Document:

EX-10.1

Exhibit 10.1

Amendment No. 4

to

Second Amended and Restated Loan Agreement

Among

Certain Lenders,

HSBC Bank USA, National Association, As Administrative Agent

And

MOOG INC.

     This Amendment No. 4 dated as of June 26, 2009 (“Amendment”) to the Second Amended and
Restated Loan Agreement dated as of October 25, 2006, as amended by Amendment No. 1, Amendment No.
2 and Amendment No. 3 thereto dated as of March 30, 2007, as of July 27, 2007 and as of March 14,
2008, respectively (collectively, the “Agreement”) is entered into by and among MOOG INC., a New
York business corporation (“Borrower”), certain lenders which are currently parties to the
Agreement (“Lenders”), and HSBC BANK USA, NATIONAL ASSOCIATION, a bank organized under the laws of
the United States of America, as administrative agent for the Lenders (“Administrative Agent”).

RECITALS

     A. Borrower has requested, and Administrative Agent and the Lenders have agreed to make
certain modifications to the Agreement, including but not limited to, revising the definitions of
Alternate Base Rate and Consolidated EBITDA, modifying the matrix used to determine the Applicable
Margin and the Applicable Commitment Fee Rate, changing certain of the Financial Covenants and
establishing a new financial covenant, changing the current restrictions on subordinate
Indebtedness, designating foreign exchange contracts that will benefit from the Collateral and the
Guaranty, and making certain other clarifying modifications, all as set forth in this Amendment.

     B. The Borrower and each of the Guarantors will benefit from the modifications set forth
herein.

     C. The Administrative Agent and the Lenders are agreeable to the foregoing to the extent set
forth in this Amendment and subject to each of the terms and conditions stated herein.

     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants set forth herein,
and of the loans or other extensions of credit heretofore, now or hereafter made by

 

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the Lenders, to, or for the benefit of the Borrower and its Subsidiaries, the parties hereto
agree as follows:

     1. Definitions. Except to the extent otherwise specified herein, capitalized terms
used in this Amendment shall have the same meanings specified in the Agreement.

     2. Modifications to the Agreement.

          (a) The matrix set forth in the existing definition of “Applicable Commitment Fee Rate” set
forth in Section 1.1 is deleted and the following new matrix is added in its place:

	 	 	 	 	 
	Level	 	Leverage Ratio	 	Commitment Fee
	1
	 	Greater than 3.50 to 1.0	 	50 bps
	2
	 	> 3.25 to 1.0 but ≤ 3.50 to 1.0	 	35 bps
	3
	 	> 2.75 to 1.0 but ≤ 3.25 to 1.0	 	35 bps
	4
	 	> 2.25 to 1.0 but ≤ 2.75 to 1.0	 	30 bps
	5
	 	> 1.75 to 1.0 but ≤ 2.25 to 1.0	 	25 bps
	6
	 	> 1.25 to 1.0 but ≤ 1.75 to 1.0	 	20 bps
	7
	 	≤ 1.25 to 1.0	 	20 bps

          (b) The matrix set forth in the existing definition of “Applicable Margin” set forth in
Section 1.1 is deleted and the following new matrix is added in its place:

	 	 	 	 	 	 	 
	Level	 	Leverage Ratio	 	ABR Option	 	Libor Rate Option
	1
	 	Greater than 3.50 to 1.0	 	200 bps	 	300 bps
	2
	 	> 3.25 to 1.0 but ≤ 3.50 to 1.0	 	150 bps	 	250 bps
	3
	 	> 2.75 to 1.0 but ≤ 3.25 to 1.0	 	125 bps	 	225 bps
	4
	 	> 2.25 to 1.0 but ≤ 2.75 to 1.0	 	100 bps	 	200 bps
	5
	 	> 1.75 to 1.0 but ≤ 2.25 to 1.0	 	75 bps	 	175 bps
	6
	 	> 1.25 to 1.0 but ≤ 1.75 to 1.0	 	50 bps	 	150 bps
	7
	 	≤ 1.25 to 1.0	 	0%	 	100 bps

 

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          (c) The existing definitions of “ABR” or “Alternate Base Rate”, “Consolidated EBITDA”
“Designated Hedge Agreement” and “Hedge Agreement” set forth in Section 1.1 are deleted and the
following new definitions are added in their place:

	 	 	 	“ABR” or “Alternate Base Rate” — for any day, a rate
per annum (rounded upwards, if necessary, to the next 1/16 of
1%) equal to the greatest of (i) the Prime Rate, (ii) the
Federal Funds Effective Rate from time to time in effect plus
0.5%, or (iii) the 30-Day Libor Rate on such day (or if such
day is not a Business Day, the immediately preceding Business
Day) plus 1.00%. Any change in the Alternate Base Rate due to
a change in the Prime Rate, the Federal Funds Effective Rate or
the 30-Day Libor Rate shall be effective from and including the
effective date of such change in the Prime Rate, the Federal
Funds Effective Rate or the 30-Day Libor Rate, respectively.
	 
	 	 	 	“Consolidated EBITDA” — for any period, an amount equal to
(i) the sum of the amounts for such period of (A) Consolidated
Net Income, (B) Consolidated Interest Expense, (C) provisions
for taxes based on income, (D) total depreciation expense, (E)
total amortization expense, (F) other non-cash items reducing
Consolidated Net Income and (G) non-cash stock related expenses
minus (ii) other non-cash items increasing Consolidated Net
Income for such period plus (iii) any restructuring charges
incurred in calendar year 2009 not to exceed $17,000,000, to
the extent deducted in computing Consolidated Net Income.
Notwithstanding anything to the contrary in this definition,
for purposes of computing the Leverage Ratio, Net Senior Debt
Ratio and the Interest Coverage Ratio hereunder, or in
connection with any pro-forma calculation required by this
Agreement, the term “Consolidated EBITDA” shall be computed, on
a consistent basis, to reflect purchases and acquisitions by
Permitted Acquisition or otherwise made by Borrower and the
Subsidiaries during the relevant period as if they occurred at
the beginning of such period, and Borrower, during the twelve
(12) month period following the date of any such acquisition
may include in the calculation hereof the necessary portion of
the adjusted historical results of the entities acquired in
acquisitions that were achieved prior to the applicable date of
the acquisition for such time period as is necessary for
Borrower to have figures on a trailing four fiscal quarter
basis from the date of determination with respect to such
acquired entities.
	 
	 	 	 	“Designated Hedge Agreement” — any Hedge Agreement to which
Borrower or any of its Subsidiaries is a party and as to which a
Lender is a counterparty, so that such Lender, to the extent of
such Lender’s credit exposure under such Hedge

 

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	 	 	 	Agreement, will be entitled to share in the benefits of any
Guaranty and the Security Documents to the extent any such Guaranty
and Security Documents include obligations under Designated Hedge
Agreements in the obligations secured or guarantied thereby.

	 	 	 	“Hedge Agreement” — an interest rate swap, cap or collar
agreement, or any arrangement similar to any of the foregoing
between Borrower and any Lender relating to any Indebtedness under
this Agreement, each as providing for the transfer or mitigation of
interest rate risk either generally or under specific
contingencies, or any foreign currency exchange agreement or
similar arrangement between Borrower or any of its Subsidiaries and
any Lender, each as providing for the transfer or mitigation of
foreign currency risk either generally or under specific
contingencies.

          (d) In Section 1.1 entitled “Definitions”, the following new definitions are added in the
appropriate alphabetical locations:

	 	 	 	“30-Day LIBOR Rate” — the reserve adjusted rate of interest
per annum determined by the Administrative Agent to be
applicable to a 30-day interest period appearing on Reuters
Screen LIBOR01 Page or such other substitute page that displays
such rate or another alternate source selected by the
Administrative Agent to determine such rate in an amount
approximately equal to the amount of the applicable ABR Loan.

	 	 	 	“Amendment No. 4” — the Amendment No. 4 dated as of June 26,
2009 by and among Borrower, the Administrative Agent and the
Lenders, amending this Agreement.
	 
	 	 	 	“Consolidated Net Senior Debt” — as of any date of
determination, Indebtedness (other than Subordinated
Indebtedness) of the Borrower and all Subsidiaries (determined
on a Consolidated Basis without duplication in accordance with
GAAP) less aggregate net cash balances of Borrower and
all Subsidiaries.
	 
