or except as otherwise provided by the resolution or resolutions providing for the issue of any series of preferred stock, the holders of outstanding shares of common stock shall exclusively possess voting power for the election of directors and for all purposes, each holder of record of shares of common stock being entitled to one vote for each share of common stock standing in his name on the books of the Association. Except as otherwise provided by the resolution or resolutions providing for the issue of any series of preferred stock, after payment shall have been made to the holders of preferred stock of the full amount of dividends to which they shall be entitled pursuant to the resolution or resolutions providing for the issue of any other series of preferred stock, the holders of common stock shall be entitled, to the exclusion of the holders of preferred stock of any and all series, to receive such dividends as from time to time may be declared by the board of directors. Except as otherwise provided by the resolution or resolutions for the issue of any series of preferred stock, in the event of any liquidation, dissolution or winding up of the Association, whether voluntary or involuntary, after payment shall have been made to the holders of preferred stock of the full amount to which they shall be entitled pursuant to the resolution or resolutions providing for the issue of any series of preferred stock the holders of common stock shall be entitled, to the exclusion of the holders of preferred stock of any and all series, to share, ratable according to the number of shares of common stock held by them, in all remaining assets of the Association available for distribution to its shareholders. The number of authorized shares of any class may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Association entitled to vote. 6 SIXTH. The board of directors shall appoint one of its members president of this Association, who shall be chairman of the board, unless the board appoints another director to be the chairman. The board of directors shall have the power to appoint one or more vice presidents; and to appoint a secretary and such other officers and employees as may be required to transact the business of this Association. The board of directors shall have the power to define the duties of the officers and employees of the Association; to fix the salaries to be paid to them; to dismiss them; to require bonds from them and to fix the penalty thereof; to regulate the manner in which any increase of the capital of the Association shall be made; to manage and administer the business and affairs of the Association; to make all bylaws that it may be lawful for them to make; and generally to do and perform all acts that it may be legal for a board of directors to do and perform. SEVENTH. The board of directors shall have the power to change the location of the main office to any other place within the limits of the City of Hartford, Connecticut, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency; and shall have the power to establish or change the location of any branch or branches of the Association to any other location, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency. EIGHTH. The corporate existence of this Association shall continue until terminated in accordance with the laws of the United States. NINTH. The board of directors of this Association, or any three or more shareholders owning, in the aggregate, not less than ten percent (10%) of the stock of this Association, may call a special meeting of shareholders at any time. Unless otherwise provided by the laws of the United States, a notice of the time, place and purpose of every annual and special meeting of the shareholders shall be given by first class mail, postage prepaid, mailed at least ten (10) days prior to the date of such meeting to each shareholder of record at his address as shown upon the books of this Association. TENTH. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director, officer or employee of the Association or is or was serving at the request of the Association as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, or other enterprise, including service with respect to an employee benefit plan, shall be indemnified and held harmless by the Association to the fullest extent authorized by the law of the state in which the Association's ultimate parent company is incorporated, except as provided in subsection (b). The aforesaid indemnity shall protect the indemnified person against all expense, liability and loss (including attorney's fees, judgements, fines ERISA excise taxes or penalties, and amounts paid in settlement) reasonably incurred by such person in connection with such a proceeding. Such indemnification shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of his or her heirs, executors, and administrators, but shall only cover such person's period of service with the Association. The Association may, by action of its Board of Directors, grant rights to indemnification to agents of the Association and to any director, officer, employee or agent of any of its subsidiaries with the same scope and effect as the foregoing indemnification of directors and officers. (b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no person shall be indemnified hereunder by the Association against expenses, penalties, or other payments incurred in an administrative proceeding or action instituted by a federal bank regulatory agency which proceeding or action results in a final order assessing civil money penalties against that person, requiring affirmative action by that person in the form of payments to the Association, or removing or prohibiting that person from service with the Association, and any advancement of expenses to that person in that proceeding must be repaid; and (ii) no person shall be indemnified hereunder by the Association and no advancement of expenses shall be made to any person hereunder to the extent such indemnification or advancement of expenses would violate or conflict with any applicable federal statute now or hereafter in force or any applicable final regulation or interpretation now or hereafter adopted by the Office of the Comptroller of the Currency ("OCC") or the Federal Deposit Insurance Corporation ("FDIC"). The Association shall comply with any requirements imposed on it by any such statue or regulation in connection with any indemnification or advancement of expenses hereunder by the Association. With respect to proceedings to enforce a claimant's rights to indemnification, the Association shall indemnify any such claimant in connection with such a proceeding only as provided in subsection (d) hereof. (c) Advancement of Expenses. The conditional right to indemnification conferred in this section shall be a contract right and shall include the right to be paid by the Association the reasonable expenses (including attorney's fees) incurred in defending a proceeding in advance of its final disposition (an "advancement of expenses"); provided, however, that an advancement of expenses shall be made only upon (i) delivery to the Association of a binding written undertaking by or on behalf of the person receiving the advancement to repay all amounts so advanced if it is ultimately determined that such person is not entitled to be indemnified in such proceeding, including if such proceeding results in a final order assessing civil money penalties against that person, requiring affirmative action by that person in the form of payments to the Association, or removing or prohibiting that person from service with the Association, and (ii) compliance with any other actions or determinations required by applicable law, regulation or OCC or FDIC interpretation to be taken or made by the Board of Directors of the Association or other persons prior to an advancement of expenses. The Association shall cease advancing expenses at any time its Board of Directors believes that any of the prerequisites for advancement of expenses are no longer being met. (d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the section is not paid in full by the Association within thirty (30) days after written claim has been received by the Association, the claimant may at any time thereafter bring suit against the Association to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Association to recover an advancement of expenses pursuant to the terms of an undertaking, the claimant shall be entitled to be paid also the expense of prosecuting or defending such claim. It shall be a defense to any such action brought by the claimant to enforce a right to indemnification hereunder (other than an action brought to enforce a claim for an advancement of expenses where the required undertaking, if any, has been tendered to the Association) that the claimant has not met any applicable standard for indemnification under the law of the state in which the Association's ultimate parent company is incorporated. In any suit brought by the Association to recover an advancement of expenses pursuant to the terms of an undertaking, the Association shall be entitled to recover such expenses upon a final adjudication that the claimant has not met any applicable standard for indemnification standard for indemnification under the law of the state in which the Association's ultimate parent company is incorporated. (e) Non-Exclusivity of Rights. The rights to indemnification and the advancement of expenses conferred in this section shall not be exclusive of any other right which any person may have or hereafter acquired under any statute, agreement, vote of stockholders or disinterested directors or otherwise. (f) Insurance. The Association may purchase, maintain, and make payment or reimbursement for reasonable premiums on, insurance to protect itself and any director, officer, employee or agent of the Association or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Association would have the power to indemnify such person against such expense, liability or loss under the law of the state in which the Association's ultimate parent company is incorporated; provided however, that such insurance shall explicitly exclude insurance coverage for a final order of a federal bank regulatory agency assessing civil money penalties against an Association director, officer, employee or agent. ELEVENTH. These articles of association may be amended at any regular or special meeting of the shareholders by the affirmative vote of the holders of a majority of the stock of this Association, unless the vote of the holders of greater amount of stock is required by law, and in that case by the vote of the holders of such greater amount. The notice of any shareholders' meeting at which an amendment to the articles of association of this Association is to be considered shall be given as hereinabove set forth. I hereby certify that the articles of association of this Association, in their entirety, are listed above in items first through eleventh. Secretary/Assistant Secretary - -------------------------------------------------- Dated at , as of . --------------------------------------- -------------------- Revision of February 15, 1996 7 EXHIBIT 2 [LOGO] - -------------------------------------------------------------------------------- COMPTROLLER OF THE CURRENCY ADMINISTRATOR OF NATIONAL BANKS - -------------------------------------------------------------------------------- Washington, D.C. 20219 CERTIFICATE I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify that: (1) The Comptroller of the Currency, pursuant to Revised Statutes 324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and control of all records pertaining to the chartering, regulation and supervision of all National Banking Associations. (2) "Fleet National Bank of Connecticut", Hartford, Connecticut, (Charter No. 1338), is a National Banking Association formed under the laws of the United States and is authorized thereunder to transact the business of banking on the date of this Certificate. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused my seal of office to be affixed to these presents at the Treasury Department, in the City of Washington and District of Columbia, this 4th day of April, 1996. /s/ EUGENE A. LUDWIG ---------------------------------- Comptroller of the Currency 8 EXHIBIT 2 [LOGO] - -------------------------------------------------------------------------------- COMPTROLLER OF THE CURRENCY ADMINISTRATOR OF NATIONAL BANKS - -------------------------------------------------------------------------------- Washington, D.C. 20219 Certification of Fiduciary Powers I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify the records in this Office evidence "Fleet National Bank of Connecticut", Hartford, Connecticut, (Charter No. 1338), was granted, under the hand and seal of the Comptroller, the right to act in all fiduciary capacities authorized under the provisions of The Act of Congress approved September 28, 1962, 76 Stat. 668, 12 U.S.C. 92a. I further certify the authority so granted remains in full force and effect. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused my seal of Office of the Comptroller of the Currency to be affixed to these presents at the Treasury Department, in the City of Washington and District of Columbia, this 4th day of April, 1996. /s/ EUGENE A. LUDWIG ---------------------------------- Comptroller of the Currency 9 EXHIBIT 4 AMENDED AND RESTATED BY-LAWS OF FLEET NATIONAL BANK ARTICLE I MEETINGS OF SHAREHOLDERS Section 1. Annual Meeting. The regular annual meeting of the shareholders for the election of Directors and the transaction of any other business that may properly come before the meeting shall be held at the Main Office of the Association, or such other place as the Board of Directors may designate, on the fourth Thursday of April in each year at 1:15 o'clock in the afternoon unless some other hour of such day is fixed by the Board of Directors. If, from any cause, an election of Directors is not made on such day, the Board of Directors shall order the election to be held on some subsequent day, of which special notice shall be given in accordance with the provisions of law, and of these bylaws. Section 2. Special Meetings. Special meetings of the shareholders may be called at any time by the Board of Directors, the President, or any shareholders owning not less than twenty-five percent (25%) of the stock of the Association. Section 3. Notice of Meetings of Shareholders. Except as otherwise provided by law, notice of the time and place of annual or special meetings of the shareholders shall be mailed, postage prepaid, at least ten (10) days before the date of the meeting to each shareholder of record entitled to vote thereat at his address as shown upon the books of the Association; but any failure to mail such notice to any shareholder or any irregularity therein, shall not affect the validity of such meeting or of any of the proceedings thereat. Notice of a special meeting shall also state the purpose of the meeting. Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a quorum for the transaction of business at every meeting of the shareholders shall consist of not less than two-fifths (2/5) of the outstanding capital stock represented in person or by proxy; less than such quorum may adjourn the meeting to a future time. No notice need be given of an adjourned annual or special meeting of the shareholders if the adjournment be to a definite place and time. Section 5. Votes and Proxies. At every meeting of the shareholders, each share of the capital stock shall be entitled to one vote except as otherwise provided by law. A majority of the votes cast shall decide every question or matter submitted to the shareholder at any meeting, unless otherwise provided by law or by the Articles of Association or these By-laws. Share- holders may vote by proxies duly authorized in writing and filed with the Cashier, but no officer, clerk, teller or bookeeper of the Association may act as a proxy. 10 Section 6. Nominations to Board of Directors. At any meeting of shareholders held for the election of Directors, nominations for election to the Board of Directors may be made, subject to the provisions of this section, by any share- holder of record of any outstanding class of stock of the Association entitled to vote for the election of Directors. No person other than those whose names are stated as proposed nominees in the proxy statement accompanying the notice of the meeting may be nominated as such meeting unless a shareholder shall have given to the President of the Association and to the Comptroller of the Currency, Washington, DC written notice of intention to nominate such other person mailed by certified mail or delivered not less than fourteen (14) days nor more than fifty (50) days prior to the meeting of shareholders at which such nomination is to be made; provided, however, that if less than twenty-one (21) days' notice of such meeting is given to shareholders, such notice of intention to nominate shall be mailed by certified mail or delivered to said President and said Comptroller on or before the seventh day following the day on which the notice of such meeting was mailed. Such notice of intention to nominate shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the total number of shares of capital stock of the Association that will be voted for each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the Association owned by the notifying shareholder. In the event such notice is given, the proposed nominee may be nominated either by the shareholder giving such notice or by any other shareholder present at the meeting at which such nomination is to be made. Such notice may contain the names of more than one proposed nominee, and if more than one is named, any one or more of those named may be nominated. Section 7. Action Taken Without a Shareholder Meeting. Any action requiring shareholder approval or consent may be taken without a meeting and without notice of such meeting by written consent of the shareholders. ARTICLE II DIRECTORS Section 1. Number. The Board of Directors shall consist of such number of shareholders, not less than five (5) nor more than twenty-five (25), as from time to time shall be determined by a majority of the votes to which all of its shareholders are at the time entitled, or by the Board of Directors as hereinafter provided. Section 2. Mandatory Retirement for Directors. No person shall be elected a director who has attained the age of 68 and no person shall continue to serve as a director after the date of the first meeting of the stockholders of the Association held on or after the date on which such person attains the age of 68; provided, however, that any director serving on the Board as of December 15, 1995 who has attanined the age of 65 on or prior to such date shall be permitted to continue to serve as a director until the date of the first meeting of the stockholders of the Association held on or after the date on which such person attains the age of 70. -2- 11 Section 3. General Powers. The Board of Directors shall exercise all the coporate powers of the Association, except as expressly limited by law, and shall have the control, management, direction and dispositon of all its property and affairs. Section 4. Annual Meeting. Immediately following a meeting of shareholders held for the election of Directors, the Cashier shall notify the directors- elect who may be present of their election and they shall then hold a meeting at the Main Office of the Association, or such other place as the Board of Directors may designate, for the purpose of taking their oaths, organizing the new Board, electing officers and transacting any other business that may come before such meeting. Section 5. Regular Meeting. Regular meetings of the Board of Directors shall be held without notice at the Main Office of the Association, or such other place as the Board of Directors may designate, at such dates and times as the Board shall determine. If the day designated for a regular meeting falls on a legal holiday, the meeting shall be held on the next business day. Section 6. Special Meetings. A special meeting of the Board of Directors may be called at anytime upon the written request of the Chairman of the Board, the President, or of two Directors, stating the purpose of the meeting. Notice of the time and place shall be given not later than the day before the date of the meeting, by mailing a notice to each Director at his last known address, by delivering such notice to him personally, or by telephoning. Section 7. Quorum; Votes. A majority of the Board of Directors at the time holding office shall constitute a quorum for the transaction of all business, except when otherwise provided by law, but less than a quorum may adjourn a meeting from time to time, and the meeting may be held, as adjourned, without further notice. If a quorum is present when a vote is taken, the affirmative vote of a majority of Directors present is the act of the Board of Directors. Section 8. Action by Directors Without a Meeting. Any action requiring Director approval or consent may be taken without a meeting and without notice of such meeting by written consent of all the Directors. Section 9. Telephonic Participation in Directors' Meetings. A Director or member of a Committee of the Board of Directors may participate in a meeting of the Board or of such Committee may participate in a meeting of the Board or of such Committee by means of a conference telephone or similar communications equipment enabling all Directors participating in the meeting to hear one another, and participation in such a meeting shall constitute presence in person at such a meeting. Section 10. Vacancies. Vacancies in the Board of Directors may be filled by the remaining members of the Board at any regular or special meeting of the Board. Section 11. Interim Appointments. The Board of Directors shall, if the share- holders at any meeting for the election of Directors have determined a number of Directors less than twenty-five (25), have the power, by affirmative vote of the majority of all the Directors, to increase such number of Directors to not more than twenty-five (25) and to elect Directors to fill the resulting vacancies and to serve until the next annual meeting of shareholders or the next election of Directors; provided, however, that the number of Directors shall not be so increased by more than two (2) if the number last determined by shareholders was fifteen (15) or less, or increased by more than four (4) if the number last determined by shareholders was sixteen (16) or more. Section 12. Fees. The Board of Directors shall fix the amount and direct the payment of fees which shall be paid to each Director for attendance at any meeting of the Board of Directors or of any Committees of the Board. ARTICLE III COMMITTEES OF THE BOARD Section 1. Executive Committee. The Board of Directors shall appoint from its members an Executive Committee which shall consist of such number of persons as the Board of Directors shall determine; the Chairman of the Board and the President shall be members ex-officio of the Executive Committee with full voting power. The Chairman of the Board or the President may from time to time appoint from the Board of Directors as temporary additional members of the Executive Committee, with full voting powers, not more than two members to serve for such periods as the Chairman of the Board or the President may determine. The Board of Directors shall designate a member of the Executive Committee to serve as Chairman thereof. A meeting of the Executive Committee may be called at any time upon the written request of the Chairman of the Board, the President or the Chairman of the Executive Committee, stating the purpose of the meeting. Not less than twenty four hours' notice of said meeting shall be given to each member of the Committee personally, by telephoning, or by mail. The Chairman of the Executive Committee or, in his absence, a member of the Committee chosen by a majority of the members present shall preside at meetings of the Executive Committee. -3- 12 The Executive Committee shall possess and may exercise all the powers of the Board when the Board is not in session except such as the Board, only, by law, is authorized to exercise; it shall keep minutes of its acts and proceedings and cause same to be presented and reported at every regular meeting and at any special meeting of the Board including specifically, all its actions relating to loans and discounts. All acts done and powers and authority conferred by the Executive Committee, from time to time, within the scope of its authority, shall be deemed to be, and may be certified as being, the acts of and under the authority of the Board. Section 2. Risk Management Committee. The Board shall appoint from its members a Risk Management Committee which shall consist of such number as the Board shall determine. The Board shall designate a member of the Risk Management Committee to serve as Chairman thereof. It shall be the duty of the Risk Management Committee to (a) serve as the channel of communication with management and the Board of Directors of Fleet Financial Group, Inc. to assure that formal processes supported by management information systems are in place for the identification, evaluation and management of significant risks inherent in or associated with lending activities, the loan portfolio, asset-liablity management, the investment portfolio, trust and investment advisory activities, the sale of nondeposit investment products and new products and services and such additional activities or functions as the Board may determine from time to time; (b) assure the formulation and adoption of policies approved by the Risk Management Committee or Board governing lending activities, management of the loan portfolio, the maintenance of an adequate allowance for loan and lease losses, asset-liability management, the investment portfolio, the retail sale of non-deposit investment products, new products and services and such additional activities or functions as the Board may determine from time to time (c) assure that a comprehensive independent loan review program is in place for the early detection of problem loans and review significant reports of the loan review department, management's responses to those reports and the risk attributed to unresolved issues; (d) subject to control of the Board, exercise general supervision over trust activities, the investment of trust funds, the disposition of trust investments and the acceptance of new trusts and the terms of such acceptance, and (e) perform such additional duties and exercise such additional powers of the Board as the Board may determine from time to time. Section 3. Audit Committee. The Board shall appoint from its members and Audit Committee which shall consist of such number as the Board shall determine no one of whom shall be an active officer or employee of the Association or Fleet Financial Group, Inc. or any of its affiliates. In addition, members of the Audit Committee must not (i) have served as an officer or employee of the Association or any of its affiliates at any time during the year prior to their appointment; or (ii) own, control, or have owned or controlled at any time during the year prior to appointment, ten percent (10%) or more of any outstanding class of voting securities of the Association. At least two (2) members of the Audit Committee must have significant executive, professional, educational or regulatory experience in financial, auditing, accounting, or banking matters. No member of the Audit Commitee may have significant direct or indirect credit or other relationships with the Association, the termination of which would materially adversely affect the Association's financial condition or results of operations. The Board shall designate a member of the Audit Committee to serve as Chairman thereof. It shall be the duty of the Audit Committee to (a) cause a continuous audit and examination to be made on its behalf into the affairs of the Association and to review the results of such examination; (b) review significant reports of the internal auditing department, management's responses to those reports and the risk attributed to unresolved issues; (c) review the basis for the reports issued under Section 112 of The Federal Deposit Insurance Corporation Improvement Act of 1991; (d) consider, in consultation with the independent auditor and an internal auditing executive, the adequacy of the Association's internal controls, including the resolution of identified material weakness and reportable conditions; (e) review regulatory communications received from any federal or state agency with supervisory jurisdiction or other examining authority and monitor any needed corrective action by management; (f) ensure that a formal system of internal controls is in place for maintaining compliance with laws and regulations; (g) cause an audit of the Trust Department at least once during each calendar year and within 15 months of the last such audit or, in liew thereof, adopt a continuous audit system and report to the Board each calendar year and within 15 months of the previous report on the performance of such audit function; and (h) perform such additional duties and exercise such additional powers of the Board as the Board may determine from time to time. The Audit Committee may consult with internal counsel and retain its own outside counsel without approval (prior or otherwise) from the Board or management and obligate the Association to pay the fees of such counsel. -4- 13 Section 4. Community Affairs Committee. The Board shall appoint from its members a Community Affairs Committee which shall consist of such number as the Board shall determine. The Board shall designate a member of the Community Affairs Committee to serve as Chairman thereof. It shall be the duty of the Commmunity Affairs Committee to (a) oversee compliance by the Association with the Community Reinvestment Act of 1977, as amended, and the regulations promulgated thereunder; and (b) perform such additional duties and exercise such additional powers of the Board as the Board may determine from time to time. Section 5. Regular Meetings. Except for the Executive Committee which shall meet on an ad hoc basis as set forth in Section 1 of this Article, regular meetings of the Committees of the Board of Directors shall be held, without notice, at such time and place as the Committee or the Board of Directors may appoint and as often as the business of the Association may require. Section 6. Special Meetings. A Special Meeting of any of the Committees of the Board of Directors may be called upon the written request of the Chairman of the Board or the President, or of any two members of the respective Committee, stating the purpose of the meeting. Not less than twenty-four hours' notice of such special meeting shall be given to each member of the Committee personally, by telephoning, or by mail. Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees of the Board of Directors may be called at the request of the Chairman of the Board or the President, who shall state that an emergency exists, upon not less than one hour's notice to each member of the Committee personally or by telephoning. Section 8. Action Taken Without a Committee Meeting. Any Committee of the Board of Directors may take action without a meeting and without notice of such meeting by resolution assented to in writing by all members of such Committee. Section 9. Quorum. A majority of a Committee of the Board of Directors shall constitute a quorum for the transaction of any business at any meeting of such Committee. If a quorum is not available, the Chairman of the Board or the President shall have power to make temporary appointments to a Committee of- members of the Board of Directors, to act in the place and stead of members who temporarily cannot attend any such meeting; provided, however, that any temporary appointment to the Audit Committee must meet the requirements for members of that Committee set forth in Section 3 of this Article. Section 10. Record. The committes of the Board of Directors shall keep a record of their respective meetings and proceedings which shall be presented at the regular meeting of the Board of Directors held in the calendar month next following the meetings of the Committees. If there is no regular Board of Directors meeting held in the calendar month next following the meeting of a Committee, then such Committee's records shall be presented at the next regular Board of Directors meeting held in a month subsequent to such Committee meeting. Section 11. Changes and Vacancies. The Board of Directors shall have power to change the members of any Committee at any time and to fill vacancies on any Committee; provided, however, that any newly appointed member of the Audit Committee must meet the requirements for members of that Committee set forth in Section 3 of this Article. Section 12. Other Committees. The Board of Directors may appoint, from time to time, other committees of one or more persons, for such purposes and with such powers as the Board may determine. ARTICLE IV WAIVER OF NOTICE OF MEETINGS Section 1. Waiver. Whenever notice is required to be given to any shareholder, Director, or member of a Committee of the Board of Directors, such notice may be waived in writing either before or after such meeting by any shareholder, Director or Committee member respectively, as the case may be, who may be entitled to such notice; and such notice will be deemed to be waived by attendance at any such meeting. -5- 14 ARTICLE V OFFICERS AND AGENTS Section 1. Officers. The Board shall appoint a Chairman of the Board and a President, and shall have the power to appoint one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Cashier, a Secretary, an Auditor, a Controller, one or more Trust Officers and- such other officers as are deemed necessary or desirable for the proper transaction of business of the Association. The Chairman of the Board and the President shall be appointed from members of the Board of Directors. Any two or more offices, except those of President and Cashier, or Secretary, may be held by the same person. The Board may, from time to time, by resolution passed by a majority of the entire Board, designate one or more officers of the Association or of an affiliate or of Fleet Financial Group, Inc. with power to appoint one or more Vice Presidents and such other officers of the Association below the level of Vice President as the officer or officers designated in such resolution deem necessary or desirable for the proper transaction of the business of the Association. Section 2. Chairman of the Board. The chairman of the Board shall preside at all meetings of the Board of Directors. Subject to definition by the Board of Directors, he shall have general executive powers and such specific powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors. Section 3. President. The President shall preside at all meetings of the Board of Directors if there be no Chairman or if the Chairman be absent. Subject to definition by the Board of Directors, he shall have general executive powers and such specific powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors. -6- 15 Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the Board and of the Executive Committee, and shall keep accurate minutes of their meetings and of all meetings of the shareholders. He shall attend to the giving of all notices required by these By-laws. He shall be custodian of the corporate seal, records, documents and papers of the Association. He shall have such powers and perform such duties as pertain by law or regulation to the office of Cashier, or as are imposed by these By-laws, or as may be delegated to him from time to time by the Board of Directors, the Chairman of the Board or the President. Section 5. Auditor. The Auditor shall be the chief auditing officer of the Association. He shall continuously examine the affairs of the Association and from time to time shall report to the Board of Directors. He shall have such powers and perform such duties as are conferred upon, or assigned to him by these By-laws, or as may be delegated to him from time to time by the Board of Directors. Section 6. Officers Seriatim. The Board of Directors shall designate from time to time not less than two officers who shall in the absence or disability of the Chairman or President or both, succeed seriatim to the duties and responsibilities of the Chairman and President respectively. Section 7. Clerks and Agents. The Board of Directors may appoint, from time to time, such clerks, agents and employees as it may deem advisable for the prompt and orderly transaction of the business of the Association, define their duties, fix the salaries to be paid them and dismiss them. Subject to the authority of the Board of Directors, the Chairman of the Board or the President, or any other officer of the Association authorized by either of them may appoint and dismiss all or any clerks, agents and employees and prescribe their duties and the conditions of their employment, and from time to time fix their compensation. Section 8. Tenure. The Chairman of the Board of Directors and the President shall, except in the case of death, resignation, retirement or disqualification under these By-laws, or unless removed by the affirmative vote of at least two- thirds of all of the members of the Board of Directors, hold office for the term of one year or until their respective successors are appointed. Either of such officers appointed to fill a vacancy occurring in an unexpired term shall serve for such unexpired term of such vacancy. All other officers, clerks, agents, attorneys-in-fact and employees of the Association shall hold office during the pleasure of the Board of Directors or of the officer or committee appointing them respectively. ARTICLE VI TRUST DEPARTMENT Section 1. General Powers and Duties. All fiduciary powers of the Association shall be exercised through the Trust Department, subject to such regulations as the Comptroller of the Currency shall from time to time establish. The Trust Department shall be to placed under the management and immediate supervision of an officer or officers appointed by the Board of Directors. The duties of all officers of the Trust Department shall be to cause the policies and instructions of the Board and the Risk Management Committee with respect to the trusts under their supervision to be carried out, and to supervise the due performance of the trusts and agencies entrusted to the Association and under their supervision, in accordance with law and in accordance with the terms of such trusts and agencies. -7- 16 ARTICLE VII BRANCH OFFICES Section 1. Establishment. The Board of Directors shall have full power to establish, to discontinue, or, from time to time, to change the location of any branch office, subject to such limitations as may be provided by law. Section 2. Supervision and Control. Subject to the general supervision and control of the Board of Directors, the affairs of branch offices shall be under the immediate supervision and control of the President or of such other officer or officers, employee or employees, or other individuals as the Board of Directors may from time to time determine, with such powers and duties as the Board of Directors may confer upon or assign to him or them. ARTICLE VIII SIGNATURE POWERS Section 1. Authorization. The power of officers, employees, agents and attorneys to sign on behalf of and to affix the seal of the Association shall be prescribed by the Board of Directors or by the Executive Committee or by both; provided that the President is authorized to restrict such power of any officer, employee, agent or attorney to the business of a specific department or departments, or to a specific branch office or branch offices. Facsimile signatures may be authorized. -8- 17 ARTICLE IX STOCK CERTIFICATES AND TRANSFERS Section 1. Stock Records. The Trust Department shall have custody of the stock certificate books and stock ledgers of the Association, and shall make all transfers of stock, issue certificates thereof and disburse dividends declared thereon. Section 2. Form of Certificate. Every shareholder shall be entitled to a certificate conforming to the requirements of law and otherwise in such form as the Board of Directors may approve. The certificates shall state on the face thereof that the stock is transferable only on the books of the Association and shall be signed by such officers as may be prescribed from time to time by the Board of Directors or Executive Committee. Facsimile signatures may be authorized. Section 3. Transfers of Stock. Transfers of stock shall be made only on the books of the Association by the holder in person, or by attorney duly authorized in writing, upon surrender of the certificate therefor properly endorsed, or upon the surrender of such certificate accompanied by a properly executed written assignment of the same, or a written power of attorney to sell, assign or transfer the same or the shares represented thereby. Section 4. Lost Certificate. The Board of Directors or Executive Committee may order a new certificate to be issued in place of a certificate lost or destroyed, upon proof of such loss or destruction and upon tender to the Association by the shareholder, of a bond in such amount and with or without surety, as may be ordered, indemnifying the Association against all liability, loss, cost and damage by reason of such loss or destruction and the issuance of a new certificate. Section 5. Closing Transfer Books. The Board of Directors may close the transfer books for a period not exceeding thirty days preceding any regular or special meeting of the shareholders, or the day designated for the payment of a dividend or the allotment of rights. In lieu of closing the transfer books the Board of Directors may fix a day and hour not more than thirty days prior to the day of holding any meeting of the shareholders, or the day designated for the payment of a dividend, or the day designated for the allotment of rights, or the day when any change of conversion or exchange of capital stock is to go into effect, as the day as of which shareholders entitled to notice of and to vote at such meetings or entitled to such dividend or to such allotment of rights or to exercise the rights in respect of any such change, conversion or exchange of capital stock, shall be determined, and only such shareholders as shall be shareholders of record on the day and hour so fixed shall be entitled to notice of and to vote at such meeting or to receive payment of such dividend or to receive such allotment of rights or to exercise such rights, as the case may be. ARTICLE X THE CORPORATE SEAL Section 1. Seal. The following is an impression of the seal of the Association adopted by the Board of Directors. ARTICLE XI BUSINESS HOURS Section 1. Business Hours. The main office of this Association and each branch office thereof shall be open for business on such days, and for such hours as the Chairman, or the President, or any Executive Vice President, or such other officer as the Board of Directors shall from time to time designate, may determine as to each office to conform to local custom and convenience, provided that any one or more of the main and branch offices or certain departments thereof may be open for such hours as the President, or such other officer as the Board of Directors shall from time to time designate, may determine as to each office or department on any legal holiday on which work is not prohibited by law, and provided further that any one or more of the main and branch offices or certain departments thereof may be ordered closed or open on any day for such hours as to each office or department as the President, or such other officer as the Board of Directors shall from time to time designate, subject to applicable laws regulations, may determine when such action may be required by reason of disaster or other emergency condition. ARTICLE IX CHANGES IN BY-LAWS Section 1. Amendments. These By-laws may be amended upon vote of a majority of the entire Board of Directors at any meeting of the Board, provided ten (10) day's notice of the proposed amendment has been given to each member of the Board of Directors. No amendment may be made unless the By-law, as amended, is consistent with the requirements of law and of the Articles of Association. These By-laws may also be amended by the Association's shareholders. A true copy Attest: Secretary/Assistant Secretary - --------------------------------------- Dated at , as of . --------------------------------------- ---------------------- Revision of January 11, 1993 -9- 18 EXHIBIT 5 CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE TRUST INDENTURE ACT OF 1939 The undersigned, as Trustee under the Indenture to be entered into between K & F Industries, Inc. and Fleet National Bank, as Trustee, does hereby consent that, pursuant to Section 321(b) of the Trust Indenture Act of 1939, reports of examinations with respect to the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. FLEET NATIONAL BANK, AS TRUSTEE By: /s/ JACQUELINE CONNOR ------------------------------- Jacqueline Connor Its: Assistant Vice President Dated: 19 Board of Governors of the Federal Reserve System OMB Number: 7100-0036 Federal Deposit Insurance Corporation OMB Number: 3064-0052 Office of the Comptroller of the Currency OMB Number: 1557-0081 Expires March 31, 1999 Federal Financial Institutions Examination Council - -------------------------------------------------------------------------------- [FEDERAL FINANCIAL Please refer to page i, [1] INSTITUTIONS EXAMINATION Table of Contents, for COUNCIL LOGO] the required disclosure of estimated burden. - -------------------------------------------------------------------------------- CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031 (960630) REPORT AT THE CLOSE OF BUSINESS JUNE 30, 1996 ----------- (RCRI 9999) This report is required by law: 12 U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161 (National banks). This report form is to be filed by banks with branches and consolidated subsidiaries in U.S. territories and possessions, Edge or Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries, or International Banking Facilities. - -------------------------------------------------------------------------------- NOTE: The Reports of Condition and Income must be signed by an authorized officer and the Report of Condition must be attested to by not less than two directors (trustees) for State nonmember banks and three directors for State member and National banks. I, Giro S. DeRosa, Vice President ----------------------------------------------------------------------------- Name and Title of Officer Authorized to Sign Report of the named bank do hereby declare that these Reports of Condition and Income (including the supporting schedules) have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and belief. /s/ Giro DeRosa - -------------------------------------------------------------------------------- Signature of Officer Authorized to Sign Report July 25, 1996 - -------------------------------------------------------------------------------- Date of Signature The Reports of Condition and Income are to be prepared in accordance with Federal regulatory authority instructions. NOTE: These instructions may in some cases differ from generally accepted accounting principles. We, the undersigned directors (trustees), attest to the correctness of this Report of Condition (including the supporting schedules) and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. /s/ - -------------------------------------------------------------------------------- Director (Trustee) /s/ - -------------------------------------------------------------------------------- Director (Trustee) /s/ - -------------------------------------------------------------------------------- Director (Trustee) - -------------------------------------------------------------------------------- For Banks Submitting Hard Copy Report Forms: State Member Banks: Return the original and one copy to the appropriate Federal Reserve District Bank. State Nonmember Banks: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. National Banks: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. - -------------------------------------------------------------------------------- FDIC Certificate Number | 0 | 2 | 4 | 9 | 9 | Banks should affix --------------------- the address label (RCRI 90150) in this space. CALL NO. 196 31 06-30-96 STAR: 25-0590 00327 STCERT: 25-02490 FLEET NATIONAL BANK ONE MONARCH PLACE SPRINGFIELD, MA 01102 Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency 20 FOR BANKS SUBMITTING HARD COPY REPORT FORMS: STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal Reserve District Bank. STATE NONMEMBER BANKS: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. NATIONAL BANKS: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.
- ----------------------------------------------------------------------------------------------------------------------------- ___ ___ FDIC Certificate Number | 0 | 2 | 4 | 9 | 9 | | Banks should affix the address label in this space. | ______________________ (RCRI 9050) CALL NO. 196 31 06-30-96 STBK: 25-0590 00327 STCERT: 25-02499 FLEET NATIONAL BANK ONE MONARCH PLACE SPRINGFIELD, MA 01102 |___ ___|
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency 21 FFIEC 031 Page i /2/ Consolidated Reports of Condition and Income for A Bank With Domestic and Foreign Offices ________________________________________________________________________________ TABLE OF CONTENTS SIGNATURE PAGE Cover REPORT OF INCOME Schedule RI--Income Statement...........................................RI-1,2,3 Schedule RI-A--Changes in Equity Capital....................................RI-4 Schedule RI-B--Charge-offs and Recoveries and Changes in Allowance for Loan and Lease Losses..................................................................RI-4,5 Schedule RI-C--Applicable Income Taxes by Taxing Authority..........................................................RI-5 Schedule RI-D--Income from International Operations..................................................RI-6 Schedule RI-E--Explanations...............................................RI-7,8 REPORT OF CONDITION Schedule RC--Balance Sheet................................................RC-1,2 Schedule RC-A--Cash and Balances Due From Depository Institutions..............................................RC-3 Schedule RC-B--Securities...............................................RC-3,4,5 Schedule RC-C--Loans and Lease Financing Receivables: Part I. Loans and Leases..............................................RC-6,7 Part II. Loans to Small Businesses and Small Farms (included in the forms for June 30 only).....................................................RC-7a,7b Schedule RC-D--Trading Assets and Liabilities (to be completed only by selected banks)..................................RC-8 Schedule RC-E--Deposit Liabilities....................................RC-9,10,11 Schedule RC-F--Other Assets................................................RC-11 Schedule RC-G--Other Liabilities...........................................RC-11 Schedule RC-H--Selected Balance Sheet Items for Domestic Offices.........................................................RC-12 Schedule RC-I--Selected Assets and Liabilities of IBFs..................................................................RC-13 Schedule RC-K--Quarterly Averages..........................................RC-13 Schedule RC-L--Off-Balance Sheet Items...............................RC-14,15,16 Schedule RC-M--Memoranda................................................RC-17,18 Schedule RC-N--Past Due and Nonaccrual Loans, Leases, and Other Assets..............................................RC-19,20 Schedule RC-O--Other Data for Deposit Insurance Assessments.................................................RC-21,22 Schedule RC-R--Regulatory Capital.......................................RC-23,24 Optional Narrative Statement Concerning the Amounts Reported in the Reports of Condition and Income.....................................................RC-25 Special Report (TO BE COMPLETED BY ALL BANKS) Schedule RC-J--Repricing Opportunities (sent only to and to be completed only by savings banks) DISCLOSURE OF ESTIMATED BURDEN The estimated average burden associated with this information collection is 32.2 hours per respondent and is estimated to vary from 15 to 230 hours per response, depending on individual circumstances. Burden estimates include the time for reviewing instructions, gathering and maintaining data in the required form, and completing the information collection, but exclude the time for compiling and maintaining business records in the normal course of a respondent's activities. Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, D.C. 20503, and to one of the following: Secretary Board of Governors of the Federal Reserve System Washington, D.C. 20551 Legislative and Regulatory Analysis Division Office of the Comptroller of the Currency Washington, D.C. 20219 Assistant Executive Secretary Federal Deposit Insurance Corporation Washington, D.C. 20429 For information or assistance, National and State nonmember banks should contact the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington, D.C. 20429, toll free on (800) 688-FDIC (3342), Monday through Friday between 8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact their Federal Reserve District Bank. 22
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RI-1 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Consolidated Report of Income for the period January 1, 1996 - June 30, 1996 All Report of Income schedules are to be reported on a calendar year-to-date basis in thousands of dollars.