	 	 	 	“Net Senior Debt Ratio” — as of any date of determination,
the ratio of (i) Consolidated Net Senior Debt as of the last
day of the fiscal quarter of Borrower ending on the date of
determination, to (ii) Consolidated EBITDA for the four
consecutive fiscal quarters then ended.
	 
	 	 	 	“Subordinated Indebtedness” — at a particular date, without
duplication, any Indebtedness for which the Borrower or any

 

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	 	 	 	Subsidiary is directly and primarily liable that is expressly
subordinated in right of payment to the payment of all Indebtedness
of the Borrower incurred under and in compliance with the terms of
the Credit Agreement and the Loan Documents on a basis
substantially equivalent to the subordination under the Current
Indentures (as defined in section 7.1(f) hereof).

          (e) Section 5.2(c) entitled “Reporting Requirements” is revised to replace the existing period
at the end thereof with a comma, and to add “and 6.5” at the end of such subsection.

          (f) Section 6.3 entitled “Leverage Ratio” is deleted and the following is added in its place:

	 	 	 	“6.3 Leverage Ratio. Assure that
as of the end of each fiscal quarter of Borrower ending after
the date of Amendment No. 4, the Leverage Ratio does not
exceed 4.0 to 1.0.”

          (g) A new Section 6.5 entitled “Net Senior Debt Ratio” is added as follows:

	 	 	 	“6.5 Net Senior Debt Ratio. Assure
that as of the end of each fiscal quarter of Borrower ending
after the date of Amendment No. 4, the Net Senior Debt Ratio
does not exceed 2.75 to 1.0.”

          (h) The existing Section 7.1(e) entitled “Other Indebtedness” is deleted and replaced with
the following:

	 	 	 	“(e) Other Indebtedness. Other secured or unsecured Indebtedness of
the Borrower and its Subsidiaries to the extent not permitted by any of the
foregoing clauses and clause (f) below, provided that (i) no Default or
Event of Default shall then exist or immediately after incurring any of such
Indebtedness will exist, (ii) the Borrower and any Subsidiary shall be in
compliance with the financial covenants set forth in Sections 6.1, 6.2, 6.3
and 6.5 both immediately before and after giving pro forma effect to the
incurrence of such Indebtedness, and (iii) the aggregate principal amount of
all such other Indebtedness outstanding at any time shall not exceed
$100,000,000; and provided further, that the aggregate principal amount of
all such other Indebtedness outstanding at any time which is secured
Indebtedness shall not exceed $75,000,000.”

          (i) In Section 7.1 entitled “Indebtedness”, a new Subsection (f) is added as follows:

	 	 	 	“(f) Additional Subordinated Indebtedness. Unsecured
Subordinated Indebtedness (in addition to the Indebtedness under
the Subordinated Indenture and the Second Subordinated

 

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	 	 	 	Indenture (collectively, the “Current Indentures”)) on terms and
conditions not materially more restrictive than under the Current
Indentures or otherwise acceptable to the Administrative Agent and
provided that (i) no Default or Event of Default is then in
existence or would be caused by the issuance of such additional
Subordinated Indebtedness, (ii) no principal payments under such
additional Subordinated Indebtedness shall be due prior to six
months after the scheduled maturity date of the Notes and (iii) in
the indenture or other document pursuant to which the additional
Subordinated Indebtedness is issued, all Indebtedness under and in
compliance with the terms of this Agreement is denominated and
defined as “Senior Debt” and “Designated Senior Debt” as in the
Current Indentures (or terms similar thereto and approved by the
Administrative Agent).”

          (j) In Section 7.3 entitled “Investments and Guaranty Obligations”, a new clause (iv) is added
to subsection (c) as follows:

	 	 	 	“or (iv) of a Foreign Subsidiary (which is not a Guarantor) or a
Non-Material Subsidiary (which is not a Guarantor) in any other
Foreign Subsidiary or Non-Material Subsidiary, made in the ordinary
course of business”

          (k) In Section 7.3 entitled “Investments and Guaranty Obligations”, the following provision is
added at the end of subsection (e) thereof,

	 	 	 	“provided, however, Investments made by the Borrower or any
Subsidiary in a Subsidiary for the sole purpose of funding the
consideration for a Permitted Acquisition, whether in one or more
series of related transactions, shall not be considered Investments
for the purposes of calculating such amount, but rather shall be
included in the calculation of the amount of total consideration
for such Permitted Acquisition under Section 7.8(c) (iv) hereof.”

          (l) In Section 7.4 entitled “Restricted Payments”, the following clause (iii) is added to
subsection (b) as follows:

	 	 	 	“or (iii) any Non-Material Subsidiary may declare and pay or make
Restricted Payments to any other Non-Material Subsidiary.”

          (m) In Section 7.4 entitled “Restricted Payments”, the existing subsection (d)(ii) is deleted
and replaced with the following:

	 	 	 	"(ii) the Borrower will be in compliance with the financial covenants set
forth in Sections 6.1, 6.2, 6.3, 6.4 and 6.5 after giving pro forma effect
to each such cash dividend and stock repurchase.”

 

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          (n) In Section 7.5 entitled “Limitation on Certain Restrictive Agreements”, the following
phrase is added at the end of clause (ix) thereof:

	 	 	 	“restrictions contained in any indenture or other document
pursuant to which any additional Subordinated Indebtedness
permitted under Section 7.1(f) is issued, and”

          (o) In Section 7.8 entitled “Consolidation, Merger, Acquisitions, Asset Sales, etc.”,
subsection (c) is revised to delete the existing clause (i)(B) thereof and add the following in its
place:

	 	 	 	"(B) immediately prior to contracting for or consummating such acquisition,
Borrower is in compliance with Sections 6.1, 6.2, 6.3 and 6.5 of this
Agreement (collectively, the “Financial Covenants”) and Borrower can
demonstrate based on pro-forma projections that Borrower will be in
compliance with the Financial Covenants upon and after consummation of such
acquisition,”

          (p) In Section 8.1 entitled “Events of Default”, the existing subsection (n) is deleted and
the following is added in its place:

	 	 	 	"(n) Second Subordinated Indenture and Other Subordinated
Indebtedness. If any event of default shall occur under the
Second Subordinated Indenture or any agreement evidencing any other
Subordinated Indebtedness, or any Indebtedness under this Agreement
shall fail to be senior to any Indebtedness under the Second
Subordinated Indenture or any other Subordinated Indebtedness.”

          (q) In Section 8.4 entitled “Application of Certain Payments and Proceeds”, the
following provision is added at the end thereof:

	 	 	 	“Notwithstanding the foregoing, Designated Hedge Agreements shall
be excluded from the application above if the Administrative Agent
has not received written notice thereof from the applicable Lender
prior to any such application of payments and amounts.”

          (r) The existing Exhibit E (form of Compliance Certificate) is deleted and replaced by
Exhibit E to this Amendment.

     3. Reaffirmations.

          3.1 Reaffirmation of Borrower. The Borrower has executed and delivered the Amended
and Restated General Security Agreement dated as of October 25, 2006 as amended, in favor of
Administrative Agent (“Borrower GSA”). Borrower hereby reaffirms, ratifies and confirms the
execution and delivery and all of the terms and provisions of the Borrower GSA, and agrees that the
Borrower GSA remains in full force and effect, is a legal,

 

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valid and binding obligation of Borrower and that the obligations secured thereunder include,
without limitation, all Indebtedness under the Agreement including, without limitation, Designated
Hedge Agreements, as such term has been modified by this Amendment.

          3.2 Reaffirmation of Guarantors. The Guarantors a party hereto have executed and
delivered the Amended and Restated General Security Agreement dated as of October 25, 2006, as
amended and supplemented, in favor of the Administrative Agent (“Guarantor GSA”) and the Amended
and Restated Continuing, Absolute and Unconditional Guaranty dated as of October 25, 2006, as
amended and supplemented, in favor of the Administrative Agent (the “Guaranty”). By their
signatures hereto, each Guarantor hereby reaffirms, ratifies and confirms the execution and
delivery and all of the terms and provisions of, as applicable, the Guarantor GSA and the Guaranty,
and agrees that the Guarantor GSA and the Guaranty remain in full force and effect, are legal,
valid and binding obligations of such Guarantor and that any guaranty, pledge or grant of security
contained therein extends to, and guaranties or provides security for, any and all Indebtedness
under the Agreement including, without limitation, Designated Hedge Agreements, as such term has
been modified by this Amendment.