Schedule RI--Income Statement _________ | I480 | ______________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ______________________________________________________________________________________________|_____________________| 1. Interest income: | ////////////////// | a. Interest and fee income on loans: | ////////////////// | (1) In domestic offices: | ////////////////// | (a) Loans secured by real estate .................................................. | 4011 616,395 | 1.a.(1)(a) (b) Loans to depository institutions .............................................. | 4019 588 | 1.a.(1)(b) (c) Loans to finance agricultural production and other loans to farmers ........... | 4024 286 | 1.a.(1)(c) (d) Commercial and industrial loans ............................................... | 4012 562,807 | 1.a.(1)(d) (e) Acceptances of other banks .................................................... | 4026 261 | 1.a.(1)(e) (f) Loans to individuals for household, family, and other personal expenditures: | ////////////////// | (1) Credit cards and related plans ............................................ | 4054 9,643 | 1.a.(1)(f)(1) (2) Other ..................................................................... | 4055 97,346 | 1.a.(1)(f)(2) (g) Loans to foreign governments and official institutions ........................ | 4056 0 | 1.a.(1)(g) (h) Obligations (other than securities and leases) of states and political | ////////////////// | subdivisions in the U.S.: | ////////////////// | (1) Taxable obligations ....................................................... | 4503 0 | 1.a.(1)(h)(1) (2) Tax-exempt obligations .................................................... | 4504 5,232 | 1.a.(1)(h)(2) (i) All other loans in domestic offices ........................................... | 4058 84,576 | 1.a.(1)(i) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 4059 1,981 | 1.a.(2) b. Income from lease financing receivables: | ////////////////// | (1) Taxable leases .................................................................... | 4505 75,341 | 1.b.(1) (2) Tax-exempt leases ................................................................. | 4307 791 | 1.b.(2) c. Interest income on balances due from depository institutions:(1) | ////////////////// | (1) In domestic offices ............................................................... | 4105 914 | 1.c.(1) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 4106 142 | 1.c.(2) d. Interest and dividend income on securities: | ////////////////// | (1) U.S. Treasury securities and U.S. Government agency and corporation obligations ... | 4027 209,142 | 1.d.(1) (2) Securities issued by states and political subdivisions in the U.S.: | ////////////////// | (a) Taxable securities ............................................................ | 4506 0 | 1.d.(2)(a) (b) Tax-exempt securities ......................................................... | 4507 2,953 | 1.d.(2)(b) (3) Other domestic debt securities .................................................... | 3657 12,164 | 1.d.(3) (4) Foreign debt securities ........................................................... | 3658 3,348 | 1.d.(4) (5) Equity securities (including investments in mutual funds) ......................... | 3659 10,212 | 1.d.(5) e. Interest income from trading assets.................................................... | 4069 360 | 1.e. ______________________
____________ (1) Includes interest income on time certificates of deposit not held for trading. 3 23 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RI-2 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI--Continued ________________ Dollar Amounts in Thousands | Year-to-date | ___________________________________________________________________________________ ______________ 1. Interest income (continued) | RIAD Bil Mil Thou | f. Interest income on federal funds sold and securities purchased | ////////////////// | under agreements to resell in domestic offices of the bank and of | ////////////////// | its Edge and Agreement subsidiaries, and in IBFs .................... | 4020 24,925 | 1.f. g. Total interest income (sum of items 1.a through 1.f) ................ | 4107 1,719,407 | 1.g. 2. Interest expense: | ////////////////// | a. Interest on deposits: | ////////////////// | (1) Interest on deposits in domestic offices: | ////////////////// | (a) Transaction accounts (NOW accounts, ATS accounts, and | ////////////////// | telephone and preauthorized transfer accounts) .............. | 4508 8,583 | 2.a.(1)(a) (b) Nontransaction accounts: | ////////////////// | (1) Money market deposit accounts (MMDAs) ................... | 4509 133,915 | 2.a.(1)(b)(1) (2) Other savings deposits .................................. | 4511 26,678 | 2.a.(1)(b)(2) (3) Time certificates of deposit of $100,000 or more ........ | 4174 88,690 | 2.a.(1)(b)(3) (4) All other time deposits ................................. | 4512 214,225 | 2.a.(1)(b)(4) (2) Interest on deposits in foreign offices, Edge and Agreement | ////////////////// | subsidiaries, and IBFs .......................................... | 4172 50,022 | 2.a.(2) b. Expense of federal funds purchased and securities sold under | ////////////////// | agreements to repurchase in domestic offices of the bank and of | ////////////////// | its Edge and Agreement subsidiaries, and in IBFs .................... | 4180 152,094 | 2.b. c. Interest on demand notes issued to the U.S. Treasury, trading | ////////////////// | liabilities, and other borrowed money ............................... | 4185 121,525 | 2.c. d. Interest on mortgage indebtedness and obligations under | ////////////////// | capitalized leases .................................................. | 4072 361 | 2.d. e. Interest on subordinated notes and debentures ....................... | 4200 26,110 | 2.e. f. Total interest expense (sum of items 2.a through 2.e) ............... | 4073 822,203 | 2.f. ___________________________ 3. Net interest income (item 1.g minus 2.f) ............................... | ////////////////// | RIAD 4074 | 897,204 | 3. ___________________________ 4. Provisions: | ////////////////// | ___________________________ a. Provision for loan and lease losses ................................. | ////////////////// | RIAD 4230 | 21,672 | 4.a. b. Provision for allocated transfer risk ............................... | ////////////////// | RIAD 4243 | 0 | 4.b. ___________________________ 5. Noninterest income: | ////////////////// | a. Income from fiduciary activities .................................... | 4070 144,614 | 5.a. b. Service charges on deposit accounts in domestic offices ............. | 4080 111,736 | 5.b. c. Trading revenue (must equal Schedule RI, sum of Memorandum | ////////////////// | items 8.a through 8.d)............................................... A220 10,646 5.c. d. Other foreign transaction gains (losses) ............................ | 4076 247 | 5.d. e. Not applicable | ////////////////// | f. Other noninterest income: | ////////////////// | (1) Other fee income ................................................ | 5407 372,950 | 5.f.(1) (2) All other noninterest income* ................................... | 5408 211,593 | 5.f.(2) ___________________________ g. Total noninterest income (sum of items 5.a through 5.f) ............. | ////////////////// | RIAD 4079 | 851,786 | 5.g. 6. a. Realized gains (losses) on held-to-maturity securities .............. | ////////////////// | RIAD 3521 | 1 | 6.a. b. Realized gains (losses) on available-for-sale securities ............ | ////////////////// | RIAD 3196 | 16,126 | 6.b. ___________________________ 7. Noninterest expense: | ////////////////// | a. Salaries and employee benefits ...................................... | 4135 322,146 | 7.a. b. Expenses of premises and fixed assets (net of rental income) | ////////////////// | (excluding salaries and employee benefits and mortgage interest) .... | 4217 114,912 | 7.b. c. Other noninterest expense* .......................................... | 4092 631,554 | 7.c. ___________________________ d. Total noninterest expense (sum of items 7.a through 7.c) ............ | ////////////////// | RIAD 4093 | 1,068,612 | 7.d. ___________________________ 8. Income (loss) before income taxes and extraordinary items and other | ////////////////// | ___________________________ adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d)| ////////////////// | RIAD 4301 | 674,833 | 8. 9. Applicable income taxes (on item 8) .................................... | ////////////////// | RIAD 4302 | 280,303 | 9. ___________________________ 10. Income (loss) before extraordinary items and other adjustments | ////////////////// | ___________________________ (item 8 minus 9) ....................................................... | ////////////////// | RIAD 4300 | 394,530 | 10. _________________________________________________
____________ *Describe on Schedule RI-E--Explanations. 4 24 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RI-3 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI--Continued ________________ | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ___________________________________________________________________________________ ______________ 11. Extraordinary items and other adjustments: | ////////////////// | a. Extraordinary items and other adjustments, gross of income taxes* . | 4310 0 | 11.a. b. Applicable income taxes (on item 11.a)* ........................... | 4315 0 | 11.b. c. Extraordinary items and other adjustments, net of income taxes | ////////////////// |__________________________ (item 11.a minus 11.b) ............................................ | ////////////////// | RIAD 4320 | 0 | 11.c. 12. Net income (loss) (sum of items 10 and 11.c) ......................... | ////////////////// | RIAD 4340 | 394,530 | 12. _________________________________________________
__________ | I481 | _______________ Memoranda | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ______________________________________________________________________________________________________ ____________________ 1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after | ////////////////// | August 7, 1986, that is not deductible for federal income tax purposes .......................... | 4513 1,798 | M.1. 2. Income from the sale and servicing of mutual funds and annuities in domestic offices | ////////////////// | (included in Schedule RI, item 8) ............................................................... | 8431 20,910 | M.2. 3.-4. Not applicable | ////////////////// | 5. Number of full-time equivalent employees on payroll at end of current period (round to | //// Number | nearest whole number) ........................................................................... | 4150 9,852 | M.5. 6. Not applicable | ////////////////// | 7. If the reporting bank has restated its balance sheet as a result of applying push down | //// MM DD YY | accounting this calendar year, report the date of the bank's acquisition ........................ | 9106 00/00/00 | M.7. 8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) | ////////////////// | (sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): | //// Bil Mil Thou | a. Interest rate exposures ...................................................................... | 8757 1,428 | M.8.a. b. Foreign exchange exposures ................................................................... | 8758 9,218 | M.8.b. c. Equity security and index exposures .......................................................... | 8759 0 | M.8.c. d. Commodity and other exposures ................................................................ | 8760 0 | M.8.d. 9. Impact on income of off-balance sheet derivatives held for purposes other than trading: | ////////////////// | a. Net increase (decrease) to interest income.....................................................| 8761 (5,575)| M.9.a. b. Net (increase) decrease to interest expense ...................................................| 8762 (5,752)| M.9.b. c. Other (noninterest) allocations ...............................................................| 8763 (172)| M.9.c. 10. Credit losses on off-balance sheet derivatives (see instructions).................................| A251 0 | M.10.
____________ *Describe on Schedule RI-E--Explanations. 5 25 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RI-4 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI-A--Changes in Equity Capital Indicate decreases and losses in parentheses. _________ | I483 | _____________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ______________________________________________________________________________________________________|____________________| 1. Total equity capital originally reported in the December 31, 1995, Reports of Condition | ////////////////// | and Income ...................................................................................... | 3215 1,342,473 | 1. 2. Equity capital adjustments from amended Reports of Income, net* ................................. | 3216 0 | 2. 3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................ | 3217 1,342,473 | 3. 4. Net income (loss) (must equal Schedule RI, item 12) ............................................. | 4340 394,530 | 4. 5. Sale, conversion, acquisition, or retirement of capital stock, net .............................. | 4346 0 | 5. 6. Changes incident to business combinations, net .................................................. | 4356 4,161,079 | 6. 7. LESS: Cash dividends declared on preferred stock ................................................ | 4470 0 | 7. 8. LESS: Cash dividends declared on common stock ................................................... | 4460 490,634 | 8. 9. Cumulative effect of changes in accounting principles from prior years* (see instructions | ////////////////// | for this schedule) .............................................................................. | 4411 0 | 9. 10. Corrections of material accounting errors from prior years* (see instructions for this schedule) | 4412 0 | 10. 11. Change in net unrealized holding gains (losses) on available-for-sale securities ................ | 8433 (46,607)| 11. 12. Foreign currency translation adjustments ........................................................ | 4414 0 | 12. 13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ........ | 4415 (1,003,722)| 13. 14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, | ////////////////// | item 28) ........................................................................................ | 3210 4,357,119 | 14. ______________________
____________ *Describe on Schedule RI-E--Explanations.
Schedule RI-B--Charge-offs and Recoveries and Changes in Allowance for Loan and Lease Losses Part I. Charge-offs and Recoveries on Loans and Leases Part I excludes charge-offs and recoveries through the allocated transfer risk reserve. __________ | I486 | __________________________________________ | (Column A) | (Column B) | | Charge-offs | Recoveries | ____________________ ____________________ | Calendar year-to-date | _________________________________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou | ______________________________________________________________________________ ____________________ ____________________ 1. Loans secured by real estate: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ......................................... | 4651 35,701 | 4661 8,412 | 1.a. b. To non-U.S. addressees (domicile) ..................................... | 4652 0 | 4662 0 | 1.b. 2. Loans to depository institutions and acceptances of other banks: | ////////////////// | ////////////////// | a. To U.S. banks and other U.S. depository institutions .................. | 4653 0 | 4663 0 | 2.a. b. To foreign banks ...................................................... | 4654 0 | 4664 0 | 2.b. 3. Loans to finance agricultural production and other loans to farmers ...... | 4655 2 | 4665 22 | 3. 4. Commercial and industrial loans: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ......................................... | 4645 38,139 | 4617 19,005 | 4.a. b. To non-U.S. addressees (domicile) ..................................... | 4646 0 | 4618 102 | 4.b. 5. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// | expenditures: | ////////////////// | ////////////////// | a. Credit cards and related plans ........................................ | 4656 1,137 | 4666 733 | 5.a. b. Other (includes single payment, installment, and all student loans) ... | 4657 7,864 | 4667 2,681 | 5.b. 6. Loans to foreign governments and official institutions ................... | 4643 0 | 4627 0 | 6. 7. All other loans .......................................................... | 4644 826 | 4628 541 | 7. 8. Lease financing receivables: | ////////////////// | ////////////////// | a. Of U.S. addressees (domicile) ......................................... | 4658 3,729 | 4668 3,241 | 8.a. b. Of non-U.S. addressees (domicile) ..................................... | 4659 0 | 4669 0 | 8.b. 9. Total (sum of items 1 through 8) ......................................... | 4635 87,398 | 4605 34,737 | 9. ___________________________________________
6 26 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RI-5 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI-B--Continued Part I. Continued Memoranda __________________________________________ | (Column A) | (Column B) | | Charge-offs | Recoveries | ____________________ ____________________ | Calendar year-to-date | _________________________________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou | ______________________________________________________________________________ ____________________ ____________________ 1-3. Not applicable | ////////////////// | ////////////////// | 4. Loans to finance commercial real estate, construction, and land | ////////////////// | ////////////////// | development activities (not secured by real estate) included in | ////////////////// | ////////////////// | Schedule RI-B, part I, items 4 and 7, above .............................. | 5409 383 | 5410 1,374 | M.4. 5. Loans secured by real estate in domestic offices (included in | ////////////////// | ////////////////// | Schedule RI-B, part I, item 1, above): | ////////////////// | ////////////////// | a. Construction and land development ..................................... | 3582 189 | 3583 253 | M.5.a. b. Secured by farmland ................................................... | 3584 145 | 3585 131 | M.5.b. c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// | properties and extended under lines of credit ..................... | 5411 2,650 | 5412 108 | M.5.c.(1) (2) All other loans secured by 1-4 family residential properties ...... | 5413 13,892 | 5414 1,231 | M.5.c.(2) d. Secured by multifamily (5 or more) residential properties ............. | 3588 837 | 3589 395 | M.5.d. e. Secured by nonfarm nonresidential properties .......................... | 3590 17,988 | 3591 6,294 | M.5.e. |_________________________________________|
Part II. Changes in Allowance for Loan and Lease Losses
_____________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ___________________________________________________________________________________________________ ____________________ 1. Balance originally reported in the December 31, 1995, Reports of Condition and Income.......... | 3124 266,943 | 1. 2. Recoveries (must equal part I, item 9, column B above) ........................................ | 4605 34,737 | 2. 3. LESS: Charge-offs (must equal part I, item 9, column A above) ................................. | 4635 87,398 | 3. 4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... | 4230 21,672 | 4. 5. Adjustments* (see instructions for this schedule) ................................ ............ | 4815 636,497 | 5. 6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, | ////////////////// | item 4.b) ..................................................................................... | 3123 872,451 | 6. |____________________|
____________ *Describe on Schedule RI-E--Explanations. Schedule RI-C--Applicable Income Taxes by Taxing Authority Schedule RI-C is to be reported with the December Report of Income.