     4. Limitation on Modifications. The foregoing modifications are only applicable and
shall only be effective in the specific instance and for the specific purpose for which made, are
expressly limited to the facts and circumstances referred to herein, and shall not operate as (i) a
waiver of, or consent to non-compliance with any other provision of the Agreement or any other Loan
Document, (ii) a waiver or modification of any right, power or remedy of either the Administrative
Agent or any Lender under the Agreement or any Loan Document, or (iii) a waiver or modification of,
or consent to, any Event of Default or Default under the Agreement or any Loan Document.

     5. Conditions Precedent. The effectiveness of each and all of the modifications
contained in this Amendment is subject to the satisfaction, in form and substance satisfactory to
the Administrative Agent, of each of the following conditions precedent:

          5.1 Documentation. The parties hereto shall have duly executed and delivered to the
Administrative Agent seventeen (17) duplicate original signature pages to this Amendment.

          5.2 No Default. As of the effective date of this Amendment, no Default or Event of
Default shall have occurred and be continuing.

          5.3 Representations and Warranties. The representation and warranties contained in
Section 6 hereof and in the Agreement shall be true correct and complete as of the effective date
of this Amendment as though made on such date, unless they specifically speak as of another date.

          5.4 Fees. Payment by the Borrower to each Lender which timely consents to, and
executes and delivers its signature pages to, this Amendment of an amendment fee equal to 10 basis
points on such Lender’s Commitment, and the payment by the Borrower to the Administrative Agent of
any fees and expenses of the Administrative Agent in connection

 

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          herewith as provided herein or in any other agreement between the Borrower and Administrative
Agent.

          5.5 Other. The Administrative Agent shall have received such other approvals or
documents as any Lender through the Administrative Agent may reasonably request, and all legal
matters incident to the foregoing shall be satisfactory to the Administrative Agent and its
counsel.

     6. Representations and Warranties of Borrower. The Borrower hereby represents and
warrants as follows:

          6.1 Each of the representations and warranties set forth in the Agreement is true, correct,
and complete on and as of the date hereof as though made on the date hereof, unless they
specifically speak as of another date, and the Agreement, as modified by this Amendment, and each
of the other Loan Documents remains in full force and effect.

          6.2 As of the date hereof, there exists and will exist no Default or Event of Default under
the Agreement or any other Loan Document, and no event which, with the giving of notice or lapse of
time, or both, would constitute a Default or Event of Default.

          6.3 The execution, delivery and performance by the Borrower of this Amendment is within the
Borrower’s corporate powers, have been duly authorized by all necessary corporate action, and do
not, and will not, (i) contravene the Borrower’s certificate of incorporation or by-laws, (ii)
violate any law, including without limitation the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or any rule, regulation (including Regulations T, U or
X of the Board of Governors of the Federal Reserve System) order, writ, judgment, injunction,
decree, determination or award, and (iii) conflict with or result in the breach of, or constitute a
default under, any material contract, loan agreement, mortgage, deed of trust or any other material
instrument or agreement binding on the Borrower or any Subsidiary or any of their properties or
result in or require the creation or imposition of any lien upon or with respect to any of their
properties.

          6.4 This Amendment has been duly executed and delivered by the Borrower and the Guarantors and
is the legal, valid and binding obligation of each of them, enforceable against the Borrower and
each of the Guarantors in accordance with its terms.

          6.5 No authorization or approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body or any other third party is required for (i) the due
execution, delivery or performance by the Borrower and the Guarantors of this Amendment or any
other agreement or document related hereto or contemplated hereby to which the Borrower or any of
the Guarantors is or is to be a party or otherwise bound, or (ii) the exercise by the
Administrative Agent or any Lender of its rights under the Agreement as modified by this Amendment.
The Agreement, as modified by this Amendment, constitutes the “Credit Agreement” under the
Subordinated Indenture and the Second Subordinated Indenture.

 

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     7. Other.

          7.1 The Borrower agrees to pay all out-of-pocket expenses of the Administrative Agent in
connection with the negotiation, preparation and execution of this Amendment including the
reasonable fees and disbursements of counsel to the Administrative Agent.

          7.2 This Amendment may be executed in any number of counterparts and by the parties hereto on
separate counterparts, each of which when so executed and delivered shall be an original, but all
such counterparts shall together constitute one and the same agreement.

          7.3 This Amendment shall be governed by and construed under the internal laws of the State of
New York, as the same may be from time to time in effect, without regard to principles of conflicts
of laws.

[Signature Pages Follow]

 

 

     The parties hereto have caused this Amendment to be duly executed as of the date shown at the
beginning of this Amendment.

	 	 	 	 	 
	 	HSBC BANK USA, NATIONAL

ASSOCIATION, as a Lender, the

Swingline Lender and an Issuing Bank

 	 
	 	By:  	 	 
	 	 	Name:  	Robert J. McArdle 	 
	 	 	Title:  	First Vice President 	 
	 

	 	 	 	 	 
	 	HSBC BANK USA, NATIONAL

ASSOCIATION, as Administrative Agent

 	 
	 	By:  	 	 
	 	 	Name:  	Robert J. McArdle 	 
	 	 	Title:  	First Vice President 	 
	 

	 	 	 	 	 
	 	MANUFACTURERS AND TRADERS TRUST 

COMPANY, as Syndication Agent and as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	Mark E. Hoffman 	 
	 	 	Title:  	Vice President 	 
	 

	 	 	 	 	 
	 	BANK OF AMERICA, N.A.,

as Co-Documentation Agent and as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	Thomas C. Lillis 	 
	 	 	Title:  	Senior Vice President 	 
	 

	 	 	 	 	 
	 	JPMORGAN CHASE BANK, N.A.,

as Co-Documentation Agent and as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	Michael E. Wolfram 	 
	 	 	Title:  	Vice President 	 
	 

Signature Page to Amendment No. 4 to Moog Second Amended and Restated Loan Agreement

 

 

	 	 	 	 	 
	 	CITIZENS BANK OF PENNSYLVANIA,

as a Lender and as an Issuing Bank

 	 
	 	By:  	 	 
	 	 	Name:  	Edward J. Kloecker Jr. 	 
	 	 	Title:  	Senior Vice President 	 
	 

	 	 	 	 	 
	 	BANK OF TOKYO-MITSUBISHI UFJ

TRUST COMPANY, as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	Maria Iarriccio 	 
	 	 	Title:  	Vice President 	 
	 

	 	 	 	 	 
	 	SOCIETE GENERALE, as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	Milissa Goeden 	 
	 	 	Title:  	Director 	 
	 

	 	 	 	 	 
	 	WELLS FARGO BANK, N.A., as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	Thomas J. Grys 	 
	 	 	Title:  	Vice President 	 
	 

	 	 	 	 	 
	 	PNC BANK, NATIONAL ASSOCIATION,

as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	Wallace G. Clements 	 
	 	 	Title:  	Vice President 	 
	 

Signature Page to Amendment No. 4 to Moog Second Amended and Restated Loan Agreement

 

 

	 	 	 	 	 
	 	COMERICA BANK, as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	Mark Skrzwnski 	 
	 	 	Title:  	Commercial Banking Officer 	 
	 

	 	 	 	 	 
	 	NATIONAL CITY BANK, as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	Susan J. Dimmick 	 
	 	 	Title:  	Senior Vice President 	 
	 

	 	 	 	 	 
	 	FIFTH THIRD BANK, as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	Jim Janovsky 	 
	 	 	Title:  	Vice President 	 
	 

	 	 	 	 	 
	 	NORTHERN TRUST, as a Lender

 	 
	 	By:  	 	 
	 	 	Name:  	Ashish S. Bhagwat 	 
	 	 	Title:  	Vice President 	 
	 

	 	 	 	 	 
	 	FIRST NIAGARA BANK

 	 
	 	By:  	 	 
	 	 	Name:  	Penny S. Hokanson 	 
	 	 	Title:  	Vice President 	 
	 

Signature Page to Amendment No. 4 to Moog Second Amended and Restated Loan Agreement

 

 

	 	 	 	 	 
	 	MOOG INC., as the Borrower

 	 
	 	By:  	
 	 
	 	 	Name:  	Timothy P. Balkin 	 
	 	 	Title:  	Treasurer 	 
	 

	 	 	 	 	 
	 	Each of the following as Guarantors:

FLO-TORK, INC.