| I489 | <- ____________ ________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | ___________________________________________________________________________________________________ ____________________ 1. Federal ....................................................................................... | 4780 N/A | 1. 2. State and local................................................................................ | 4790 N/A | 2. 3. Foreign ....................................................................................... | 4795 N/A | 3. 4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) ............ | 4770 N/A | 4. ____________________________| | 5. Deferred portion of item 4 ........................................ | RIAD 4772 | N/A | ////////////////// | 5. __________________________________________________
7 27 Legal Title of Bank: Fleet National Bank Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RI-6 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI-D--Income from International Operations For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs where international operations account for more than 10 percent of total revenues, total assets, or net income. Part I. Estimated Income from International Operations __________ | I492 | <- ______ ________ | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | _________________________________________________________________________________________________ ____________________ 1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, | ////////////////// | and IBFs: | ////////////////// | a. Interest income booked ................................................................... | 4837 N/A | 1.a. b. Interest expense booked .................................................................. | 4838 N/A | 1.b. c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs | ////////////////// | (item 1.a minus 1.b) ..................................................................... | 4839 N/A | 1.c. 2. Adjustments for booking location of international operations: | ////////////////// | a. Net interest income attributable to international operations booked at domestic offices .. | 4840 N/A | 2.a. b. Net interest income attributable to domestic business booked at foreign offices .......... | 4841 N/A | 2.b. c. Net booking location adjustment (item 2.a minus 2.b) ..................................... | 4842 N/A | 2.c. 3. Noninterest income and expense attributable to international operations: | ////////////////// | a. Noninterest income attributable to international operations .............................. | 4097 N/A | 3.a. b. Provision for loan and lease losses attributable to international operations ............. | 4235 N/A | 3.b. c. Other noninterest expense attributable to international operations ....................... | 4239 N/A | 3.c. d. Net noninterest income (expense) attributable to international operations (item 3.a | ////////////////// | minus 3.b and 3.c) ....................................................................... | 4843 N/A | 3.d. 4. Estimated pretax income attributable to international operations before capital allocation | ////////////////// | adjustment (sum of items 1.c, 2.c, and 3.d) ................................................. | 4844 N/A | 4. 5. Adjustment to pretax income for internal allocations to international operations to reflect | ////////////////// | the effects of equity capital on overall bank funding costs ................................. | 4845 N/A | 5. 6. Estimated pretax income attributable to international operations after capital allocation | ////////////////// | adjustment (sum of items 4 and 5) ........................................................... | 4846 N/A | 6. 7. Income taxes attributable to income from international operations as estimated in item 6 .... | 4797 N/A | 7. 8. Estimated net income attributable to international operations (item 6 minus 7) .............. | 4341 N/A | 8. ______________________ Memoranda ______________________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | _________________________________________________________________________________________________ ____________________ 1. Intracompany interest income included in item 1.a above ..................................... | 4847 N/A | M.1. 2. Intracompany interest expense included in item 1.b above .................................... | 4848 N/A | M.2. ______________________
Part II. Supplementary Details on Income from International Operations Required by the Departments of Commerce and Treasury for Purposes of the U.S. International Accounts and the U.S. National Income and Product Accounts ________________ | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | _________________________________________________________________________________________________ ____________________ 1. Interest income booked at IBFs .............................................................. | 4849 N/A | 1. 2. Interest expense booked at IBFs ............................................................. | 4850 N/A | 2. 3. Noninterest income attributable to international operations booked at domestic offices | ////////////////// | (excluding IBFs): | ////////////////// | a. Gains (losses) and extraordinary items ................................................... | 5491 N/A | 3.a. b. Fees and other noninterest income ........................................................ | 5492 N/A | 3.b. 4. Provision for loan and lease losses attributable to international operations booked at | ////////////////// | domestic offices (excluding IBFs) ........................................................... | 4852 N/A | 4. 5. Other noninterest expense attributable to international operations booked at domestic offices | ////////////////// | (excluding IBFs) ............................................................................ | 4853 N/A | 5. ______________________
8 28 Legal Title of Bank: Fleet National Bank Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RI-7 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI-E--Explanations Schedule RI-E is to be completed each quarter on a calendar year-to-date basis. Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.) __________ | I495 | <- ______ ________ | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 1. All other noninterest income (from Schedule RI, item 5.f.(2)) | ////////////////// | Report amounts that exceed 10% of Schedule RI, item 5.f.(2): | ////////////////// | a. Net gains on other real estate owned ..................................................... | 5415 0 | 1.a. b. Net gains on sales of loans .............................................................. | 5416 0 | 1.b. c. Net gains on sales of premises and fixed assets .......................................... | 5417 0 | 1.c. Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// | Schedule RI, item 5.f.(2): | ////////////////// | _____________ d. | TEXT 4461 | Income on Mortgages Held for Resale | 4461 81,194 | 1.d. e. | TEXT 4462 | Gain From Branch Divestitures | 4462 77,976 | 1.e. ___________ f. | TEXT 4463 |______________________________________________________________________________| 4463 | 1.f. _____________ 2. Other noninterest expense (from Schedule RI, item 7.c): | ////////////////// | a. Amortization expense of intangible assets ................................................ | 4531 135,939 | 2.a. Report amounts that exceed 10% of Schedule RI, item 7.c: | ////////////////// | b. Net losses on other real estate owned .................................................... | 5418 0 | 2.b. c. Net losses on sales of loans ............................................................. | 5419 0 | 2.c. d. Net losses on sales of premises and fixed assets ......................................... | 5420 0 | 2.d. Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// | Schedule RI, item 7.c: | ////////////////// | _____________ e. | TEXT 4464 | Intercompany Corporate Support Function Charges | 4464 143,184 | 2.e. ___________ f. | TEXT 4467 | Intercompany Data Processing & Programming Charges | 4467 158,034 | 2.f. ___________ g. | TEXT 4468 |______________________________________________________________________________| 4468 | 2.g. _____________ 3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and | ////////////////// | applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe | ////////////////// | all extraordinary items and other adjustments): | ////////////////// | _____________ a. (1) | TEXT 4469 |__________________________________________________________________________| 4469 | 3.a.(1) _____________ (2) Applicable income tax effect | RIAD 4486 | | ////////////////// | 3.a.(2) _____________ ____________________________ b. (1) | TEXT 4487 |__________________________________________________________________________| 4487 | 3.b.(1) _____________ (2) Applicable income tax effect | RIAD 4488 | | ////////////////// | 3.b.(2) _____________ ____________________________ c. (1) | TEXT 4489 |__________________________________________________________________________| 4489 | 3.c.(1) _____________ (2) Applicable income tax effect | RIAD 4491 | | ////////////////// | 3.c.(2) ____________________________ 4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, | ////////////////// | item 2) (itemize and describe all adjustments): | ////////////////// | _____________ a. | TEXT 4492 |______________________________________________________________________________| 4492 | 4.a. ___________ b. | TEXT 4493 |______________________________________________________________________________| 4493 | 4.b. _____________ 5. Cumulative effect of changes in accounting principles from prior years (from | ////////////////// | Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): | ////////////////// | _____________ a. | TEXT 4494 |______________________________________________________________________________| 4494 | 5.a. ___________ b. | TEXT 4495 |______________________________________________________________________________| 4495 | 5.b. _____________ 6. Corrections of material accounting errors from prior years (from Schedule RI-A, | ////////////////// | item 10) (itemize and describe all corrections): | ////////////////// | _____________ a. | TEXT 4496 | 4496 | 6.a. ___________|______________________________________________________________________________ b. | TEXT 4497 4497 | 6.b. ____________|____________________________________________________________________________________________________
9 29 Legal Title of Bank: Fleet National Bank Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RI-8 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RI-E--Continued ________________ | Year-to-date | ______ ______________ Dollar Amounts in Thousands | RIAD Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 7. Other transactions with parent holding company (from Schedule RI-A, item 13) | ////////////////// | (itemize and describe all such transactions): | ////////////////// | _____________ a. | TEXT 4498 | Fleet National Bank Surplus Distribution to FFG | 4498 (1,003,722) | 7.a. __________________________________________________________________________________________| | b. | TEXT 4499 | | 4499 | 7.b. ___________________________________________________________________________________________ 8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, | ////////////////// | item 5) (itemize and describe all adjustments): | ////////////////// | _____________ | | a. | TEXT 4521 | 12/31/95 Ending Balance of Pooled Entities | 4521 | 8.a. ___________________________________________________________________________________________| | b. | TEXT 4522 | | 4522 | 8.b. ___________________________________________________________________________________________| | ____________________ 9. Other explanations (the space below is provided for the bank to briefly describe, | I498 | I499 | <- ______________________ at its option, any other significant items affecting the Report of Income): ___ No comment |X| (RIAD 4769) ___ Other explanations (please type or print clearly): (TEXT 4769)
10 30 Legal Title of Bank: Fleet National Bank Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: One Monarch Place Page RC-1 City, State Zip: Springfield, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Consolidated Report of Condition for Insured Commercial and State-Chartered Savings Banks for June 30, 1996 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. Schedule RC--Balance Sheet __________ | C400 | <- ____________ ________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | __________________________________________________________________________________________________ ____________________ ASSETS | ////////////////// | 1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// | a. Noninterest-bearing balances and currency and coin(1) ................................... | 0081 4,130,928 | 1.a. b. Interest-bearing balances(2) ............................................................ | 0071 46,521 | 1.b. 2. Securities: | ////////////////// | a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. | 1754 257,441 | 2.a. b. Available-for-sale securities (from Schedule RC-B, column D) ............................ | 1773 7,250,067 | 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices | ////////////////// | of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | ////////////////// | a. Federal funds sold ...................................................................... | 0276 17,428 | 3.a. b. Securities purchased under agreements to resell ......................................... | 0277 0 | 3.b. 4. Loans and lease financing receivables: ____________________________| ////////////////// | a. Loans and leases, net of unearned income (from Schedule RC-C) | RCFD 2122 | 31,278,251 | ////////////////// | 4.a. b. LESS: Allowance for loan and lease losses ................... | RCFD 3123 | 872,451 | ////////////////// | 4.b. c. LESS: Allocated transfer risk reserve ....................... | RCFD 3128 | 0 | ////////////////// | 4.c. ____________________________ d. Loans and leases, net of unearned income, | ////////////////// | allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... | 2125 30,405,800 | 4.d. 5. Trading assets (from schedule RC-D )........................................................ | 3545 71,354 | 5. 6. Premises and fixed assets (including capitalized leases) ................................... | 2145 534,844 | 6. 7. Other real estate owned (from Schedule RC-M) ............................................... | 2150 34,546 | 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... | 2130 0 | 8. 9. Customers' liability to this bank on acceptances outstanding ............................... | 2155 16,634 | 9. 10. Intangible assets (from Schedule RC-M) ..................................................... | 2143 2,283,414 | 10. 11. Other assets (from Schedule RC-F) .......................................................... | 2160 3,978,638 | 11. 12. Total assets (sum of items 1 through 11) ................................................... | 2170 49,027,615 | 12. ______________________
____________ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 11 31 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-2 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC--Continued ___________________________ Dollar Amounts in Thousands | ///////// Bil Mil Thou | _______________________________________________________________________________________________ _________________________ LIABILITIES | /////////////////////// | 13. Deposits: | /////////////////////// | a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, | /////////////////////// | part I) ............................................................................... | RCON 2200 34,110,580 | 13.a. ____________________________ (1) Noninterest-bearing(1) ................................ | RCON 6631 10,202,036 | /////////////////////// | 13.a.(1) (2) Interest-bearing ...................................... | RCON 6636 23,908,544 | /////////////////////// | 13.a.(2) ____________________________ b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, | /////////////////////// | part II) .............................................................................. | RCFN 2200 1,745,663 | 13.b. ____________________________ (1) Noninterest-bearing ................................... | RCFN 6631 400 | /////////////////////// | 13.b.(1) (2) Interest-bearing ...................................... | RCFN 6636 1,745,263 | /////////////////////// | 13.b.(2) ____________________________ 14. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// | offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | /////////////////////// | a. Federal funds purchased ............................................................... | RCFD 0278 4,302,800 | 14.a. b. Securities sold under agreements to repurchase ........................................ | RCFD 0279 566,036 | 14.b. 15. a. Demand notes issued to the U.S. Treasury .............................................. | RCON 2840 14,411 | 15.a. b. Trading liabilities (from Schedule RC-D) .............................................. | RCFD 3548 57,446 | 15.b. 16. Other borrowed money: | /////////////////////// | a. With a remaining maturity of one year or less.......................................... | RCFD 2332 487,435 | 16.a. b. With a remaining maturity of more than one year........................................ | RCFD 2333 893,259 | 16.b. 17. Mortgage indebtedness and obligations under capitalized leases ........................... | RCFD 2910 11,561 | 17. 18. Bank's liability on acceptances executed and outstanding ................................. | RCFD 2920 16,634 | 18. 19. Subordinated notes and debentures ........................................................ | RCFD 3200 1,213,219 | 19. 20. Other liabilities (from Schedule RC-G) ................................................... | RCFD 2930 1,251,452 | 20. 21. Total liabilities (sum of items 13 through 20) ........................................... | RCFD 2948 44,670,496 | 21. | /////////////////////// | 22. Limited-life preferred stock and related surplus ......................................... | RCFD 3282 0 | 22. EQUITY CAPITAL | /////////////////////// | 23. Perpetual preferred stock and related surplus ............................................ | RCFD 3838 125,000 | 23. 24. Common stock ............................................................................. | RCFD 3230 19,487 | 24. 25. Surplus (exclude all surplus related to preferred stock).................................. | RCFD 3839 2,551,927 | 25. 26. a. Undivided profits and capital reserves ................................................ | RCFD 3632 1,693,408 | 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities ................ | RCFD 8434 (32,703)| 26.b. 27. Cumulative foreign currency translation adjustments ...................................... | RCFD 3284 0 | 27. 28. Total equity capital (sum of items 23 through 27) ........................................ | RCFD 3210 4,357,119 | 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, | /////////////////////// | and 28) .................................................................................. | RCFD 3300 49,027,615 | 29. ___________________________
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the Number most comprehensive level of auditing work performed for the bank by independent external __________________ auditors as of any date during 1995 ............................................................... | RCFD 6724 N/A | M.1. __________________ 1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external submits a report on the consolidated holding company auditors (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority)
____________ (1) Includes total demand deposits and noninterest-bearing time and savings deposits. 12 32 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-3 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-A--Cash and Balances Due From Depository Institutions Exclude assets held for trading. __________ | C405 | <- _________________________________ ________ | (Column A) | (Column B) | | Consolidated | Domestic | | Bank | Offices | ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou | _____________________________________________________________________________ ____________________ ____________________ 1. Cash items in process of collection, unposted debits, and currency and | ////////////////// | ////////////////// | coin .................................................................... | 0022 3,402,522 | ////////////////// | 1. a. Cash items in process of collection and unposted debits .............. | ////////////////// | 0020 2,655,163 | 1.a. b. Currency and coin .................................................... | ////////////////// | 0080 747,539 | 1.b. 2. Balances due from depository institutions in the U.S. ................... | ////////////////// | 0082 500,301 | 2. a. U.S. branches and agencies of foreign banks (including their IBFs) ... | 0083 0 | ////////////////// | 2.a. b. Other commercial banks in the U.S. and other depository institutions | ////////////////// | ////////////////// | in the U.S. (including their IBFs) ................................... | 0085 500,373 | ////////////////// | 2.b. 3. Balances due from banks in foreign countries and foreign central banks .. | ////////////////// | 0070 7,902 | 3. a. Foreign branches of other U.S. banks ................................. | 0073 690 | ////////////////// | 3.a. b. Other banks in foreign countries and foreign central banks ........... | 0074 7,948 | ////////////////// | 3.b. 4. Balances due from Federal Reserve Banks ................................. | 0090 265,916 | 0090 0 | 4. 5. Total (sum of items 1 through 4) (total of column A must equal | ////////////////// | ////////////////// | Schedule RC, sum of items 1.a and 1.b) .................................. | 0010 4,177,449 | 0010 4,176,641 | 5. ___________________________________________ ______________________ Memorandum Dollar Amounts in Thousands | RCON Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, | ////////////////// | column B above) .............................................................................. | 0050 453,780 | M.1. ______________________
Schedule RC-B--Securities Exclude assets held for trading.