CURLIN MEDICAL INC.

MOOG EUROPE HOLDINGS I LLC

MOOG EUROPE HOLDINGS II LLC

ZEVEX, INC.

VIDEOLARM, INC.

QUICKSET INTERNATIONAL, INC.

CSA ENGINEERING, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	Timothy P. Balkin 	 
	 	 	Title:  	Treasurer 	 
	 

Signature Page to Amendment No. 4 to Moog Second Amended and Restated Loan Agreement

 

EXHIBIT E

COMPLIANCE CERTIFICATE

     The undersigned hereby certifies to the Administrative Agent and the Lenders, in accordance
with the terms of a Second Amended and Restated Loan Agreement, dated as of October 25, 2006, among
Moog Inc., HSBC Bank USA, National Association as Administrative Agent, for itself, the Lenders and
other lending institutions and issuing banks now or hereafter parties thereto, as the same may have
been and may hereafter be, amended, supplemented, renewed, restated, replaced or otherwise modified
from time to time (“Agreement”), that:

A. General

     1. Capitalized terms not defined herein shall have the meanings set forth in the Agreement.

     2. Borrower has complied in all material respects with all the terms, covenants and conditions
to be performed or observed by it contained in the Agreement and the Loan Documents, there exists
no Event of Default or Default under the Agreement and there exists no Material Adverse Effect.

     3. The representations and warranties contained in the Agreement, in any Loan Document to
which the Borrower is a party and in any certificate, document or financial or other statement
furnished at any time thereunder are true, correct and complete in all material respects with the
same effect as though such representations and warranties had been made on the date hereof, except
to the extent that any such representation and warranty relates solely to an earlier date (in which
case such representation and warranty shall be true, correct and complete on and as of such earlier
date).

     4. The Indebtedness outstanding under the Agreement constitutes Senior Debt and Designated
Senior Debt under, and as defined in, the Subordinated Indenture and the Second Subordinated
Indenture (collectively, the “Current Indentures”), and the Agreement constitutes the “Credit
Agreement” thereunder.

     5. If this Compliance Certificate is being executed and delivered by the undersigned upon or
following the effectiveness of any subordinated indenture entered into by Borrower or any
Subsidiary after the date of Amendment No. 4, the Indebtedness outstanding under the Agreement
constitutes Senior Debt and Designated Senior Debt under, and as defined in, such subordinated
indenture, and the Agreement constitutes the “Credit Agreement” thereunder (or if any such terms
are not so defined in such subordinated indenture, such outstanding Indebtedness shall have a
status under such subordinated indenture substantially equivalent to the status applicable to such
terms under the Current Indentures.

 

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B. Financial Covenants

     1. As of the date hereof or, for such period as may be designated below, the computations,
ratios and calculations asset forth below, are true and correct:

	 	 	 	 	 	 	 
	 

	 	(a)
	 	Covenant 6.1. Minimum Consolidated Net Worth

as of ______, 20___:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Required Amount
	 	$600.0 Million

	 	 	 	 	 	 	 	 	 
	 	 	(b)	 	Covenant 6.2. Interest Coverage Ratio.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	(i)
	 	Consolidated EBITDA
	 	$______
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	(ii)
	 	Consolidated Capital Interest Expense
	 	$______
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	(iii)
	 	Ratio of (i) to (ii)
	 	______to 1.0
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Required Ratio
	 	 3.0 to 1.0
	 
	 	 	 	 	 	 	 	 
	 	 	(c)	 	Covenant 6.3. Leverage Ratio.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	(i)
	 	Consolidated Net Debt
	 	$______
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	(ii)
	 	Consolidated EBITDA
	 	$______
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	(iii)
	 	Ratio of (i) to (ii)
	 	______to 1.0
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Required Ratio
	 	 4.0 to 1.0
	 
	 	 	 	 	 	 	 	 
	 	 	(d)	 	Covenant 6.4. Consolidated Capital Expenditures.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Consolidated Capital Expenditures
	 	$______
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Required Amount
	 	 $100.0
	 
	 	 	 	 	 	 	 	 
	 	 	(e)	 	Covenant 6.5. Net Senior Debt Ratio	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	(i)
	 	Consolidated Net Senior Debt
	 	$______
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	(ii)
	 	Consolidated EBITDA
	 	$______
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	(iii)
	 	Ratio of (i) to (ii)
	 	______to 1.0
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Required Ratio
	 	 2.75 to 1.0

 

-3-

     IN WITNESS WHEREOF, the undersigned, a Responsible Officer of the Borrower, has executed and
delivered this certificate on behalf of the Borrower on ______, 20___.

	 	 	 	 	 
	 	MOOG INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 
	 	 	Title:exv4w7

Exhibit 4.7

SUPPLEMENTAL UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DIFFERENCES AND DISCLOSURES

As at December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006

In millions of Canadian dollars, except per share data

This supplemental information should be read in conjunction with the audited annual consolidated
financial statements of Canadian Pacific Railway Limited (“CP” or “the Company”) as at December 31,
2008 and 2007 and for each of the years in the three year period ended December 31, 2008. Material
measurement differences between generally accepted accounting principles (“GAAP”) in Canada and the
U.S. are described in Note 28 to the Company’s December 31, 2008 audited consolidated financial
statements. Presentation of the following additional differences and disclosures required under
U.S. GAAP and Regulation S-X of the United States Securities and Exchange Commission (“Regulation
S-X”) as specified in Item 18 of Form 20-F are as follows:

Short-term borrowings

The weighted average interest rate on short term borrowings for each of the years ended December
31, 2008, 2007 and 2006 are as follows:

	 	 	 	 	 
	Year	 	Weighted Average Interest Rate
	 
	2008
	 	 	3.85	%
	2007
	 	 	5.56	%
	2006
	 	 	5.16	%
	 

Accounts payable and accrued liabilities

As at December 31, 2008 and 2007, accounts payable and accrued liabilities consisted of the
following amounts:

	 	 	 	 	 	 	 	 	 
	In millions of Canadian dollars	 	2008	 	 	2007	 
	 
	Trade payables
	 	$	289.5	 	 	$	255.8	 
	Payroll-related accruals
	 	 	96.1	 	 	 	137.0	 
	Accrued vacation
	 	 	92.5	 	 	 	83.4	 
	Accrued charges
	 	 	288.1	 	 	 	252.2	 
	Accrued interest
	 	 	76.0	 	 	 	61.5	 
	Personal injury and other claims provision
	 	 	93.1	 	 	 	78.6	 
	Workforce reduction provisions
	 	 	43.1	 	 	 	58.1	 
	Other
	 	 	56.5	 	 	 	54.2	 
	 
	 
	 	$	1,034.9	 	 	$	980.8	 
	 

Stock-based compensation

At December 31, 2008, the Company had several stock-based compensation plans, including stock
option plans, a Deferred Share Unit plan (DSU), a Restricted Stock Unit plan (RSU), a Performance
Stock Unit plan (PSU) and an employee stock savings plan. Effective January 1, 2006, the Company
adopted Statement of Financial Accounting Standard 123 Revised 2004 — “Share Based Payment” (“FASB
123R”), on a modified prospective basis for U.S. GAAP purposes. The following additional
disclosures are required under FASB 123R.

Significant assumptions

The Company utilized an estimated forfeiture rate of 2.0% in 2008 (2007 — 2.1%, 2006 — 2.0%) in
determining the fair value of its equity option plans. This rate is monitored on a periodic basis
to ensure that CP does not surpass this estimate. The Company has based this forfeiture rate on
historical information and does not anticipate material changes in future years.

1

 

In assessing the fair value of CP’s equity option plans, the dividend yield is determined by the
current annual dividend by the current stock price. The Company does not employ different dividend
yields throughout the year. The risk free rate utilized in determining fair values is based on the
implied yield available on zero-coupon government issues with an equivalent remaining term at the
time of the grant.

Currently, the Company is not subject to post vesting restrictions on its stock option plans prior
to expiry.

Disclosure of non-vested options

The Company’s non-vested options consist of options granted under the Company’s stock option plan.
A summary of the status of non-vested stock options as at December 31, 2008 and changes during the
year is presented below:

	 	 	 	 	 	 	 	 	 
	 	 	Non-vested options
	 	 	 	 	 	 	Weighted average
	 	 	 	 	 	 	grant date fair
	 	 	Number of options	 	value per option
	 
 
	Outstanding, January 1, 2008
	 	 	2,946,100	 	 	$	12.57	 
	New options granted
	 	 	1,376,600	 	 	 	15.39	 
	Forfeited
	 	 	(39,700	)	 	 	14.01	 
	Vested
	 	 	(1,169,900	)	 	 	11.64	 
	 
	Outstanding, December 31, 2008
	 	 	3,113,100	 	 	$	13.37	 
	 

Aggregate intrinsic value of options outstanding and exercisable

The following table provides the number of stock options outstanding and exercisable as at December
31, 2008 by range of exercise prices and the aggregate intrinsic value for in-the-money stock
options. The aggregate intrinsic value represents the amount that would have been retained by the
option holders had the option holders exercised their options on December 31, 2008 and sold the
related shares at the Company’s closing stock price of $40.98.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Options outstanding	 	Options exercisable
	 	 	 	 	 	 	Aggregate	 	 	 	 	 	Aggregate
	 	 	 	 	 	 	intrinsic	 	 	 	 	 	intrinsic
	Range of	 	 	 	 	 	value in millions	 	 	 	 	 	value in millions
	exercise prices	 	Number of options	 	of Canadian dollars	 	Number of options	 	of Canadian dollars
	 
	$14.07 - $18.06
	 	 	169,750	 	 	$	4.5	 	 	 	169,750	 	 	$	4.5	 
	$27.62 - $40.47
	 	 	2,345,898	 	 	 	22.7	 	 	 	2,335,898	 	 	 	22.7	 
	$42.05 - $62.56
	 	 	3,777,895	 	 	 	—	 	 	 	2,041,295	 	 	 	—	 
	$63.45 - $74.89
	 	 	1,377,600	 	 	 	—	 	 	 	11,100	 	 	 	—	 
	 
	Total
	 	 	7,671,143	 	 	$	27.2	 	 	 	4,558,043	 	 	$	27.2	 
	 

2

 

Options exercised

The following table provides information related to options exercised in the stock option plan
during the years ended December 31, 2008, 2007, and 2006.

	 	 	 	 	 	 	 	 	 	 	 	 	 
	In millions of Canadian dollars	 	2008	 	 	2007	 	 	2006	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Total intrinsic value
	 	$	18.0	 	 	$	31.9	 	 	$	18.2	 
	Cash received by the Company upon exercise of options
	 	 	18.5	 	 	 	26.5	 	 	 	17.0	 
	Related tax benefits realized
	 	 	0.1	 	 	 	0.4	 	 	 	0.8	 
	 

Total fair value of stock option plan shares vested during the year

The following table refers to the total fair value of shares vested for stock option plans during
the year for each of the years ended December 31, 2008, 2007 and 2006:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	In millions of Canadian dollars	 	2008	 	 	2007	 	 	2006	 
	 
	Regular stock option plan
	 	$	10.8	 	 	$	8.8	 	 	$	8.7	 
	Performance stock option plan
	 	 	2.8	 	 	 	12.0	 	 	 	5.0	 
	 
	Total
	 	$	13.6	 	 	$	20.8	 	 	$	13.7	 
	 

Share based liabilities paid

The following table refers to the total share based liabilities paid for each of the years ended
December 31, 2008, 2007 and 2006:

Plan

	 	 	 	 	 	 	 	 	 	 	 	 	 
	In millions of Canadian dollars	 	2008	 	 	2007	 	 	2006	 
	 
	SARs
	 	$	1.8	 	 	$	5.7	 	 	$	2.4	 
	Replacement Options and SARs
	 	 	—	 	 	 	—	 	 	 	0.1	 
	DSU
	 	 	2.4	 	 	 	6.5	 	 	 	1.6	 
	 
	Total
	 	$	4.2	 	 	$	12.2	 	 	$	4.1	 
	 

Capitalized stock compensation

Capitalized compensation expenditures, included as part of the cost of assets, were $nil million in
2008 (2007 — $0.7 million; 2006 — $nil).

3

 

Unrecognized compensation costs

For the fiscal year ended 2008, the unrecognized compensation costs were as follows:

Plan

	 	 	 	 	 	 	 	 	 
	 	 	Unrecognized	 	Weighted average
	 	 	compensation	 	remaining
	In millions of Canadian dollars	 	costs	 	recognition period
	 
	Stock Option Plan
	 	$	9.4	 	 	1.8 years
	SAR
	 	 	1.0	 	 	1.4 years
	RSU
	 	 	0.3	 	 	1.4 years
	DSU
	 	 	0.3	 	 	1.1 years
	 

Stock compensation expense

The total compensation cost charged to income in respect of the Company’s stock-based compensation
plans under U.S. GAAP was a recovery of $30.6 million for the year ended December 31, 2008 (2007
—  expense of $35.4 million; 2006 — expense of $55.1 million).

Income taxes

Deferred income taxes reconciliation

The rate utilized in reconciling income tax expense between the amount computed per the Statement
of Consolidated Income and the applicable statutory federal and provincial income tax rate amounts
to 31.53% for 2008 (2007 — 30.58%; 2006 — 32.95%). This rate is the applicable statutory income
tax rate as enacted by the federal and provincial governments in Canada.

Expiry of tax losses and credits

At December 31, 2008, the Company has income tax operating losses carried forward of $83.9 million,
certain of which will begin to expire in 2015. In addition, the Company has income tax capital
losses carried forward of $99.0 million that do not expire. The Company also has alternative
minimum tax credits of approximately $27.1 million that carry forward indefinitely as well as
investment tax credits of $9.1 million, certain of which will begin to expire in 2013, and track
maintenance credits of $21.0 million which will begin to expire in 2025.

Disclosure of uncertainty in income tax positions

The following table provides a reconciliation of uncertain tax positions in relation to
unrecognized tax benefits for Canada and the United States for the year ended December 31, 2008:

	 	 	 	 	 
	In millions of Canadian dollars	 	2008	 
	 
	Gross unrecognized tax benefits at January 1, 2008
	 	$	79.2	 
	 
	 	 	 	 
	Additions:
	 	 	 	 
	Gross uncertain tax benefits related to the current year
	 	 	9.4	 
	Gross uncertain tax benefits related to prior years
	 	 	4.6	 
	Accrued interest on uncertain tax benefits
	 	 	7.6	 
	 
	 	 	 	 
	Dispositions:
	 	 	 	 
	Gross uncertain tax benefits related to prior years
	 	 	(13.5	)
	Accrued interest on uncertain tax benefits
	 	 	(4.8	)
	 
	Gross unrecognized tax benefits as at December 31, 2008
	 	$	82.5	 
	 
	Net unrecognized tax benefits as at December 31, 2008
	 	$	82.5	 
	 

4

 

As at December 31, 2008, the total amount of gross unrecognized tax positions amounts to $82.5
million prior to the consideration of reductions in relation to the lapse of applicable statute of
limitations between taxation authorities. If these uncertain tax positions were recognized all of
the net amount of unrecognized tax positions as at December 31, 2008 would impact the Company’s
effective tax rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a
component of income tax expense in the Company’s Statement of Consolidated Income. The total
amount of interest and penalties expensed in the 2008 Statement of Consolidated Income amounts to
$2.8 million and $0.5 million, respectively. The total amounts of accrued interest and penalties
recognized in the 2008 Consolidated Balance Sheet were also $2.8 million and $0.5 million,
respectively.