_______ | C410 | <- ___________________________________________________________________________ ________ | Held-to-maturity | Available-for-sale | _________________________________________ _________________________________________ | (Column A) | (Column B) | (Column C) | (Column D) | | Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) | ____________________ ____________________ ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ______________________________________ ____________________ ____________________ ____________________ ____________________ 1. U.S. Treasury securities ......... | 0211 250 | 0213 250 | 1286 1,274,624 | 1287 1,252,546 | 1. 2. U.S. Government agency | ////////////////// | ////////////////// | ////////////////// | ////////////////// | and corporation obligations | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (exclude mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities): | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. Issued by U.S. Govern- | ////////////////// | ////////////////// | ////////////////// | ////////////////// | ment agencies(2) .............. | 1289 0 | 1290 0 | 1291 0 | 1293 0 | 2.a. b. Issued by U.S. | ////////////////// | ////////////////// | ////////////////// | ////////////////// | Government-sponsored | ////////////////// | ////////////////// | ////////////////// | ////////////////// | agencies(3) ................... | 1294 0 | 1295 0 | 1297 498 | 1298 505 | 2.b. _____________________________________________________________________________________
_____________ (1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D. (2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and Export-Import Bank participation certificates. (3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority. 13 33 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-4 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-B--Continued _____________________________________________________________________________________ | Held-to-maturity | Available-for-sale | _________________________________________ _________________________________________ | (Column A) | (Column B) | (Column C) | (Column D) | | Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) | ____________________ ____________________ ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ____________________________________ ____________________ ____________________ ____________________ ____________________ 3. Securities issued by states | ////////////////// |/ //////////////// | ////////////////// | ///////////////// | and political subdivisions | ////////////////// |////////////////// | ////////////////// | ///////////////// | in the U.S.: | ////////////////// |////////////////// | ////////////////// | ///////////////// | a. General obligations ......... | 1676 150,357 |1677 150,242 | 1678 0 | 1679 0 | 3.a. b. Revenue obligations ......... | 1681 8,887 |1686 8,889 | 1690 0 | 1691 0 | 3.b. c. Industrial development | ////////////////// |////////////////// | ////////////////// | ///////////////// | and similiar obligations .....| 1694 0 |1695 0 | 1696 0 | 1697 0 | 3.c. 4. Mortgage-backed | ////////////////// |////////////////// | ////////////////// | ///////////////// | securities (MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// | a. Pass-through securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// | (1) Guaranteed by | ////////////////// |////////////////// | ////////////////// | ///////////////// | GNMA ....................... | 1698 0 |1699 0 | 1701 861,176 | 1702 852,929 | 4.a.(1) (2) Issued by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// | and FHLMC ................. | 1703 908 |1705 908 | 1706 4,854,605 | 1707 4,831,023 | 4.a.(2) (3) Other pass-through | ////////////////// |////////////////// | ///////////////////| ///////////////// | secruities ................. | 1709 4 |1710 4 | 1711 0 | 1713 0 | 4.a.(3) b. Other mortgage-backed | ////////////////// |////////////////// | ////////////////// | ///////////////// | securities (include CMO's, | ////////////////// |////////////////// | ////////////////// | ///////////////// | REMICs, and stripped | ////////////////// |////////////////// | ////////////////// | ///////////////// | MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// | (1) Issued or guaranteed | ////////////////// |////////////////// | ////////////////// | ///////////////// | by FNMA, FHLMC, | ////////////////// |////////////////// | ////////////////// | ///////////////// | or GNMA ............... | 1714 0 |1715 0 | 1716 0 | 1717 0 | 4.b.(1) (2) Collateralized | ////////////////// |////////////////// | ////////////////// | ///////////////// | by MBS issued or | ////////////////// |////////////////// | ////////////////// | ///////////////// | guaranteed by FNMA, | ////////////////// |////////////////// | ////////////////// | ///////////////// | FHLMC, or GNMA ........ | 1718 0 |1719 0 | 1731 0 | 1732 0 | 4.b.(2) (3) All other mortgage- | ////////////////// |////////////////// | ////////////////// | //////////////// | backed securities ..... | 1733 0 |1734 0 | 1735 518 | 1736 518 | 4.b.(3) 5. Other debt securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// | a. Other domestic debt | ////////////////// |////////////////// | ////////////////// | ///////////////// | securities.................. | 1737 0 |1738 0 | 1739 817 | 1741 812 | 5.a. b. Foreign debt | ////////////////// |////////////////// | ////////////////// | ///////////////// | securities ................. | 1742 97,035 |1743 78,878 | 1744 0 | 1746 0 | 5.b. 6. Equity securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// | a. Investments in mutual | ////////////////// |////////////////// | ////////////////// | ///////////////// | funds ...................... | ////////////////// |////////////////// | 1747 0 | 1748 0 | 6.a. b. Other equity securities | ////////////////// |////////////////// | ////////////////// | ///////////////// | with readily determin- | ////////////////// |////////////////// | ////////////////// | ///////////////// | able fair values ........... | ////////////////// |////////////////// | 1749 0 | 1751 0 | 6.b. c. All other equity | ////////////////// |////////////////// | ////////////////// | ///////////////// | securities (1) ............. | ////////////////// |////////////////// | 1752 311,734 | 1753 311,734 | 6.c. 7. Total (sum of items 1 | ////////////////// |////////////////// | ////////////////// | ///////////////// | through 6) (total of | ////////////////// |////////////////// | ////////////////// | ///////////////// | column A must equal | ////////////////// |////////////////// | ////////////////// | ///////////////// | Schedule RC, item 2.a) | ////////////////// |////////////////// | ////////////////// | ///////////////// | (total of column D must | ////////////////// |////////////////// | ////////////////// | ///////////////// | equal Schedule RC, | ////////////////// |////////////////// | ////////////////// | ///////////////// | item 2.b) ..................... | 1754 257,441 | 1771 239,171 | 1772 7,303,972 | 1773 7,250,067 | 7. |__________________________________________________________________________________|
____________ 1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D. 14 34 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-5 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-B--Continued ___________ Memoranda | C412 | <- ___________ _________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 1. Pledged securities(2) ......................................................................... | 0416 2,308,912 | M.1. 2. Maturity and repricing data for debt securities(2),(3),(4) (excluding those in | ////////////////// | nonaccrual status): | ////////////////// | a. Fixed rate debt securities with a remaining maturity of: | ////////////////// | (1) Three months or less ................................................................... | 0343 72,490 | M.2.a.(1) (2) Over three months through 12 months .................................................... | 0344 77,125 | M.2.a.(2) (3) Over one year through five years ....................................................... | 0345 2,734,577 | M.2.a.(3) (4) Over five years ........................................................................ | 0346 2,925,207 | M.2.a.(4) (5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4)) ..... | 0347 5,809,399 | M.2.a.(5) b. Floating rate debt securities with a repricing frequency of: | ////////////////// | (1) Quarterly or more frequently ........................................................... | 4544 531,365 | M.2.b.(1) (2) Annually or more frequently, but less frequently than quarterly ........................ | 4545 855,010 | M.2.b.(2) (3) Every five years or more frequently, but less frequently than annually ................. | 4551 0 | M.2.b.(3) (4) Less frequently than every five years .................................................. | 4552 0 | M.2.b.(4) (5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4)) .. | 4553 1,386,375 | M.2.b.(5) c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt | ////////////////// | securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual | ////////////////// | debt securities included in Schedule RC-N, item 9, column C) ............................... | 0393 7,195,774 | M.2.c. 3. Not applicable | ////////////////// | 4. Held-to-maturity debt securities restructured and in compliance with modified terms (included | ////////////////// | in Schedule RC-B, items 3 through 5, column A, above) ......................................... | 5365 0 | M.4. 5. Not applicable | ////////////////// | 6. Floating rate debt securities with a remaining maturity of one year or less(2),(4) (included in | ////////////////// | Memorandum items 2.b(1) through 2.b.(4) above)................................................. | 5519 3,700 | M.6. 7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or | ////////////////// | trading securities during the calendar year-to-date (report the amortized cost at date of sale | ////////////////// | or transfer ................................................................................... | 1778 0 | m.7. 8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale | ////////////////// | accounts in Schedule RC-B, item 4.b): | ////////////////// | a. Amortized cost ............................................................................. | 8780 0 | M.8.a. b. Fair Value ................................................................................. | 8781 0 | M.8.b. 9. Structured notes (included in the held-to-maturity and available-for-sale accounts in | ////////////////// | Schedule RC-B, items 2, 3, and 5): | ////////////////// | a. Amortized cost ............................................................................. | 8782 0 | M.9.a. b. Fair Value ................................................................................. | 8783 0 | M.9.b. ----------------------
____________ (2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value. (3) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock. (4) Memorandum items 2 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J. 15 35
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-6 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________ Schedule RC-C--Loans and Lease Financing Receivables Part I. Loans and Leases _________ Do not deduct the allowance for loan and lease losses from amounts | C415 | <- reported in this schedule. Report total loans and leases, net of unearned _________________________________|________| income. Exclude assets held for trading. | (Column A) | (Column B) | | Consolidated | Domestic | | Bank | Offices | ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou | _____________________________________________________________________________ ____________________ ____________________ 1. Loans secured by real estate ........................................... | 1410 11,754,916 | ////////////////// | 1. a. Construction and land development ................................... | ////////////////// | 1415 433,880 | 1.a. b. Secured by farmland (including farm residential and other | ////////////////// | ////////////////// | improvements) ....................................................... | ////////////////// | 1420 2,172 | 1.b c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// | properties and extended under lines of credit ................... | ////////////////// | 1797 2,022,596 | 1.c.(1) (2) All other loans secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (a) Secured by first liens ...................................... | ////////////////// | 5367 4,418,239 | 1.c.(2)(a) (b) Secured by junior liens ..................................... | ////////////////// | 5368 492,952 | 1.c.(2)(b) d. Secured by multifamily (5 or more) residential properties ........... | ////////////////// | 1460 559,373 | 1.d. e. Secured by nonfarm nonresidential properties ........................ | ////////////////// | 1480 3,825,704 | 1.e. 2. Loans to depository institutions: | ////////////////// | ////////////////// | a. To commercial banks in the U.S. ..................................... | ////////////////// | 1505 143,682 | 2.a. (1) To U.S. branches and agencies of foreign banks .................. | 1506 0 | ////////////////// | 2.a.(1) (2) To other commercial banks in the U.S. ........................... | 1507 143,682 | ////////////////// | 2.a.(2) b. To other depository institutions in the U.S. ........................ | 1517 0 | 1517 12,345 | 2.b. c. To banks in foreign countries ....................................... | ////////////////// | 1510 672 | 2.c. (1) To foreign branches of other U.S. banks ......................... | 1513 149 | ////////////////// | 2.c.(1) (2) To other banks in foreign countries ............................. | 1516 523 | ////////////////// | 2.c.(2) 3. Loans to finance agricultural production and other loans to farmers .... | 1590 5,889 | 1590 5,889 | 3. 4. Commercial and industrial loans: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ....................................... | 1763 12,446,547 | 1763 12,402,858 | 4.a. b. To non-U.S. addressees (domicile) ................................... | 1764 83,521 | 1764 54,074 | 4.b. 5. Acceptances of other banks: | ////////////////// | ////////////////// | a. Of U.S. banks ....................................................... | 1756 0 | 1756 0 | 5.a. b. Of foreign banks .................................................... | 1757 0 | 1757 0 | 5.b. 6. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// | expenditures (i.e., consumer loans) (includes purchased paper) ......... | ////////////////// | 1975 2,217,352 | 6. a. Credit cards and related plans (includes check credit and other | ////////////////// | ////////////////// | revolving credit plans) ............................................. | 2008 161,652 | ////////////////// | 6.a. b. Other (includes single payment, installment, and all student loans).. | 2011 2,055,700 | ////////////////// | 6.b. 7. Loans to foreign governments and official institutions (including | ////////////////// | ////////////////// | foreign central banks) ................................................. | 2081 0 | 2081 0 | 7. 8. Obligations (other than securities and leases) of states and political | ////////////////// | ////////////////// | subdivisions in the U.S. (includes nonrated industrial development | ////////////////// | ////////////////// | obligations) ........................................................... | 2107 167,100 | 2107 167,100 | 8. 9. Other loans ............................................................ | 1563 2,146,172 | ////////////////// | 9. a. Loans for purchasing or carrying securities (secured and unsecured).. | ////////////////// | 1545 156,275 | 9.a. b. All other loans (exclude consumer loans) ............................ | ////////////////// | 1564 1,989,897 | 9.b. 10. Lease financing receivables (net of unearned income) ................... | ////////////////// | 2165 2,300,055 | 10. a. Of U.S. addressees (domicile) ....................................... | 2182 2,300,055 | ////////////////// | 10.a. b. Of non-U.S. addressees (domicile) ................................... | 2183 0 | ////////////////// | 10.b. 11. LESS: Any unearned income on loans reflected in items 1-9 above ........ | 2123 0 | 2123 0 | 11. 12. Total loans and leases, net of unearned income (sum of items 1 through | ////////////////// | ////////////////// | 10 minus item 11) (total of column A must equal Schedule RC, item 4.a).. | 2122 31,278,251 | 2122 31,205,115 | 12. ___________________________________________
16 36 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page: RC-7 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-C--Continued Part I. Continued ___________________________________________ | (Column A) | (Column B) | | Consolidated | Domestic | Memoranda | Bank | Offices | ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou | _____________________________________________________________________________ ____________________ ____________________ 1. Commercial paper included in Schedule RC-C, part I, above .............. | 1496 0 | 1496 0 | M.1. 2. Loans and leases restructured and in compliance with modified terms | ////////////////// | ////////////////// | (included in Schedule RC-C, part I, above and not reported as past due | ////////////////// | ////////////////// | or nonaccrual in Schedule RC-N, Memorandum item 1): | ////////////////// | ////////////////// | a. Loans secured by real estate: | ////////////////// | ////////////////// | (1) To U.S. addressees (domicile) ................................... | 1687 511 | M.2.a.(1) (2) To non-U.S. addressees (domicile) ............................... | 1689 0 | M.2.a.(2) b. All other loans and all lease financing receivables (exclude loans | ////////////////// | to individuals for household, family, and other personal expenditures)| 8691 0 | M.2.b. c. Commercial and industrial loans to and lease financing receivables | ////////////////// | of non-U.S. addressees (domicile) included in Memorandum item 2.b | ////////////////// | above ............................................................... | 8692 0 | M.2.c. 3. Maturity and repricing data for loans and leases(1) (excluding those | ////////////////// | in nonaccrual status): | ////////////////// | a. Fixed rate loans and leases with a remaining maturity of: | ////////////////// | (1) Three months or less ............................................ | 0348 10,215,575 | M.3.a.(1) (2) Over three months through 12 months ............................. | 0349 369,421 | M.3.a.(2) (3) Over one year through five years ................................ | 0356 3,479,742 | M.3.a.(3) (4) Over five years ................................................. | 0357 5,791,166 | M.3.a.(4) (5) Total fixed rate loans and leases (sum of | ////////////////// | Memorandum items 3.a.(1) through 3.a.(4)) ....................... | 0358 19,855,904 | M.3.a.(5) b. Floating rate loans with a repricing frequency of: | ////////////////// | (1) Quarterly or more frequently .................................... | 4554 8,960,876 | M.3.b.(1) (2) Annually or more frequently, but less frequently than quarterly . | 4555 1,848,295 | M.3.b.(2) (3) Every five years or more frequently, but less frequently than | ////////////////// | annually ........................................................ | 4561 250,031 | M.3.b.(3) (4) Less frequently than every five years ........................... | 4564 12,721 | M.3.b.(4) (5) Total floating rate loans (sum of Memorandum items 3.b.(1) | ////////////////// | through 3.b.(4)) ................................................ | 4567 11,071,923 | M.3.b.(5) c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) | ////////////////// | (must equal the sum of total loans and leases, net, from | ////////////////// | Schedule RC-C, part I, item 12, plus unearned income from | ////////////////// | Schedule RC-C, part I, item 11, minus total nonaccrual loans and | ////////////////// | leases from Schedule RC-N, sum of items 1 through 8, column C) ...... | 1479 30,927,827 | M.3.c. d. FLOATING RATE LOANS WITH A REMAINING MATURITY OF ONE YEAR OR LESS | ////////////////// | (INCLUDED IN MEMORANDUM ITEMS 3.b.(1) THROUGH 3.b.(4) ABOVE)......... | A246 1,543,411 | M.3.d. 4. Loans to finance commercial real estate, construction, and land | ////////////////// | development activities (NOT SECURED BY REAL ESTATE) included in | ////////////////// | Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ........... | 2746 271,706 | M.4. 5. Loans and leases held for sale (included in Schedule RC-C, part I, | ////////////////// | above .................................................................. | 5369 0 | M.5. | ////////////////// |_____________________ 6. Adjustable rate closed-end loans secured by first liens on 1-4 family | ////////////////// | RCON Bil Mil Thou | residential properties (included in Schedule RC-C, part I, item | ////////////////// | ___________________| 1.c.(2)(a), column B, page RC-6) ....................................... | ////////////////// | 5370 1.655.898 | M.6. |_________________________________________|
_____________________________ (1) Memorandum item 3 is not applicable to savings banks that must complete supplememtal Schedule RC-J. (2) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A. 17 37 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-7a City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-C--Continued Part II. Loans to Small Businesses and Small Farms Schedule RC-C, Part II is to be reported only with the June Report of Condition. Report the number and amount currently outstanding as of June 30 of business loans with "original amounts" of $1,000,000 or less and farm loans with "original amounts" of $500,000 or less. The following guidelines should be used to determine the "original amount" of a loan: (1) For loans drawn down under lines of credit or loan commitments, the "original amount" of the loan is the size of the line of credit or loan commitment when the line of credit or loan commitment was most recently approved, extended, or renewed prior to the report date. However, if the amount currently outstanding as of the report date exceeds this size, the "original amount" is the amount currently outstanding on the report date. (2) For loan participations and syndications, the "original amount" of the loan participation or syndication is the entire amount of the credit originated by the lead lender. (3) For all other loans, the "original amount" is the total amount of the loan at origination or the amount currently outstanding as of the report date, whichever is larger. Loans to Small Businesses
1. Indicate in the appropriate box at the right whether all or substantially all of the dollar volume of your bank's "Loans secured by nonfarm nonresidential properties" in domestic offices reported in Schedule RC-C, part I, item 1.e, column B, and all or substantially all of the dollar volume of your bank's "Commercial and industrial loans to U.S. addressees" in domestic offices reported in Schedule RC-C, __________ part I, item 4.a, column B, have original amounts of $100,000 or less (If your bank has no loans ________| C415 | <- outstanding in both of these two loan categories, place an "X" in the box marked "NO" and go to | RCON YES NO| Item 5; otherwise, see instructions for further information.).................................. | 6999 | |///| x | 1. ___________________ If YES, complete items 2.a and 2.b below, skip items 3 and 4, and go to item 5. If NO and your bank has loans outstanding in either loan category, skip items 2.a and 2.b, complete items 3 and 4 below, and go to item 5. _____________________ | Number of Loans | 2. Report the total number of loans currently outstanding for each of the |____________________| following Schedule RC-C, part I, loan categories: | RCON |/////////// | a. "Loans secured by nonfarm nonresidential properties" in domestic | ////////////////// | offices reported in Schedule RC-C, part I, item 1.e, column B....... | 5562 N/A | 2.a. b. "Commercial and industrial loans to U.S. addressees" in domestic | ////////////////// | offices reported in Schedule RC-C, part I, item 4.a, column B ...... | 5563 N/A | 2.b. ______________________
___________________________________________ | (Column A) | (Column B) | | | Amount | | | Currently | | Number of Loans | Outstanding | ____________________ ____________________ Dollar Amounts in Thousands | RCON | ///////////| RCON Bil Mil Thou | _____________________________________________________________________________ ____________________ ____________________ 3. Number and amount currently outstanding of "Loans secured by nonfarm | /////////////////////////////////////// | 1. nonresidential properties" in domestic offices reported in Schedule RC-C | /////////////////////////////////////// | 1.a. part I item 1.e, column B (sum of items 3.a through 3.c must be less | /////////////////////////////////////// | or equal to Schedule RC-C, part I, item 1.e, column B): | /////////////////////////////////////// | 1.b a. With original amounts of $100,000 or less ........................... | 5564 1,988 | 5565 76,370 | 3.a. b. With original amounts of more than $100,000 through $250,000 ........ | 5566 2,805 | 5567 332,639 | 3.b. c. With original amounts of more than $250,000 through $1,000,000 ...... | 5568 2,736 | 5569 952,476 | 3.c. 4. Number and amount currently outstanding of "Commercial and industrial | /////////////////////////////////////// | loans to U.S. addressees" in domestic offices reported in Schedule RC-C, | /////////////////////////////////////// | part I, item 4.a, column B (sum of items 4.a through 4.c must be less | /////////////////////////////////////// | than or equal to Schedule RC-C, part I, item 4.a, column B): | /////////////////////////////////////// | a. With original amounts of $100,000 or less ........................... | 5570 11,433 | 5571 337,759 | 4.a. b. With original amounts of more than $100,000 through $250,000 ........ | 5572 2,127 | 5573 228,713 | 4.b. c. With original amounts of more than $250,000 through $1,000,000 ...... | 5574 1,968 | 5575 601,126 | 4.c. ___________________________________________
17a 38 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-7b City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-C -- Continued Part II. Continued Agricultural Loans to Small Farms 5. Indicate in the appropriate box at the right whether all or substantially all of the dollar volume of your bank's "Loans secured by farmland (including farm residential and other improvements)" in domestic offices reported in Schedule RC-C, part I, item 1.b, column B, and all or substantially all of the dollar volume of your bank's "Loans to finance agricultural production and other loans to farmers" in domestic offices reported in Schedule RC-C, part I, item 3, column B, have original amounts of $100,000 or less (If your bank has no loans outstanding in both of these two YES NO loan categories, place an "X" in the box marked "NO" and do not complete items 7 _______________________ and 8; otherwise, see instructions for further information.)................................... | 6860 | | /// | X | 5. |_____________________| If YES, complete items 6.a and 6.b below and do not complete items 7 and 8. If NO and your bank has loans outstanding in either loan category, skip items 6.a and 6.b and complete items 7 and 8 below.