The Company and its subsidiaries are subject to either Canadian federal and provincial income tax,
U.S. federal, state and local income tax, or the relevant income tax in other international
jurisdictions. The Company has substantially concluded all Canadian federal and provincial income
tax matters for the years through 2003. The federal and provincial income tax returns filed for
2004 and subsequent years remain subject to examination by the taxation authorities.

All U.S. federal income tax returns and generally all U.S. state and local income tax returns are
closed to 2004. The income tax returns for 2005 and subsequent years continue to remain subject to
examination by the taxation authorities.

The Company does not anticipate any material changes to the unrecognized tax benefits previously
disclosed within the next 12 months as at December 31, 2008.

Pensions and other benefits

The Pension Committee of the Board of Directors has approved an investment policy that establishes
long-term asset mix targets which take into account the Company’s expected risk tolerances.
Pension plan assets are managed by a suite of independent investment managers, with the allocation
by manager reflecting these asset mix targets. Most of the assets are actively managed with the
objective of outperforming applicable capital market indices. In accordance with the investment
policy, derivative instruments are used to partially hedge foreign currency exposures and to reduce
asset/liability interest rate mismatch risk. The investment policy allows the managers to invest
in securities of the Company or its subsidiaries, subject to prescribed limits.

To develop the expected long-term rate of return assumption used in the calculation of net periodic
benefit cost applicable to the market-related value of assets, the Company considers both its past
experience and future estimates of long-term investment returns, the expected composition of the
plans’ assets as well as the expected long-term market returns in the future. The Company has
elected to use a market-related value of assets, developed from a five-year average of market
values for the plans’ public equity securities (with each prior year’s market value adjusted to the
current date for assumed investment income during the intervening period) plus the market value of
the plans’ fixed income, real estate and infrastructure securities.

The pension obligation is discounted using a discount rate that is a blended interest rate for a
portfolio of high-quality corporate debt instruments that has the same duration as the pension
obligation. The discount rate is determined by management with the aid of third-party actuaries.

Under U.S. GAAP the pension plans’ accumulated benefit obligation as at December 31, 2008 was
$6,706.7 million (2007 — $7,464.2 million).

Total contributions for all of the Company’s defined benefit pension plans are expected to be in
the range of $100 million to $150 million in 2009.

5

 

Estimated future benefit payments

The estimated future pension benefit payments for each of the next five years and the subsequent
five-year period are as follows:

	 	 	 	 	 
	In millions of Canadian dollars	 	Pensions	 
	 
	2009
	 	$	427.4	 
	2010
	 	 	440.6	 
	2011
	 	 	455.9	 
	2012
	 	 	473.3	 
	2013
	 	 	494.0	 
	2014 - 2018
	 	 	2,799.6	 
	 

Components of net periodic benefit cost

The elements of net periodic benefit cost under U.S. GAAP for defined benefit pension plans and
other benefits recognized included the following components:

Pensions under U.S. GAAP

	 	 	 	 	 	 	 	 	 	 	 	 	 
	In millions of Canadian dollars	 	2008	 	 	2007	 	 	2006	 
	 
	Current service cost
	 	$	97.4	 	 	$	97.6	 	 	$	101.9	 
	Interest cost
	 	 	445.2	 	 	 	420.0	 	 	 	400.0	 
	Expected return on plan assets
	 	 	(583.2	)	 	 	(554.2	)	 	 	(526.2	)
	Amortization of transitional obligation
	 	 	—	 	 	 	—	 	 	 	0.6	 
	Amortization of prior service cost
	 	 	31.4	 	 	 	27.6	 	 	 	26.7	 
	Recognized net actuarial loss
	 	 	47.8	 	 	 	65.6	 	 	 	67.3	 
	 
	Net periodic benefit cost
	 	$	38.6	 	 	$	56.6	 	 	$	70.3	 
	 

Other benefits under U.S. GAAP

	 	 	 	 	 	 	 	 	 	 	 	 	 
	In millions of Canadian dollars	 	2008	 	 	2007	 	 	2006	 
	 
	Current service cost
	 	$	16.1	 	 	$	16.8	 	 	$	15.1	 
	Interest cost
	 	 	27.0	 	 	 	26.7	 	 	 	26.6	 
	Expected return on plan assets
	 	 	(0.7	)	 	 	(0.6	)	 	 	(0.6	)
	Amortization of prior service cost
	 	 	(1.5	)	 	 	(1.6	)	 	 	(1.6	)
	Recognized net actuarial loss (gain)
	 	 	(1.9	)	 	 	2.9	 	 	 	4.2	 
	Settlement gain
	 	 	(4.8	)	 	 	(10.7	)	 	 	—	 
	 
	Net periodic benefit cost
	 	$	34.2	 	 	$	33.5	 	 	$	43.7	 
	 

6

 

Amounts recognized in Consolidated Balance Sheet under U.S. GAAP

Under U.S. GAAP, amounts for the Company’s defined benefit plans in the Consolidated Balance Sheet
were as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Pensions	 	 	Other Benefits	 
	In millions of Canadian dollars	 	2008	 	 	2007	 	 	2008	 	 	2007	 
	 
	Current liabilities
	 	$	—	 	 	$	—	 	 	$	37.6	 	 	$	38.4	 
	Non current liabilities
	 	 	949.8	 	 	 	415.3	 	 	 	388.3	 	 	 	440.8	 
	 

Amounts recognized in accumulated other comprehensive income under U.S. GAAP

Under U.S. GAAP, accumulated other comprehensive income includes the following amounts for the
Company’s defined benefit plans:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Pensions	 	 	Other Benefits	 
	In millions of Canadian dollars	 	2008	 	 	2007	 	 	2008	 	 	2007	 
	 
	Net actuarial loss
	 	$	1,722.3	 	 	$	1,139.7	 	 	$	79.5	 	 	$	140.8	 
	Prior service cost
	 	 	193.5	 	 	 	182.8	 	 	 	(6.5	)	 	 	(7.9	)
	Deferred income tax
	 	 	(517.6	)	 	 	(402.8	)	 	 	(20.3	)	 	 	(42.4	)
	 
	Total
	 	$	1,398.2	 	 	$	919.7	 	 	$	52.7	 	 	$	90.5	 
	 

Amounts recognized in other comprehensive income under U.S. GAAP

Under U.S. GAAP, other comprehensive income includes the following amounts for the Company’s
defined benefit plans:

Unfunded pension/minimum pension liability

	 	 	 	 	 	 	 	 	 	 	 	 	 
	In millions of Canadian dollars	 	2008	 	 	2007	 	 	2006	 
	 
	Net actuarial loss arising during the period
	 	$	630.4	 	 	$	269.8	 	 	$	—	 
	Prior service cost arising during the period
	 	 	42.0	 	 	 	22.5	 	 	 	—	 
	Amortization of net actuarial loss included
in net periodic benefit cost
	 	 	(47.8	)	 	 	(65.6	)	 	 	—	 
	Amortization of prior service cost included
in net periodic benefit cost
	 	 	(31.4	)	 	 	(27.6	)	 	 	—	 
	Minimum pension liability adjustment
	 	 	—	 	 	 	—	 	 	 	783.3	 
	Deferred income tax
	 	 	(164.8	)	 	 	(38.7	)	 	 	(275.7	)
	 
	Total
	 	$	428.4	 	 	$	160.4	 	 	$	507.6	 
	 

7

 

Unfunded post-retirement benefits

	 	 	 	 	 	 	 	 	 	 	 	 	 
	In millions of Canadian dollars	 	2008	 	 	2007	 	 	2006	 
	 
	Net actuarial (gain) arising during the period
	 	$	(58.3	)	 	$	(11.3	)	 	$	—	 
	Prior service cost arising during the period
	 	 	—	 	 	 	0.1	 	 	 	—	 
	Amortization of net actuarial loss included
in net periodic benefit cost
	 	 	(3.0	)	 	 	(2.9	)	 	 	—	 
	Amortization of prior service cost included
in net periodic benefit cost
	 	 	1.5	 	 	 	1.6	 	 	 	—	 
	Deferred income tax
	 	 	16.6	 	 	 	3.5	 	 	 	—	 
	 
	Total
	 	$	(43.2	)	 	$	(9.0	)	 	$	—	 
	 

The unamortized actuarial loss and the unamortized prior service cost included in accumulated other
comprehensive income that is expected to be recognized in net periodic benefit cost during 2009 are
$7.7 million and $32.0 million, respectively, for pensions and $3.6 million and a recovery of $1.5
million, respectively, for other post-retirement benefits.