______________________ | Number of Loans | 6. Report the total number of loans currently outstanding for each of the |____________________| following Schedule RC-C, part I, loan categories: | RCON |//////////// | a. "Loans secured by farmland (including farm residential and other |______| | improvements)" in domestic offices reported in Schedule RC-C, part I, | ////////////////// | item 1.b, column B........................................................ | 5576 N/A | 6.a. b. "Loans to finance agricultural production and other loans to farmers" in | ////////////////// | domestic offices reported in Schedule RC-C, part I, item 3, column B...... | 5577 N/A | 6.b. |____________________|
_____________________________________________ | (Column A) | (Column B) | | | Amount | | | Currently | | Number of Loans | Outstanding | |_____________________|______________________| Dollar Amounts in Thousands | RCON |/////////////| RCON Bil Mil Thou | ________________________________________________________________________________| ______| |_____________________ | 7. Number and amount currently outstanding of "Loans secured by farmland | ////////////////////////////////////////// | (including farm residential and other improvements)" in domestic offices | ////////////////////////////////////////// | reported in Schedule RC-C, part I, item 1.b, column B (sum of items 7.a | ////////////////////////////////////////// | through 7.c must be less than or equal to Schedule RC-C, part I, item 1.b, | ////////////////////////////////////////// | column B): | ////////////////////////////////////////// | a. With original amounts of $100,000 or less............................... | 5578 18 | 5579 292 | 7.a. b. With original amounts of more than $100,000 through $250,000............ | 5580 8 | 5581 850 | 7.b. c. With original amounts of more than $250,000 through $500,000............ | 5582 4 | 5583 1,030 | 7.c. 8. Number and amount currently outstanding of "Loans to finance agricultural | ////////////////////////////////////////// | production and other loans to farmers" in domestic offices reported in | ////////////////////////////////////////// | Schedule RC-C, part I, item 3, column B (sum of items 8.a through 8.c | ////////////////////////////////////////// | must be less than or equal to Schedule RC-C, part I, item 3, column B): | ////////////////////////////////////////// | a. With original amounts of $100,000 or less............................... | 5584 46 | 5585 992 | 8.a. b. With original amounts of more than $100,000 through $250,000............ | 5586 17 | 5587 1,877 | 8.b. c. With original amounts of more than $250,000 through $500,000............ | 5588 4 | 5589 1,054 | 8.c. |_____________________|______________________|
17b 39
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-8 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________ Schedule RC-D--Trading Assets and Liabilities Schedule RC-D is to be completed only by banks with $1 billion or more in total assets or with $2 billion or more in par/notional amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D). __________ | C420 | __________________________ Dollar Amounts in Thousands | ////////// Bil Mil Thou| __________________________________________________________________________________________________| ________________________| ASSETS | /////////////////////// | 1. U.S. Treasury securities in domestic offices ................................................ | RCON 3531 0 | 1. 2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- | /////////////////////// | backed securities) .......................................................................... | RCON 3532 0 | 2. 3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... | RCON 3533 0 | 3. 4. Mortgage-backed securities (MBS) in domestic offices: | /////////////////////// | a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... | RCON 3534 0 | 4.a. b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA | /////////////////////// | (include CMOs, REMICs, and stripped MBS) ................................................. | RCON 3535 0 | 4.b. c. All other mortgage-backed securities ......................................................| RCON 3536 0 | 4.c. 5. Other debt securities in domestic offices ................................................... | RCON 3537 0 | 5. 6. Certificates of deposit in domestic offices ................................................. | RCON 3538 0 | 6. 7. Commercial paper in domestic offices ........................................................ | RCON 3539 0 | 7. 8. Bankers acceptances in domestic offices ..................................................... | RCON 3540 0 | 8. 9. Other trading assets in domestic offices .................................................... | RCON 3541 0 | 9. 10. Trading assets in foreign offices ........................................................... | RCFN 3542 0 | 10. 11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// | contracts: | /////////////////////// | a. In domestic offices ...................................................................... | RCON 3543 66,696 | 11.a. b. In foreign offices ....................................................................... | RCFN 3544 4,658 | 11.b. 12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... | RCFD 3545 71,354 | 12. ___________________________ ___________________________ | ///////// Bil Mil Thou | LIABILITIES | ________________________|_ 13. Liability for short positions ............................................................... | RCFD 3546 0 | 13. 14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// | contracts ................................................................................... | RCFD 3547 57,446 | 14. 15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... | RCFD 3548 57,446 | 15. ___________________________
18 40 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-9 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-E--Deposit Liabilities Part I. Deposits in Domestic Offices __________ | C425 | <- ______________________________________________________ ________ | | Nontransaction | | Transaction Accounts | Accounts | _________________________________________ ____________________ | (Column A) | (Column B) | (Column C) | | Total transaction | Memo: Total | Total | | accounts (including| demand deposits | nontransaction | | total demand | (included in | accounts | | deposits) | column A) | (including MMDAs) | ____________________ ____________________ ____________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou | __________________________________________________________ ____________________ ____________________ ____________________ Deposits of: | ////////////////// | ////////////////// | ////////////////// | 1. Individuals, partnerships, and corporations .......... | 2201 8,615,650 | 2240 8,158,203 | 2346 22,594,478 | 1. 2. U.S. Government ...................................... | 2202 58,650 | 2280 58,605 | 2520 42,512 | 2. 3. States and political subdivisions in the U.S. ........ | 2203 818,151 | 2290 706,072 | 2530 702,686 | 3. 4. Commercial banks in the U.S. ......................... | 2206 836,005 | 2310 836,005 | 2550 771 | 4. 5. Other depository institutions in the U.S. ............ | 2207 221,571 | 2312 221,571 | 2349 2,968 | 5. 6. Banks in foreign countries ........................... | 2213 18,445 | 2320 18,445 | 2236 0 | 6. 7. Foreign governments and official institutions | ////////////////// | ////////////////// | ////////////////// | (including foreign central banks) .................... | 2216 108 | 2300 108 | 2377 0 | 7. 8. Certified and official checks ........................ | 2330 198,585 | 2330 198,585 | ////////////////// | 8. 9. Total (sum of items 1 through 8) (sum of | ////////////////// | ////////////////// | ////////////////// | columns A and C must equal Schedule RC, | ////////////////// | ////////////////// | ////////////////// | item 13.a) ........................................... | 2215 10,767,165 | 2210 10,197,594 | 2385 23,343,415 | 9. ________________________________________________________________
______________________ Memoranda Dollar Amounts in Thousands | RCON Bil Mil Thou | ____________________________________________________________________________________________________ ____________________ 1. Selected components of total deposits (i.e., sum of item 9, columns A and C): | ////////////////// | a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ......................... | 6835 2,735,425 | M.1.a. b. Total brokered deposits ..................................................................... | 2365 1,636,611 | M.1.b. c. Fully insured brokered deposits (included in Memorandum item 1.b above): | ////////////////// | (1) Issued in denominations of less than $100,000 ........................................... | 2343 2,350 | M.1.c.(1) (2) Issued EITHER in denominations of $100,000 OR in denominations greater than $100,000 | ////////////////// | and participated out by the broker in shares of $100,000 or less ........................ | 2344 1,634,261 | M.1.c.(2) d. MATURITY DATA FOR BROKERED DEPOSITS: | ////////////////// | (1) BROKERED DEPOSITS ISSUED IN DENOMINATIONS OF LESS THAN $100,000 WITH A REMAINING | ////////////////// | MATURITY OF ONE YEAR OR LESS (INCLUDED IN MEMORANDUM ITEM 1.c.(1) ABOVE)................. | A243 171 | M.1.d.(1) (2) BROKERED DEPOSITS ISSUED IN DENOMINATIONS OF $100,000 OR MORE WITH A REMAINING | ////////////////// | MATURITY OF ONE YEAR OR LESS (INCLUDED IN MEMORANDUM ITEM 1.b ABOVE)..................... | A244 509,265 | M.1.d.(2) e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. | ////////////////// | reported in item 3 above which are secured or collateralized as required under state law) ... | 5590 457,587 | M.1.e. 2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must | ////////////////// | equal item 9, column C above): | ////////////////// | a. Savings deposits: | ////////////////// | (1) Money market deposit accounts (MMDAs) ................................................... | 6810 10,738,339 | M.2.a.(1) (2) Other savings deposits (excludes MMDAs) ................................................. | 0352 2,655,659 | M.2.a.(2) b. Total time deposits of less than $100,000 ................................................... | 6648 7,247,099 | M.2.b. c. Time certificates of deposit of $100,000 or more ............................................ | 6645 2,702,318 | M.2.c. d. Open-account time deposits of $100,000 or more .............................................. | 6646 0 | M.2.d. 3. All NOW accounts (included in column A above) .................................................. | 2398 569,571 | M.3. 4. Not applicable ______________________
19 41 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-10 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________ Schedule RC-E--Continued Part I. Continued Memoranda (continued) _________________________________________________________________________________________________________________________________
______________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | ___________________________________________________________________________________________________ ____________________ 5. Maturity and repricing data for time deposits of less than $100,000 (sum of | ////////////////// | Memorandum items 5.a.(1) through 5.b.(3) must equal Memorandum item 2.b above):(1) | ////////////////// | a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: | ////////////////// | (1) Three months or less.................................................................... | A225 1,684,248 | M.5.a.(1) (2) Over three months through 12 months..................................................... | A226 3,493,722 | M.5.a.(2) (3) Over one year........................................................................... | A227 2,002,999 | M.5.a.(3) b. Floating rate time deposits of less than $100,000 with a repricing frequency of: | ////////////////// | (1) Quarterly or more frequently............................................................ | A228 66,130 | M.5.b.(1) (2) Annually or more frequently, but less frequently than quarterly......................... | A229 0 | M.5.b.(2) (3) Less frequently than annually........................................................... | A230 0 | M.5.b.(3) c. Floating rate time deposits of less than $100,000 with a remaining maturity of | ////////////////// | one year or less (included in Memorandum items 5.b.(1) through 5.b.(3) above)............... | A231 45,084 | M.5.c. 6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time certificates | ////////////////// | of deposit of $100,000 or more and open-account time deposits of $100,000 or more) | ////////////////// | (sum of Memorandum items 6.a.(1) through 6.b.(4) must equal the sum of Memorandum | ////////////////// | items 2.c and 2.d above):(1) | ////////////////// | a. Fixed rate time deposits of $100,000 or more with a remaining maturity of: | ////////////////// | (1) Three months or less ................................................................... | A232 534,657 | M.6.a.(1) (2) Over three months through 12 months .................................................... | A233 754,429 | M.6.a.(2) (3) Over one year through five years ....................................................... | A234 1,282,541 | M.6.a.(3) (4) Over five years ........................................................................ | A235 36,761 | M.6.a.(4) b. Floating rate time deposits of $100,000 or more with a repricing frequency of: | ////////////////// | (1) Quarterly or more frequently ........................................................... | A236 31,182 | M.6.b.(1) (2) Annually or more frequently, but less frequently than quarterly ........................ | A237 37,950 | M.6.b.(2) (3) Every five years or more frequently, but less frequently than annually ................. | A238 24,798 | M.6.b.(3) (4) Less frequently than every five years .................................................. | A239 0 | M.6.b.(4) c. Floating rate time deposits of $100,000 or more with a remaining maturity of | ////////////////// | one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above)............... | A240 19,186 | M.6.c. ______________________
_______________ (1) Memorandum items 5 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J. 20 42 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 6/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-11 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-E--Continued Part II. Deposits in Foreign Offices (including Edge and Agreement subsidiaries and IBFs) ______________________ Dollar Amounts in Thousands | RCFN Bil Mil Thou | ___________________________________________________________________________________________________ ____________________ Deposits of: | ////////////////// | 1. Individuals, partnerships, and corporations ................................................... | 2621 1,730,162 | 1. 2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ | 2623 0 | 2. 3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs).... | 2625 0 | 3. 4. Foreign governments and official institutions (including foreign central banks) ............... | 2650 0 | 4. 5. Certified and official checks ................................................................. | 2330 0 | 5. 6. All other deposits ............................................................................ | 2668 15,501 | 6. 7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... | 2200 1,745,663 | 7. Memorandum Dollar Amounts in Thousands |RCFN Bil Mil Thou | ________________________________________________________________________________________________________________________ 1. Time deposits with a remaining maturity of one year or less (included in Part II, item 7 above) |A245 1,745,263 | M.1. ______________________
Schedule RC-F--Other Assets __________ | C430 | <- _________________ ________ Dollar Amounts in Thousands | ////////// Bil Mil Thou | __________________________________________________________________________________________________ _________________________ 1. Income earned, not collected on loans ........................................................ | RCFD 2164 167,538 | 1. 2. Net deferred tax assets(1) ................................................................... | RCFD 2148 0 | 2. 3. Excess residential mortgage servicing fees receivable ........................................ | RCFD 5371 134,288 | 3. 4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2168 3,676,812 | 4. _____________ ___________________________ a. | TEXT 3549 | Mortgages held for Resale | RCFD 3549 | 1,858,683 | /////////////////////// | 4.a. _________________________________________________________________| | | | ___________ b. | TEXT 3550 |____________________________________________________| RCFD 3550 | | /////////////////////// | 4.b. ___________ c. | TEXT 3551 |____________________________________________________| RCFD 3551 | | /////////////////////// | 4.c. _____________ ___________________________ 5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... | RCFD 2160 3,978,638 | 5. ___________________________ Memorandum ___________________________ Dollar Amounts in Thousands | ////////// Bil Mil Thou | __________________________________________________________________________________________________ _________________________ 1. Deferred tax assets disallowed for regulatory capital purposes ............................... | RCFD 5610 0 | M.1. ___________________________
Schedule RC-G--Other Liabilities __________ | C435 | <- _________________ ________ Dollar Amounts in Thousands | ////////// Bil Mil Thou | __________________________________________________________________________________________________ _________________________ 1. a. Interest accrued and unpaid on deposits in domestic offices(2) ............................ | RCON 3645 58,011 | 1.a. b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. | RCFD 3646 594,954 | 1.b. 2. Net deferred tax liabilities(1) .............................................................. | RCFD 3049 119,644 | 2. 3. Minority interest in consolidated subsidiaries ............................................... | RCFD 3000 0 | 3. 4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2938 478,843 | 4. _____________ ___________________________ a. | TEXT 3552 |____________________________________________________| RCFD 3552 | | /////////////////////// | 4.a. ___________ b. | TEXT 3553 |____________________________________________________| RCFD 3553 | | /////////////////////// | 4.b. ___________ c. | TEXT 3554 |____________________________________________________| RCFD 3554 | | /////////////////////// | 4.c. _____________ ___________________________ 5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... | RCFD 2930 1,251,452 | 5.
____________ (1) See discussion of deferred income taxes in Glossary entry on "income taxes." (2) For savings banks, include "dividends" accrued and unpaid on deposits. 21 43 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-12 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-H--Selected Balance Sheet Items for Domestic Offices __________ | C440 | <- ____________ ________ | Domestic Offices | ____________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | _____________________________________________________________________________________________________ ____________________ 1. Customers' liability to this bank on acceptances outstanding .................................... | 2155 16,634 | 1. 2. Bank's liability on acceptances executed and outstanding ........................................ | 2920 16,634 | 2. 3. Federal funds sold and securities purchased under agreements to resell .......................... | 1350 17,428 | 3. 4. Federal funds purchased and securities sold under agreements to repurchase ...................... | 2800 4,868,836 | 4. 5. Other borrowed money ............................................................................ | 3190 1,380,694 | 5. EITHER | ////////////////// | 6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 2163 N/A | 6. OR | ////////////////// | 7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... | 2941 1,669,058 | 7. | ////////////////// | 8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) . | 2192 48,946,123 | 8. | ////////////////// | 9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and IBFs)| 3129 42,919,946 | 9. ______________________
Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. ______________________ | RCON Bil Mil Thou | ____________________ 10. U.S. Treasury securities ....................................................................... | 1779 1,252,796 | 10. 11. U.S. Government agency and corporation obligations (exclude mortgage-backed | ////////////////// | securities) .................................................................................... | 1785 505 | 11. 12. Securities issued by states and political subdivisions in the U.S. ............................. | 1786 159,244 | 12. 13. Mortgage-backed securities (MBS): | ////////////////// | a. Pass-through securities: | ////////////////// | (1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1787 5,684,860 | 13.a.(1) (2) Other pass-through securities ........................................................... | 1869 4 | 13.a.(2) b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): | ////////////////// | (1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1877 0 | 13.b.(1) (2) All other mortgage-backed securities..................................................... | 2253 518 | 13.b.(2) 14. Other domestic debt securities ................................................................. | 3159 812 | 14. 15. Foreign debt securities ........................................................................ | 3160 97,035 | 15. 16. Equity securities: | ////////////////// | a. Investments in mutual funds ................................................................. | 3161 0 | 16.a. b. Other equity securities with readily determinable fair values ............................... | 3162 0 | 16.b. c. All other equity securities ................................................................. | 3169 311,734 | 16.c. 17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) .......... | 3170 7,507,508 | 17. ______________________
Memorandum (to be completed only by banks with IBFs and other "foreign" offices) ______________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | _____________________________________________________________________________________________________ ____________________ EITHER | ////////////////// | 1. Net due from the IBF of the domestic offices of the reporting bank .............................. | 3051 0 | M.1. OR | ////////////////// | 2. Net due to the IBF of the domestic offices of the reporting bank ................................ | 3059 N/A | M.2. ______________________
22 44
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-13 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-I--Selected Assets and Liabilities of IBFs To be completed only by banks with IBFs and other "foreign" offices. __________ | C445 | <- ____________ ________ Dollar Amounts in Thousands | RCFN Bil Mil Thou | _____________________________________________________________________________________________________ ____________________ 1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) ................. | 2133 0 | 1. 2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, | ////////////////// | column A) ..................................................................................... | 2076 0 | 2. 3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) .... | 2077 0 | 3. 4. Total IBF liabilities (component of Schedule RC, item 21) ..................................... | 2898 0 | 4. 5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, | ////////////////// | part II, items 2 and 3) ....................................................................... | 2379 0 | 5. 6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ..... | 2381 0 | 6. ______________________
Schedule RC-K--Quarterly Averages (1) __________ | C455 | <- _________________ ________ Dollar Amounts in Thousands | ///////// Bil Mil Thou | _______________________________________________________________________________________________ _________________________ ASSETS | /////////////////////// | 1. Interest-bearing balances due from depository institutions .............................. | RCFD 3381 10,737 | 1. 2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) ...... | RCFD 3382 6,349,267 | 2. 3. Securities issued by states and political subdivisions in the U.S.(2) ................... | RCFD 3383 155,938 | 3. 4. a. Other debt securities(2) ............................................................. | RCFD 3647 98,458 | 4.a. b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock). | RCFD 3648 347,675 | 4.b. 5. Federal funds sold and securities purchased under agreements to resell in domestic | /////////////////////// | offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs ............. | RCFD 3365 812,114 | 5. 6. Loans: | ///////////////////// // | a. Loans in domestic offices: | /////////////////////// | (1) Total loans ...................................................................... | RCON 3360 31,884,320 | 6.a.(1) (2) Loans secured by real estate ..................................................... | RCON 3385 14,940,513 | 6.a.(2) (3) Loans to finance agricultural production and other loans to farmers .............. | RCON 3386 5,935 | 6.a.(3) (4) Commercial and industrial loans .................................................. | RCON 3387 12,923,362 | 6.a.(4) (5) Loans to individuals for household, family, and other personal expenditures ...... | RCON 3388 2,224,980 | 6.a.(5) b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............ | RCFN 3360 70,458 | 6.b. 7. Trading assets .......................................................................... | RCFD 3401 105,824 | 7. 8. Lease financing receivables (net of unearned income) .................................... | RCFD 3484 2,231,479 | 8. 9. Total assets (4) ........................................................................ | RCFD 3368 52,282,230 | 9. LIABILITIES | /////////////////////// | 10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, | /////////////////////// | and telephone and preauthorized transfer accounts) (exclude demand deposits) ............ | RCON 3485 965,535 | 10. 11. Nontransaction accounts in domestic offices: | /////////////////////// | a. Money market deposit accounts (MMDAs) ................................................ | RCON 3486 9,210,475 | 11.a. b. Other savings deposits ............................................................... | RCON 3487 3,907,216 | 11.b. c. Time certificates of deposit of $100,000 or more ..................................... | RCON 3345 2,653,452 | 11.c. d. All other time deposits .............................................................. | RCON 3469 7,513,443 | 11.d. 12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs.. | RCFN 3404 1,765,593 | 12. 13. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// | offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs ............. | RCFD 3353 6,363,286 | 13. 14. Other borrowed money .................................................................... | RCFD 3355 2,670,145 | 14. ___________________________