Business combination

Dakota, Minnesota and Eastern Railroad Corporation (“DM&E”) was acquired in October 2007 and is
wholly owned. The purchase was subject to review and approval by the U.S. Surface Transportation
Board (“STB”), during which time the shares of DM&E were placed in a voting trust. The STB
approved the purchase effective on October 30, 2008, at which time the Company assumed control of
DM&E.

The acquisition of DM&E was a strategic expansion of CP’s network. DM&E is connected to the CP
network at Minneapolis, Chicago and Winona. DM&E also has connections to and interchanges with all
seven Class 1 railroads and is proximate to the Powder River Basin, which contains the largest
deposit of low-cost, low sulphur coal in North America. The growing regional franchise of DM&E,
the expansion of CP’s network and the synergies generated from this acquisition supported the
purchase price of $1.5 billion including approximately $163 million for goodwill. The goodwill is
not tax deductible.

U.S. GAAP requires unaudited supplemental pro forma income statement information for the period in
which a material business combination occurs. Material business combinations must be presented, on
a pro forma basis, as if the acquisition had taken place at the beginning of the fiscal period and
the immediately preceding comparative period. Pro forma results are not indicative of actual
results or future performance. The pro forma information presented below assumes this acquisition
took place on January 1, 2008 and 2007, respectively.

	 	 	 	 	 	 	 	 	 
	 	 	2008	 	 	2007	 
	In millions of Canadian dollars, except per share data	 	(unaudited)	 	 	(unaudited)	 
	 
	Pro forma revenue
	 	$	5,227.2	 	 	$	5,016.7	 
	Pro forma net income
	 	$	619.0	 	 	$	976.2	 
	Pro forma basic earnings per share
	 	$	4.03	 	 	$	6.34	 
	Pro forma diluted earnings per share
	 	$	3.98	 	 	$	6.27	 
	 

8

 

Significant equity method investee

The following table represents a summary of significant accounts for the Company’s investment in
DM&E accounted for on an equity basis as at December 31, 2007. As at December 31, 2008 the earnings
and financial position of DM&E were reflected in the results and financial position of the company
on a consolidated basis. Income statement items presented in the following table reflect the
operations in DM&E from the acquisition date of October 4, 2007 to December 31, 2007 and for the
period to October 29, 2008.

	 	 	 	 	 	 	 	 	 
	 	 	Period from January 1	 	Period from October 4
	In millions of Canadian dollars	 	to October 29, 2008	 	to December 31, 2007
	 
	Current assets
	 	 	N/A	 	 	$	177.2	 
	Non-current assets
	 	 	N/A	 	 	 	2,148.2	 
	Current liabilities
	 	 	N/A	 	 	 	168.9	 
	Non-current liabilities
	 	 	N/A	 	 	 	661.4	 
	Revenues
	 	$	295.6	 	 	 	72.0	 
	Revenues less operating expenses
	 	 	86.8	 	 	 	21.6	 
	Net income
	 	 	51.3	 	 	 	12.3	 
	 

Framework for Fair Value Measurement 

The Company adopted the provisions of FASB Statement No. 157 “Fair Value Measurements”, effective
January 1, 2008 and all related FASB Staff Positions published to the date of this report. The
standard establishes a framework for measuring fair value and expands the disclosures about fair
value measurements. The implementation of this standard did not have a material impact on the
consolidated financial statements as the Company’s current policy on accounting for fair value
measurements is consistent with this guidance.

The fair value of financial instruments reflects the Company’s best estimates of market value based
on generally accepted valuation techniques or models and supported by observable market prices and
rates. When such prices are not available, CP incorporates probability weighted discounted cash
flows considering the best available public information regarding market conditions and other
factors that a market participant would consider for such investments. The fair value of financial
instruments, other than derivatives, represents the amounts that would have been received from or
paid to counterparties to settle these instruments at the reporting date.

Fair Value of Financial Instruments

The Company categorizes its financial assets and liabilities measured at fair value into one of
three different levels depending on the observability of the inputs employed in the measurement.
Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2
inputs are directly or indirectly observable inputs other than quoted prices. Level 3 inputs are
unobservable inputs for the asset or liability reflecting our assumptions about pricing by market
participants.

	 	•	 	Level 1: This category includes assets and liabilities measured at fair value based on
unadjusted quoted prices for identical assets and liabilities in active markets that are
accessible at the measurement date. An active market for an asset or liability is
considered to be a market where transactions occur with sufficient frequency and volume to
provide pricing information on an ongoing basis.
	 
	 	•	 	Level 2: This category includes valuations determined using directly or indirectly
observable inputs other than quoted prices included within Level 1. Derivative instruments
in this category are valued using models or other industry standard valuation techniques
derived from observable market data. Such valuation techniques include inputs such as
quoted forward prices, time value, volatility factors and broker quotes that can be
observed or corroborated in the market. Instruments valued using inputs in this category
include non exchange traded derivatives such as over the counter financial forward
contracts, as well as swaps for which observable inputs can be obtained for the entire
duration of the derivative instrument.
	 
	 	•	 	Level 3: This category includes valuations based on inputs which are less observable,
unavailable or where the observable data does not support a significant portion of the
instruments’ fair value. Generally, Level 3

9

 

	 	 	 	valuations are longer dated transactions, occur in less active markets, occur at locations
where pricing information is not available, or have no binding broker quote to support Level
2 classifications.

When possible the estimated fair value is based on quoted market prices, and, if not available,
estimates from third party brokers. For non exchange traded derivatives classified in Levels 2 and
3, the Company uses standard valuation techniques to calculate fair value. These methods include
discounted mark to market for forwards, futures and swaps. Primary inputs to these techniques
include observable market prices (interest, foreign exchange and commodity) and volatility,
depending on the type of derivative and nature of the underlying risk. The Company uses inputs and
data used by willing market participants when valuing derivatives and considers its own credit
default swap spread as well as those of its counterparties in its determination of fair value.
Wherever possible the Company uses observable inputs. Note 11 of the Company’s December 31, 2008
consolidated financial statements provides a detailed analysis of the techniques used to value
third party asset-backed commercial paper (“ABCP”).

The following table presents the Company’s fair value hierarchy for those assets and liabilities
measured at fair value on a recurring basis as at December 31, 2008.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	In millions of Canadian dollars	 	Level 1	 	Level 2	 	Level 3	 	Total
	 
	Financial Assets:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts receivable and other current assets
	 	$	 —	 	 	$	10.4	 	 	$	—	 	 	$	10.4	 
	Investments
	 	 	—	 	 	 	—	 	 	 	72.7	 	 	 	72.7	 
	Other assets and deferred charges
	 	 	—	 	 	 	71.0	 	 	 	—	 	 	 	71.0	 
	 
	Financial Liabilities:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities
	 	 	—	 	 	 	4.6	 	 	 	—	 	 	 	4.6	 
	Deferred liabilities
	 	 	—	 	 	 	67.9	 	 	 	—	 	 	 	67.9	 
	 

Fair value measurements using significant unobservable inputs (Level 3)

Below is a roll-forward of assets and liabilities measured at fair value using Level 3 inputs for
the year ended December 31, 2008. These instruments, related to ABCP, were valued using pricing
models that, in management’s judgment, reflect the assumptions a market place participant would
use.

	 	 	 	 	 
	In millions of Canadian dollars	 	Financial Assets
	 
	Beginning Balance, January 1, 2008
	 	$	122.1	 
	Total losses unrealized, included in earnings
	 	 	(49.4	)
	 
	Closing Balance, December 31, 2008
	 	$	72.7	 
	 

Unrealized losses are reported within the caption “Change in estimated fair value of Canadian third
party asset-backed commercial paper” on the face of the Statement of Consolidated Income. No losses
were realized.