_______________ (1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or (2) an average of weekly figures (i.e., the Wednesday of each week of the quarter). (2) Quarterly averages for all debt securities should be based on amortized cost. (3) Quarterly averages for all equity securities should be based on historical cost. (4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity securities without readily determinable fair values at historical cost. 23 45 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-14 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-L--Off-Balance Sheet Items Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk. __________ | C460 | <- ____________ ________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | ____________________________________________________________________________________________________ ____________________ 1. Unused commitments: | ////////////////// | a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home | ////////////////// | equity lines ............................................................................... | 3814 1,637,875 | 1.a. b. Credit card lines .......................................................................... | 3815 32,940 | 1.b. c. Commercial real estate, construction, and land development: | ////////////////// | (1) Commitments to fund loans secured by real estate ....................................... | 3816 648,369 | 1.c.(1) (2) Commitments to fund loans not secured by real estate ................................... | 6550 383,022 | 1.c.(2) d. Securities underwriting .................................................................... | 3817 0 | 1.d. e. Other unused commitments ................................................................... | 3818 18,626,522 | 1.e. 2. Financial standby letters of credit and foreign office guarantees ............................. | 3819 2,337,268 | 2. ___________________________ a. Amount of financial standby letters of credit conveyed to others | RCFD 3820 | 158,029 | ////////////////// | 2.a. ___________________________ 3. Performance standby letters of credit and foreign office guarantees ........................... | 3821 175,703 | 3. a. Amount of performance standby letters of credit conveyed to | ////////////////// | ___________________________ others .......................................................... | RCFD 3822 | 12,580 | ////////////////// | 3.a. ___________________________ 4. Commercial and similar letters of credit ...................................................... | 3411 176,335 | 4. 5. Participations in acceptances (as described in the instructions) conveyed to others by | ////////////////// | the reporting bank ............................................................................ | 3428 16,524 | 5. 6. Participations in acceptances (as described in the instructions) acquired by the reporting | ////////////////// | (nonaccepting) bank ........................................................................... | 3429 7,409 | 6. 7. Securities borrowed ........................................................................... | 3432 0 | 7. 8. Securities lent (including customers' securities lent where the customer is indemnified | ////////////////// | against loss by the reporting bank) ........................................................... | 3433 0 | 8. 9. Loans transferred (i.e., sold or swapped) with recourse that have been treated as sold for | ////////////////// | Call Report purposes: | ////////////////// | a. FNMA and FHLMC residential mortgage loan pools: | ////////////////// | (1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3650 246,244 | 9.a.(1) (2) Amount of recourse exposure on these mortgages as of the report date ................... | 3651 246,244 | 9.a.(2) b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: | ////////////////// | (1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3652 33,550 | 9.b.(1) (2) Amount of recourse exposure on these mortgages as of the report date ................... | 3653 33,550 | 9.b.(2) c. Farmer Mac agricultural mortgage loan pools: | ////////////////// | (1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3654 0 | 9.c.(1) (2) Amount of recourse exposure on these mortgages as of the report date ................... | 3655 0 | 9.c.(2) d. Small business obligations transferred with recourse under Section 208 of the | ////////////////// | Riegle Community Development and Regulatory Improvement Act of 1994: | ////////////////// | (1) Outstanding principal balance of small business obligations transferred | ////////////////// | as of the report date................................................................... | A249 0 | 9.d.(1) (2) Amount of retained recourse on these obligations as of the report date.................. | A250 0 | 9.d.(2) 10. When-issued securities: | ////////////////// | a. Gross commitments to purchase .............................................................. | 3434 0 | 10.a. b. Gross commitments to sell .................................................................. | 3435 0 | 10.b. 11. Spot foreign exchange contracts ............................................................... | 8765 622,366 | 11. 12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives) (itemize and | ////////////////// | describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") | 3430 0 | 12. a. | TEXT 3555 |______________________________________________________| RCFD 3555 | | ////////////////// | 12.a. b. | TEXT 3556 |______________________________________________________| RCFD 3556 | | ////////////////// | 12.b. ___________ c. | TEXT 3557 |______________________________________________________| RCFD 3557 | | ////////////////// | 12.c. _____________ d. | TEXT 3558 |______________________________________________________| RCFD 3558 | | ////////////////// | 12.d. _____________ _______________________________________________ Dollar Amounts in Thousands RCFD Bil Mil Thou _________________________________________________________________________________________________________________________ 13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and | ////////////////// | describe each component of this item over 25% of Schedule RC,item 28,"Total equity capital") | 5591 0 | 13. _____________ __________________________ a. | TEXT 5592 |______________________________________________________| RCFD 5592 | | ////////////////// | 13.a. ___________ b. | TEXT 5593 |______________________________________________________| RCFD 5593 | | ////////////////// | 13.b. ___________ c. | TEXT 5594 |______________________________________________________| RCFD 5594 | | ////////////////// | 13.c. _____________ d. | TEXT 5595 |______________________________________________________| RCFD 5595 | | ////////////////// | 13.d. _____________ ________________________________________________
24 46
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-15 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| Schedule RC-L -- Continued _____________ | C461 | <- _________________________________________ ____________________________|___________| | (Column A) | (Column B) | (Column C) | (Column D) | | Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other| | Contracts | Contracts | Contracts | Contracts | |___________________|____________________|____________________|____________________| Dollar Amounts in Thousands |Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou | _______________________________________________________________________________________________________________________| | Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// | | Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// | ____________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// | 14. Gross amounts (e.g., notional | ///////////////// | ////////////////// | ////////////////// | ////////////////// | amounts) (for each column, sum of | ///////////////// | ////////////////// | ////////////////// | ////////////////// | items 14.a through 14.e must equal | ///////////////// | ////////////////// | ////////////////// | ////////////////// | sum of items 15, 16.a, and 16.b): |___________________|____________________|___________________ |____________________| a. Futures contracts ............. | 1,229,392 | 0 | 0 | 36,486 | 14.a. |___________________|____________________|____________________|____________________| | RCFD 8693 | RCFD 8694 | RCFD 8695 | RCFD 8696 | |___________________|____________________|____________________|____________________| b. Forward contracts ............. | 2,576,500 | 1,931,682 | 0 | 21,832 | 14.b. |___________________|____________________|____________________|____________________| | RCFD 8697 | RCFD 8698 | RCFD 8699 | RCFD 8700 | |___________________|____________________|____________________|____________________| c. Exchange-traded option contracts:| ///////////////// | ////////////////// | ////////////////// | ////////////////// | |___________________|____________________|____________________|____________________| (1) Written options .......... | 0 | 0 | 0 | 0 | 14.c.(1) |___________________|____________________|____________________|____________________| | RCFD 8701 | RCFD 8702 | RCFD 8703 | RCFD 8704 | |___________________|____________________|____________________|____________________| (2) Purchased options ........ | 450,000 | 0 | 0 | 2,206 | 14.c.(2) |___________________|____________________|____________________|____________________| | RCFD 8705 | RCFD 8706 | RCFD 8707 | RCFD 8708 | |___________________|____________________|____________________|____________________| d. Over-the-counter option contracts: | //////////////////| ///////////////// | ///////////////// | //////////////// | (1) Written options .......... | 1,324,980 | 3,887 | 0 | 0 | 14.d.(1) |___________________|____________________|____________________|____________________| | RCFD 8709 | RCFD 8710 | RCFD 8711 | RCFD 8712 | |___________________|____________________|____________________|____________________| (2) Purchased options ........ | 10,131,934 | 3,887 | 0 | 0 | 14.d.(2) |___________________|____________________|____________________|____________________| | RCFD 8713 | RCFD 8714 | RCFD 8715 | RCFD 8716 | |___________________|____________________|____________________|____________________| e. Swaps ............................ | 19,502,262 | 0 | 0 | 0 | 14.e. |___________________|____________________|____________________|____________________| | RCFD 3450 | RCFD 3826 | RCFD 8719 | RCFD 8720 | |___________________|____________________|____________________|____________________| 15. Total gross notional amount of | ///////////////// | ////////////////// | ////////////////// | ////////////////// | derivative contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// | trading ......................... | 3,386,305 | 1,939,456 | 0 | 2,206 | 15. |___________________|____________________|____________________|____________________| | RCFD A126 | RFD A127 | RCFD 8723 | RCFD 8724 | |___________________|____________________|____________________|____________________| 16. Total gross notional amount of | ///////////////// | //////////////// | ///////////////// | ////////////////// | derivative contracts held for | ///////////////// | ///////////////// | ///////////////// | ////////////////// | purposes other than trading: | ///////////////// | ///////////////// | ///////////////// | ////////////////// | |___________________|____________________|____________________|____________________| a. Contracts marked to market ... | 4,202,500 | 0 | 0 | 36,486 | 16.a. |___________________|____________________|____________________|____________________| | RCFD 8725 | RCFD 8726 | RCF 8727 | RCFD 8728 | |___________________|____________________|____________________|____________________| b. Contracts not marked to market | 27,626,263 | 0 | 0 | 21,832 | 16.b. |___________________|____________________|____________________|____________________| | RCFD 8729 | RCFD 8730 | RFD 8731 | RCFD 8732 | |___________________|____________________|____________________|____________________|
25 47
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-16 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| Schedule RC-L -- Continued _________________________________________ _________________________________________ | (Column A) | (Column B) | (Column C) | (Column D) | Dollar Amounts in Thousands | Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other| ___________________________________| Contracts | Contracts | Contracts | Contracts | | Off-balance Sheet Derivatives |___________________|____________________|____________________|____________________| | Position Indicators |RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | |_____________________________________________________________________________________________________________________| 17. Gross fair values of | ///////////////// | ////////////////// | ////////////////// | ////////////////// | derivative contracts: | ///////////////// | ////////////////// | ////////////////// | ////////////////// | a. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// | trading: | ///////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value ................... | 8733 29,782 | 8734 41,523 | 8735 0 | 8736 58 | 17.a.(1) (2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value ................... | 8737 20,932 | 8738 36,511 | 8739 0 | 8740 0 | 17.a.(2) b. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// | purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// | trading that are marked | ///////////////// | ////////////////// | ////////////////// | ////////////////// | to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value ................... | 8741 524 | 8742 0 | 8743 0 | 8744 1,452 | 17.b.(1) (2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value ................... | 8745 2,834 | 8746 0 | 8747 0 | 8748 0 | 17.b.(2) c. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// | purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// | trading that are not | ///////////////// | ////////////////// | ////////////////// | ////////////////// | marked to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value .................. | 8749 64,085 | 8750 0 | 8751 0 | 8752 100 | 17.c.(1) (2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// | fair value ................... | 8753 111,703 | 8754 0 | 8755 0 | 8756 0 | 17.c.(2) |__________________________________________________________________________________|
______________________ Memoranda Dollar Amounts in Thousands | RCFD Bil Mil Thou | _________________________________________________________________________________________________________________________ 1. -2. Not applicable | ////////////////// | 3. Unused commitments with an original maturity exceeding one year that are reported in | ////////////////// | Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments | ////////////////// | that are fee paid or otherwise legally binding) ................................................ | 3833 16,829,602 | M.3. a. Participations in commitments with an original maturity | ////////////////// | exceeding one year conveyed to others ................................|RCFD 3834 | 1,310,691 | ////////////////// | M.3.a. ________________________ 4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// | Standby letters of credit and foreign office guarantees (both financial and performance) issued | ////////////////// | to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above .............. | 3377 341,139 | M.4. 5. Installment loans to individuals for household, family, and other personal expenditures that | ////////////////// | have been securitized and sold without recourse (with servicing retained), amounts outstanding | ////////////////// | by type of loan: | ////////////////// | a. Loans to purchase private passenger automobiles (to be completed for the | ////////////////// | September report only)....................................................................... | 2741 N/A | M.5.a. b. Credit cards and related plans (TO BE COMPLETED QUARTERLY)................................... | 2742 0 | M.5.b. c. All other consumer installment credit (including mobile home loans)(to be completed for the | ////////////////// | September report only........................................................................ | 2743 N/A | M.5.c |____________________|
26 48
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-17 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| _____________ | C465 | _________|___________| Schedule RC-M--Memoranda | | Dollar Amounts in Thousands | RCFD Bil Mil Thou | ______________________________________________________________________________________________________|____________________| 1. Extensions of credit by the reporting bank to its executive officers, directors, principal | ////////////////// | shareholders, and their related interests as of the report date: | ////////////////// | a. Aggregate amount of all extensions of credit to all executive officers, directors, principal | ////////////////// | shareholders and their related interests ..................................................... | 6164 605,294 | 1.a. b. Number of executive officers, directors, and principal shareholders to whom the amount of all | ////////////////// | extensions of credit by the reporting bank (including extensions of credit to | ////////////////// | related interests) equals or exceeds the lesser of $500,000 or 5 percent Number | ////////////////// | ___________________________| ////////////////// | of total capital as defined for this purpose in agency regulations. | RCFD 6165 | 24 | ////////////////// | ___________________________| ////////////////// | 1.b. 2. Federal funds sold and securities purchased under agreements to resell with U.S. branches | ////////////////// | and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b) .................... | 3405 0 | 2. 3. Not applicable. | ////////////////// | 4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others | ////////////////// | (include both retained servicing and purchased servicing): | ////////////////// | a. Mortgages serviced under a GNMA contract ...................................................... | 5500 28,855,729 | 4.a. b. Mortgages serviced under a FHLMC contract: | ////////////////// | (1) Serviced with recourse to servicer ........................................................ | 5501 55,604 | 4.b.(1) (2) Serviced without recourse to servicer ..................................................... | 5502 32,340,522 | 4.b.(2) c. Mortgages serviced under a FNMA contract: | ////////////////// | (1) Serviced under a regular option contract .................................................. | 5503 190,640 | 4.c.(1) (2) Serviced under a special option contract .................................................. | 5504 38,282,672 | 4.c.(2) d. Mortgages serviced under other servicing contracts ............................................ | 5505 8,508,320 | 4.d. 5. To be completed only by banks with $1 billion or more in total assets: | ////////////////// | Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must | ////////////////// | equal Schedule RC, item 9): | ////////////////// | a. U.S. addressees (domicile) .................................................................... | 2103 16,297 | 5.a. b. Non-U.S. addressees (domicile) ................................................................ | 2104 337 | 5.b. 6. Intangible assets: | ////////////////// | a. Mortgage servicing rights ..................................................................... | 3164 1,483,959 | 6.a. b. Other identifiable intangible assets: | ////////////////// | (1) Purchased credit card relationships ....................................................... | 5506 0 | 6.b.(1) (2) All other identifiable intangible assets .................................................. | 5507 126,463 | 6.b.(2) c. Goodwill ...................................................................................... | 3163 672,992 | 6.c. d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10) ........................ | 2143 2,283,414 | 6.d. e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or | ////////////////// | are otherwise qualifying for regulatory capital purposes ...................................... | 6442 0 | 6.e. 7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to | ////////////////// | redeem the debt ...................................................................................| 3295 75,000 | 7. ______________________
- ------------ (1) Do not report federal funds sold and securities purchased under agreements to resell with other commercial banks in the U.S. in this item. 27 49
Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-18 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| Schedule RC-M--Continued ________________________ Dollar Amounts in Thousands | Bil Mil Thou| _____________________________________________________________________________________________ |_______________________| 8. a. Other real estate owned: | /////////////////////// | (1) Direct and indirect investments in real estate ventures ......................... | RCFD 5372 0 | 8.a.(1) (2) All other real estate owned: | /////////////////////// | (a) Construction and land development in domestic offices ....................... | RCON 5508 4,537 | 8.a.(2)(a) (b) Farmland in domestic offices ................................................ | RCON 5509 0 | 8.a.(2)(b) (c) 1-4 family residential properties in domestic offices ....................... | RCON 5510 8,067 | 8.a.(2)(c) (d) Multifamily (5 or more) residential properties in domestic offices .......... | RCON 5511 740 | 8.a.(2)(d) (e) Nonfarm nonresidential properties in domestic offices ....................... | RCON 5512 21,202 | 8.a.(2)(e) (f) In foreign offices .......................................................... | RCFN 5513 0 | 8.a.(2)(f) (3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ....... | RCFD 2150 34,546 | 8.a.(3) b. Investments in unconsolidated subsidiaries and associated companies: | /////////////////////// | (1) Direct and indirect investments in real estate ventures ......................... | RCFD 5374 0 | 8.b.(1) (2) All other investments in unconsolidated subsidiaries and associated companies ... | RCFD 5375 0 | 8.b.(2) (3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ....... | RCFD 2130 0 | 8.b.(3) c. Total assets of unconsolidated subsidiaries and associated companies ................ | RCFD 5376 0 | 8.c. 9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, | /////////////////////// | item 23, "Perpetual preferred stock and related surplus" ............................... | RCFD 3778 125,000 | 9. 10. Mutual fund and annuity sales in domestic offices during the quarter (include | /////////////////////// | proprietary, private label, and third party products): | /////////////////////// | a. Money market funds .................................................................. | RCON 6441 55,245 | 10.a. b. Equity securities funds ............................................................. | RCON 8427 108,359 | 10.b. c. Debt securities funds ............................................................... | RCON 8428 13,250 | 10.c. d. Other mutual funds .................................................................. | RCON 8429 0 | 10.d. e. Annuities ........................................................................... | RCON 8430 102,292 | 10.e. f. Sales of proprietary mutual funds and annuities (included in items 10.a through | /////////////////////// | 10.e. above) ........................................................................... | RCON 8784 150,100 | 10.f. _________________________
_________________________________________________________________________________________________________________________________ | | ______________________ |Memorandum Dollar Amounts in Thousands | RCFD Bil Mil Thou | | _________________________________________________________________________________________________ ____________________ |1. Interbank holdings of capital instruments (to be completed for the December report only): | ////////////////// | | | a. Reciprocal holdings of banking organizations' capital instruments ........................ | 3836 N/A | M.1.a. | | b. Nonreciprocal holdings of banking organizations' capital instruments ..................... | 3837 N/A | M.1.b. | ______________________ | | _________________________________________________________________________________________________________________________________
28 50 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-19 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-N--Past Due and Nonaccrual Loans, Leases, and Other Assets The FFIEC regards the information reported in __________ all of Memorandum item 1, in items 1 through 10, | C470 | <- column A, and in Memorandum items 2 through 4, ______________________________________________________ ________ column A, as confidential. | (Column A) | (Column B) | (Column C) | | Past due | Past due 90 | Nonaccrual | | 30 through 89 | days or more | | | days and still | and still | | | accruing | accruing | | ____________________ ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ______________________________________________________ ____________________ ____________________ ____________________ 1. Loans secured by real estate: | ////////////////// | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ................ | 1245 | 1246 71,390 | 1247 223,962 | 1.a. b. To non-U.S. addressees (domicile) ............ | 1248 | 1249 0 | 1250 0 | 1.b. 2. Loans to depository institutions and | ///// | ////////////////// | ////////////////// | acceptances of other banks: | ///// | ////////////////// | ////////////////// | a. To U.S. banks and other U.S. depository | ///// | ////////////////// | ////////////////// | institutions ................................. | 5377 | 5378 0 | 5379 0 | 2.a. b. To foreign banks ............................. | 5380 | 5381 0 | 5382 0 | 2.b. 3. Loans to finance agricultural production and | ///// | ////////////////// | ////////////////// | other loans to farmers .......................... | 1594 | 1597 385 | 1583 531 | 3. 4. Commercial and industrial loans: | ///// | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ................ | 1251 | 1252 11,945 | 1253 108,334 | 4.a. b. To non-U.S. addressees (domicile) ............ | 1254 | 1255 0 | 1256 0 | 4.b. 5. Loans to individuals for household, family, and | ///// | ////////////////// | ////////////////// | other personal expenditures: | ///// | ////////////////// | ///////////////// | a. Credit cards and related plans ............... | 5383 | 5384 1,187 | 5385 669 | 5.a. b. Other (includes single payment, installment, | ///// | ////////////////// | ////////////////// | and all student loans) ....................... | 5386 | 5387 22,600 | 5388 8,465 | 5.b. 6. Loans to foreign governments and official | ///// | ////////////////// | ////////////////// | institutions .................................... | 5389 | 5390 0 | 5391 0 | 6. 7. All other loans ................................. | 5459 | 5460 14,909 | 5461 1,919 | 7. 8. Lease financing receivables: | ///// | ////////////////// | ////////////////// | a. Of U.S. addressees (domicile) ................ | 1257 | 1258 95 | 1259 6,544 | 8.a. b. Of non-U.S. addressees (domicile) ............ | 1271 | 1272 0 | 1791 0 | 8.b. 9. Debt securities and other assets (exclude other | ///// | ////////////////// | ////////////////// | real estate owned and other repossessed assets) . | 3505 | 3506 0 | 3507 85,778 | 9. ________________________________________________________________
==================================================================================================================================== Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in items 1 through 8. ________________________________________________________________ | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ____________________ ____________________ ____________________ 10. Loans and leases reported in items 1 | | | | through 8 above which are wholly or partially | ///// | ////////////////// | ////////////////// | guaranteed by the U.S. Government ............... | 5612 | 5613 18,447 | 5614 21,415 | 10. a. Guaranteed portion of loans and leases | ///// | ////////////////// | ////////////////// | included in item 10 above .................... | 5615 | 5616 18,250 | 5617 16,952 | 10.a. ________________________________________________________________
29 51 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-20 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-N--Continued __________ | C473 | <- ______________________________________________________ ________ | (Column A) | (Column B) | (Column C) | | Past due | Past due 90 | Nonaccrual | | 30 through 89 | days or more | | | days and still | and still | | Memoranda | accruing | accruing | | ____________________ ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ______________________________________________________ ____________________ ____________________ ____________________ 1. Restructured loans and leases included in | ///// | /////////////////// | ///////////////// | Schedule RC-N, items 1 through 8, above (and not | ///// | //// | | reported in Schedule RC-C, part I, Memorandum | ///// | //// | | item 2) ......................................... | 1658 | 1659 | | M.1. 2. Loans to finance commercial real estate, | ///// | //// | | construction, and land development activities | ///// | //// | | (not secured by real estate) included in | ///// | /////////////////// | ///////////////// | Schedule RC-N, items 4 and 7, above ............. | 6558 | 6559 826 | 6560 7,043 | M.2. |____________________|____________________ |___________________ 3. Loans secured by real estate in domestic offices | RCON | RCON Bil Mil Thou | RCON Bil Mil Thou| |___________________ |____________________ ____________________ (included in Schedule RC-N, item 1, above): | ///// | ////////////////// | ////////////////// | a. Construction and land development ............ | 2759 | 2769 1,100 | 3492 26,422 | M.3.a. b. Secured by farmland .......................... | 3493 | 3494 161 | 3495 0 | M.3.b. c. Secured by 1-4 family residential properties: | ///// | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by | ///// | ////////////////// | ////////////////// | 1-4 family residential properties and | ///// | ////////////////// | ////////////////// | extended under lines of credit ........... | 5398 | 5399 5,114 | 5400 17,374 | M.3.c.(1) (2) All other loans secured by 1-4 family | ///// | ////////////////// | ////////////////// | residential properties ................... | 5401 | 5402 58,079 | 5403 75,430 | M.3.c.(2) d. Secured by multifamily (5 or more) | ///// | ////////////////// | ////////////////// | residential properties ....................... | 3499 | 3500 521 | 3501 12,491 | M.3.d. e. Secured by nonfarm nonresidential properties . | 3502 | 3503 6,415 | 3504 92,245 | M.3.e. ________________________________________________________________
___________________________________________ | (Column A) | (Column B) | | Past due 30 | Past due 90 | | through 89 days | days or more | ____________________ ____________________ | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ____________________ ____________________ 4. Interest rate, foreign exchange rate, and other | ///// | ////////////////// | commodity and equity contracts: | ///// | ////////////////// | a. Book value of amounts carried as assets ...... | 3522 | 3528 0 | M.4.a. b. Replacement cost of contracts with a | ///// | ////////////////// | positive replacement cost .................... | 3529 | 3530 0 | M.4.b. ___________________________________________
30 52 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-21 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
______________________ Schedule RC-O--Other Data for Deposit Insurance Assessments | C475 | |____________________| Dollar Amounts in Thousands | RCON Bil Mil Thou | ___________________________________________________________________________________________________ ____________________ 1. Unposted debits (see instructions): | ////////////////// | a. Actual amount of all unposted debits ...................................................... | 0030 216 | 1.a. OR | ////////////////// | b. Separate amount of unposted debits: | ////////////////// | (1) Actual amount of unposted debits to demand deposits ................................... | 0031 N/A | 1.b.(1) (2) Actual amount of unposted debits to time and savings deposits(1) ...................... | 0032 N/A | 1.b.(2) 2. Unposted credits (see instructions): | ////////////////// | a. Actual amount of all unposted credits ..................................................... | 3510 216 | 2.a. OR | ////////////////// | b. Separate amount of unposted credits: | ////////////////// | (1) Actual amount of unposted credits to demand deposits .................................. | 3512 N/A | 2.b.(1) (2) Actual amount of unposted credits to time and savings deposits(1) ..................... | 3514 N/A | 2.b.(2) 3. Uninvested trust funds (cash) held in bank's own trust department (not included in total | ////////////////// | deposits in domestic offices) ................................................................ | 3520 101,763 | 3. 4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in | ////////////////// | Puerto Rico and U.S. territories and possessions (not included in total deposits): | ////////////////// | a. Demand deposits of consolidated subsidiaries .............................................. | 2211 206,111 | 4.a. b. Time and savings deposits(1) of consolidated subsidiaries ................................. | 2351 20,089 | 4.b. c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... | 5514 8 | 4.c. 5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: | ////////////////// | a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. | 2229 0 | 5.a. b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... | 2383 0 | 5.b. c. Interest accrued and unpaid on deposits in insured branches | ////////////////// | (included in Schedule RC-G, item 1.b) ..................................................... | 5515 0 | 5.c. ______________________ ______________________ Item 6 is not applicable to state nonmember banks that have not been authorized by the | ////////////////// | Federal Reserve to act as pass-through correspondents. | ////////////////// | 6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on | ////////////////// | behalf of its respondent depository institutions that are also reflected as deposit liabilities| ////////////////// | of the reporting bank: | ////////////////// | a. Amount reflected in demand deposits (included in Schedule RC-E, item 4 or 5, column B)..... | 2314 0 | 6.a. b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, | ////////////////// | item 4 or 5, column A or C, but not column B).............................................. | 2315 0 | 6.b. 7. Unamortized premiums and discounts on time and savings deposits:(1) | ////////////////// | a. Unamortized premiums ...................................................................... | 5516 769 | 7.a. b. Unamortized discounts ..................................................................... | 5517 0 | 7.b. ______________________ _______________________________________________________________________________________________________________________________ | | |8. To be completed by banks with "Oakar deposits." | ______________________ | Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of | ////////////////// | | | the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s)) .... | 5518 2,188,589 | 8. | ______________________ | | _______________________________________________________________________________________________________________________________ ______________________ 9. Deposits in lifeline accounts ................................................................ | 5596 ///////////// | 9. 10. Benefit-responsive "Depository Institution Investment Contracts" (included in total | ////////////////// | deposits in domestic offices) ................................................................ | 8432 0 | 10. ______________________ ______________ (1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction accounts and all transaction accounts other than demand deposits.
31 53 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-22 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-O--Continued Dollar Amounts in Thousands | RCON Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for | ////////////////// | certain reciprocal demand balances: | ////////////////// | a. Amount by which demand deposits would be reduced if reciprocal demand balances | ////////////////// | between the reporting bank and savings associations were reported on a net basis | ////////////////// | rather than a gross basis in Schedule RC-E .................................................. | 8785 0 | 11.a. b. Amount by which demand deposits would be increased if reciprocal demand balances | ////////////////// | between the reporting bank and U.S. branches and agencies of foreign banks were | ////////////////// | reported on a gross basis rather than a net basis in Schedule RC-E .......................... | A181 0 | 11.b. c. Amount by which demand deposits would be reduced if cash items in process of | ////////////////// | collection were included in the calculation of net reciprocal demand balances between | ////////////////// | the reporting bank and the domestic offices of U.S. banks and savings associations | ////////////////// | in Schedule RC-E ............................................................................ | A182 0 | 11.c. ____________________ Memoranda (to be completed each quarter except as noted) Dollar Amounts in Thousands | RCON Bil Mil Thou | _____________________________________________________________________ ___________________________|____________________| 1. Total deposits in domestic offices of the bank (sum of Memorandum it ems 1.a. (1) and | ////////////////// | 1.b.(1) must equal Schedule RC, item 13.a): | ////////////////// | a. Deposits accounts of $100,000 or less: | ////////////////// | (1) amount of deposit accounts of $100,000 or less ....................................... | 2702 19,755,631 | M.1.a.(1) (2) Number of deposit accounts of $100,000 or less (to be Number | ////////////////// | completed for the June report only) .............................|RCON 3779 3,742,107 | ////////////////// | M.1.a.(2) b. Deposit accounts of more than $100,000: | ////////////////// | (1) Amount of deposit accounts of more than $100,000 ..................................... | 2710 14,354,949 | M.1.b.(1) Number | ////////////////// | (2) Number of deposit accounts of more than $100,000 ................|RCON 2722 27,062 | ////////////////// | M.1.b.(2) 2. Estimated amount of uninsured deposits in domestic offices of the bank: a. An estimate of your bank's uninsured deposits can be determined by mutiplying the number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2) above by $100,000 and subtracting the result from the amount of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(1) above. Indicate in the appropriate box at the right whether your bank has a method or procedure for determining a better estimate of uninsured deposits than the ____________YES_______NO__ estimated described above .................................................................. | 6861| |///| x | M.2.a. ____________________ b. If the box marked YES has been checked, report the estimate of uninsured deposits |RCON Bil Mil Thou| determined by using your bank's method or procedure .................................... | 5597 N/A | M.2.b. _____________________________________________________________________________________________________________________________ | C477 | <- Person to whom questions about the Reports of Condition and Income should be directed: __________ PAMELA S. FLYNN, VICE PRESIDENT (401) 278-5194 ___________________________________________________________________________________ ______________________________________ Name and Title (TEXT 8901) Area code and phone number (TEXT 8902)
32 54 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-23 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-R--Regulatory Capital This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC, item 12, for June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets of less than $1 billion must complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below. ____________ | C480 | <- 1. Test for determining the extent to which Schedule RC-R must be completed. To be completed _____|__________| only by banks with total assets of less than $1 billion. Indicate in the appropriate | YES NO | box at the right whether the bank has total capital greater than or equal to eight percent___________ _______________ of adjusted total assets ............................................................... | RCFD 6056 | |////| | 1. _____________________________ For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions). If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked NO has been checked, the bank must complete the remainder of this schedule. A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight percent or that the bank is not in compliance with the risk-based capital guidelines.
___________________________________________ | (Column A) | (Column B) | |Subordinated Debt(1)| Other | _________________________________________________________________ | and Intermediate | Limited- | | NOTE: All banks are required to complete items 2 and 3 below | | Term Preferred | Life Capital | | See optional worksheet for items 3.a through 3.f. | | Stock | Instruments | |________________________________________________________________| ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ______________________________________________________________________________ ____________________ ____________________ 2. Subordinated debt(1) and other limited-life capital instruments (original | | | weighted average maturity of at least five years) with a remaining | | | maturity of: | | | a. One year or less ...................................................... | 3780 25,737 | 3786 0 | 2.a. b. Over one year through two years ....................................... | 3781 737 | 3787 0 | 2.b. c. Over two years through three years .................................... | 3782 10,745 | 3788 0 | 2.c. d. Over three years through four years ................................... | 3783 0 | 3789 0 | 2.d. e. Over four years through five years .................................... | 3784 0 | 3790 0 | 2.e. f. Over five years ....................................................... | 3785 1,101,000 | 3791 0 | 2.f. 3. Amounts used in calculating regulatory capital ratios (report amounts | ////////////////// | ////////////////// | determined by the bank for its own internal regulatory capital analyses): | ////////////////// | RCFD Bil Mil Thou | a. Tier 1 capital......................................................... | ////////////////// | 8274 3,590,367 | 3.a. b. Tier 2 capital......................................................... | ////////////////// | 8275 1,755,646 | 3.b. c. Total risk-based capital............................................... | ////////////////// | 3792 5,346,013 | 3.c. d. Excess allowance for loan and lease losses............................. | ////////////////// | A222 297,250 | 3.d. e. Risk-weighted assets................................................... | ////////////////// | A223 45,718,856 | 3.e. f. "Average total assets"................................................. | ////////////////// | A224 51,482,775 | 3.f. ___________________________________________ | (Column A) | (Column B) | Items 4-9 and Memoranda items 1 and 2 are to be completed | Assets | Credit Equiv- | by banks that answered NO to item 1 above and | Recorded | alent Amount | by banks with total assets of $1 billion or more. | on the | of Off-Balance | | Balance Sheet | Sheet Items(2) | ____________________ ____________________ | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ____________________ ____________________ 4. Assets and credit equivalent amounts of off-balance sheet items assigned | | | to the Zero percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// | (1) Securities issued by, other claims on, and claims unconditionally | ////////////////// | ////////////////// | guaranteed by, the U.S. Government and its agencies and other | ////////////////// | ////////////////// | OECD central governments .......................................... | 3794 2,147,648 | ////////////////// | 4.a.(1) (2) All other ......................................................... | 3795 1,115,265 | ////////////////// | 4.a.(2) b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3796 101,488 | 4.b. ___________________________________________
_____ (1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7. (2) Do not report in column B the risk-weighted amount of assets reported in column A. 33 55 Legal Title of Bank: FLEET NATIONAL BANK Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 Address: ONE MONARCH PLACE Page RC-24 City, State Zip: SPRINGFIELD, MA 01102 FDIC Certificate No.: |0|2|4|9|9| ___________
Schedule RC-R--Continued ___________________________________________ | (Column A) | (Column B) | | Assets | Credit Equiv- | | Recorded | alent Amount | | on the | of Off-Balance | | Balance Sheet | Sheet Items(1) | ____________________ ____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ______________________________________________________________________________ ____________________ ____________________ 5. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 20 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// | (1) Claims conditionally guaranteed by the U.S. Government and its | ////////////////// | ////////////////// | agencies and other OECD central governments ....................... | 3798 714,375 | ////////////////// | 5.a.(1) (2) Claims collateralized by securities issued by the U.S. Govern- | ////////////////// | ////////////////// | ment and its agencies and other OECD central governments; by | ////////////////// | ////////////////// | securities issued by U.S. Government-sponsored agencies; and | ////////////////// | ////////////////// | by cash on deposit ................................................ | 3799 0 | ////////////////// | 5.a.(2) (3) All other ......................................................... | 3800 8,774,345 | ////////////////// | 5.a.(3) b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3801 791,065 | 5.b. 6. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 50 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet .................................. | 3802 5,265,173 | ////////////////// | 6.a. b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3803 409,680 | 6.b. 7. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 100 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet .................................. | 3804 31,799,547 | ////////////////// | 7.a. b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3805 10,122,631 | 7.b. 8. On-balance sheet asset values excluded from the calculation of the | ////////////////// | ////////////////// | risk-based capital ratio(2) .............................................. | 3806 83,713 | ////////////////// | 8. 9. Total assets recorded on the balance sheet (sum of | ////////////////// | ////////////////// | items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, | ////////////////// | ////////////////// | item 12 plus items 4.b and 4.c) .......................................... | 3807 49,900,066 | ////////////////// | 9. ___________________________________________ Memoranda ______________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | __________________________________________________________________________________________________ ____________________ 1.Current credit exposure across all off-balance sheet derivative contracts covered by the | ///////////////// | risked-based capital standards .................................................................| 8764 135,825| M.1. |___________________| _____________________________________________________________________ | With a remaining maturity of | |____________________________________________________________________| | (Column A) | (Column B) | (Column C) | | | | | | One year or less | Over one year | Over five years | | | through five years | | |______________________|______________________|______________________| |RCFD Tril Bil Mil Thou|RCFD Tril Bil Mil Thou|RCFD Tril Bil Mil Thou| |______________________|______________________|______________________| 2. Notional principal amounts of | | | | off-balance sheet derivative contracts(3):| | | | a. Interest rate contracts ................. | 3809 8,320,956 | 8766 18,597,686 | 8767 801,055 | M.2.a. b. Foreign exchange contracts .............. | 3812 1,578,420 | 8769 101,907 | 8770 0 | M.2.b. c. Gold contracts .......................... | 8771 15,291 | 8772 0 | 8773 0 | M.2.c. d. Other precious metals contracts ......... | 8774 8,748 | 8775 0 | 8776 0 | M.2.d. e. Other commodity contracts ............... | 8777 0 | 8778 0 | 8779 0 | M.2.e. f. Equity derivative contracts ............. | A000 0 | A001 0 | A002 0 | M.2.f. |____________________________________________________________________|
_________________ 1) Do not report in column B the risk-weighted amount of assets reported in column A. 2) Include the difference between the fair value and the amortized cost of available-for-sale securities in item 8 and report the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g., futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables as well as any portion of the allowance for loan and lease losses in excess of the amount that may be included in Tier 2 capital. 3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts. 34 56 Legal Title of Bank: FLEET NATIONAL BANK Address: ONE MONARCH PLACE Call Date: 06/30/96 ST-BK: 25-0590 FFIEC 031 City, State, Zip: SPRINGFIELD, MA 01102 Page RC-25 FDIC Certificate No.: 02499
Optional Narrative Statement Concerning the Amounts Reported in the Reports of Condition and Income at close of business on June 30, 1996 FLEET NATIONAL BANK SPRINGFIELD , MASSACHUSETTS - ------------------- ----------------- ------------- Legal Title of Bank City State The management of the reporting bank may, if it wishes, submit a brief narrative statement on the amounts reported in the Reports of Condition and Income. This optional statement will be made available to the public, along with the publicly available data in the Reports of Condition and Income, in response to any request for individual bank report data. However, the information reported in column A and in all of Memorandum item 1 of Schedule RC-N is regarded as confidential and will not be released to the public. BANKS CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing not to make a statement may check the "No comment" box below and should make no entries of any kind in the space provided for the narrative statement; i.e., DO NOT enter in this space such phrases as "No statement," "Not applicable," "N/A," "No comment," and "None." The optional statement must be entered on this sheet. The statement should not exceed 100 words. Further, regardless of the number of words, the statement must not exceed 750 characters, including punctuation, indentation, and standard spacing between words and sentences. If any submission should exceed 750 characters, as defined, it will be truncated at 750 characters with no notice to the submitting bank and the truncated statement will appear as the bank's statement both on agency computerized records and in computer-file releases to the public. All information furnished by the bank in the narrative statement must be accurate and not misleading. Appropriate efforts shall be taken by the submitting bank to ensure the statement's accuracy. The statement must be signed, in the space provided below, by a senior officer of the bank who thereby attests to its accuracy. If, subsequent to the original submission, material changes are submitted for the data reported in the Reports of Condition and Income, the existing narrative statement will be deleted from the files, and from disclosure; the bank, at its option, may replace it with a statement, under signature, appropriate to the amended data. The optional narrative statement will appear in agency records and in release to the public exactly as submitted (or amended as described in the preceding paragraph) by the management of the bank (except for the truncation of statements exceeding the 750-character limit described above). THE STATEMENT WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE REPORTING BANK. __________________________________________________________________________ No comment |X| (RCON 6979) | c471 | C472 |<- BANK MANAGEMENT STATEMENT (please type or print clearly): (TEXT 6980) /s/__Gero DeRosa_______________________________ ___7/25/96________ Signature of Executive Officer of Bank Date of Signature 35 -----END PRIVACY-ENHANCED MESSAGE-----