Credit Risk

Entering into derivative financial instruments can result in exposure to credit risk. Credit risk
arises from the possibility that a counterparty will default on its contractual obligations and is
limited to those contracts where the Company would incur a loss in replacing the instrument. The
Company enters into risk management transactions only with institutions that possess investment
grade credit ratings. Credit risk relating to derivative counterparties is mitigated by credit
exposure limits, contractual and collateral requirements, frequent assessment of counterparty
credit ratings and netting arrangements.

Counterparty credit valuation adjustments may be necessary when the market price of an instrument
is not indicative of the fair value due to the credit quality of the counterparty. Generally,
market quotes assume that all counterparties

10

 

have near zero, or low, default rates and have equal credit quality. Therefore, an adjustment may
be necessary to reflect the credit quality of a specific counterparty to determine the fair value
of the instrument. CP monitors the counterparties’ credit ratings and could unwind positions if
their ratings deteriorate. As of December 31, 2008, with the exception of the ABCP, the only
outstanding derivatives were crude oil swaps, interest rate swaps, currency forwards, foreign
exchange contracts on fuel, and a total return swap that are all made with major banks.

Environmental remediation

Environmental remediation accruals cover site-specific remediation programs. Environmental
remediation accruals are measured on an undiscounted basis and are recorded when the costs to
remediate are probable and reasonably estimable. The estimate of the probable costs to be incurred
in the remediation of properties contaminated by past railway use reflects the nature of
contamination at individual sites according to typical activities and scale of operations
conducted. CP has developed remediation strategies for each property based on the nature and
extent of the contamination, as well as the location of the property and surrounding areas that may
be adversely affected by the presence of contaminants, considering available technologies,
treatment and disposal facilities and the acceptability of site-specific plans based on the local
regulatory environment. Site-specific plans range from containment and risk management of the
contaminants through to the removal and treatment of the contaminants and affected soils and ground
water. The details of the estimates reflect the environmental liability at each property.
Provisions for environmental remediation costs are recorded in “Deferred liabilities”, except for
the current portion which is recorded in “Accounts payable and accrued liabilities”, and payments
are expected to be made over 10 years to 2018.

Accruals for environmental remediation may change from time to time as new information about
previously untested sites becomes known. The accruals may also vary as the courts decide legal
proceedings against outside parties responsible for contamination. These potential charges, which
cannot be quantified at this time, are not expected to be material to CP’s financial position, but
may materially affect income in the period in which a charge is recognized. Material increases to
costs would be reflected as increases to “Deferred liabilities” on CP’s Consolidated Balance Sheet
and to “Special charges” within operating expenses on CP’s Statement of Consolidated Income.

Statement of consolidated cash flows

Interest paid, net of amount capitalized

Note 5 to the December 31, 2008 consolidated financial statements discloses the gross interest paid
in each of the years 2008, 2007 and 2006. These amounts include interest paid which the company has
capitalized. Interest paid, net of amounts capitalized, was $265.5 million in 2008 (2007 — $207.8
million, 2006 — $192.8 million).

Income taxes paid

U.S. GAAP requires the disclosure of income taxes paid. Canadian GAAP requires the disclosure of
income tax cash flows, which would include any income taxes recovered during the year. Income
taxes paid were $70.0 million in 2008 (2007 — $18.8 million, 2006 — $58.4 million).

Dividends declared

Dividends declared per share were $0.9900, $0.9000 and $0.7500 in 2008, 2007 and 2006,
respectively.

Non cash investing activities

The Company obtained items of property, plant and equipment under capital lease obligations
totaling $79.5 million (2007 — $12.0 million, 2006 — $21.6 million)

Balance sheet presentation

Authorized and issued common shares

Under U.S. GAAP, the number of authorized and issued common shares as disclosed in Note 20 to the
December 31, 2008 consolidated financial statements would be disclosed on the face of the
Consolidated Balance Sheet.

11

 

Net properties

Under U.S. GAAP, the following disclosure of properties held under capital leases by class of asset
would be included:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2008	 	2007
	 	 	 	 	 	 	Accumulated	 	Net Book	 	 	 	 	 	Accumulated	 	Net Book
	In millions of Canadian dollars	 	Cost	 	Depreciation	 	Value	 	Cost	 	Depreciation	 	Value
	 
	Properties held
under capital
leases
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Rolling Stock
	 	$	604.3	 	 	$	152.6	 	 	$	451.7	 	 	$	501.2	 	 	$	127.1	 	 	$	374.1	 
	Other
	 	 	5.6	 	 	 	1.3	 	 	 	4.3	 	 	 	2.2	 	 	 	0.4	 	 	 	1.8	 
	 
	Total properties
held under capital
leases
	 	$	609.9	 	 	$	153.9	 	 	$	456.0	 	 	$	503.4	 	 	$	127.5	 	 	$	375.9	 
	 

Future
minimum lease rentals

Future minimum lease rentals for leases where the Company is the lessor are expected to be:

	 	 	 	 	 
	In millions of Canadian dollars	 	Future Minimum
Lease Revenue
	 
	2009
	 	$	8.8	 
	2010
	 	 	6.8	 
	2011
	 	 	6.7	 
	2012
	 	 	6.7	 
	2013
	 	 	6.6	 
	Thereafter
	 	 	36.0	 
	 
	Total
	 	$	71.6	 
	 

Presentation of income statement components

Revenues

Revenues are presented net of taxes collected from customers and remitted to governmental
authorities.

Interest expense

Under U.S. GAAP and Regulation S-X, interest expense should not be presented on a net basis on the
face of the Statement of Consolidated Income. This is allowed when there is appropriate disclosure
in the notes to the financial statements under Canadian GAAP as in Note 5 to the December 31, 2008
consolidated financial statements. In addition to the amounts of interest expensed, disclosed in
this note, the Company capitalized interest of $4.5 million in 2008, (2007 — $1.5 million, 2006 — $ nil).
The total interest cost incurred was $274.9 million in 2008 (2007 — $221.1 million, 2006 —
205.5 million).

Rental expense for operating leases

Rental expense for operating leases for the years ended 2008, 2007 and 2006 was $180.8 million,
$200.5 million and $194.0 million, respectively.

12

 

Amortization of discount on accruals

Under U.S. GAAP, amortization of discount on accruals recorded at present value for restructuring
and workers’ compensation totaling $6.4 million in 2008 (2007 — $8.1 million, 2006 — $10.0 million)
should be presented in operating expenses, whereas under Canadian GAAP these expenses are presented
within “Other income and charges”.

Amortization expense for intangible assets

The estimated amortization expense for intangible assets is: 2009 — $2.6 million, 2010 — $1.9
million, 2011 — $1.8 million, 2012 — $1.3 million and 2013 — $1.3 million.

Income before income tax expense and equity income

Regulation S-X requires the
presentation of income
before tax expense and
equity income on the face of
the Statement of
Consolidated Income. In 2008
this totaled $707.9 million
(2007 — $1,078.6 million;
2006 — $906.2
million).

13

 

	 	 	 	 
	 	 	 	 
	 
	 	 	 
	 

	 	 	PricewaterhouseCoopers LLP 

Chartered Accountants

111 5th Avenue SW, Suite 3100

Calgary, Alberta 

Canada T2P 5L3 

Telephone +1 (403) 509 7500 

Facsimile +1 (403) 781 1825

Report of Independent Auditors on

Supplemental United States Generally Accepted Accounting Principles Differences and 

Disclosures

To the Board of Directors of Canadian Pacific Railway Limited

Our audits of the consolidated financial statements and of the effectiveness of internal control
over financial reporting referred to in our report dated February 23, 2009 appearing in the Annual
Report on Form 40-F of Canadian Pacific Railway Limited (the “Company”) for the year ended December
31, 2008 also included an audit of the financial statement schedule, “Supplemental United States
Generally Accepted Accounting Principles Differences and Disclosures” of the Company as at December
31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006 which is included herein
and was prepared pursuant to the disclosure requirements of Item 18 of Form 20-F. In our opinion,
this financial statement schedule, “Supplemental United States Generally Accepted Accounting
Principles Differences and Disclosures” presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated financial statements.

Chartered Accountants

Calgary, Alberta, Canada

February 23, 2009

PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other
member firms of PricewaterhouseCoopers International Limited, each of which is a separate and
independent legal entity.

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